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Trudeau is preparing to test limits of debt-financed spending

By Kait Bolongaro and Theophilos Argitis, Bloomberg News on

Published in News & Features

OTTAWA - Justin Trudeau's COVID-19 support programs gave Canada one of the world's largest budget deficits, and now the prime minister is ready to test public appetite for more red ink.

His Liberal government will likely roll out aspects of its longer-term agenda in a budget update by Finance Minister Chrystia Freeland next month, according to a person familiar with the plans.

The document will mainly focus on updating projections and explaining how the run-up in deficits will be financed, the person said, speaking on condition they not be identified. But the government is also considering funding for some of the initiatives outlined when parliament resumed last month.

Big-ticket priorities in the mix include daycare, pharmacare, the environment, housing and transit, they said.

Trudeau has been hinting he wants to keep the fiscal taps open, and the government's role in the post-pandemic recovery will be the central political debate through the new year. The main opposition Conservatives are already threatening to drag the Bank of Canada into the melee.

"The prime minister laid out that they're going to do whatever it takes and I think Canadians would generally agree with that approach," said Elliot Hughes, a former adviser to Freeland's predecessor, Bill Morneau. "Right now Canadians are supportive, but it'll be interesting to see where we're at in five or six months."

 

Public opinion polling reflects the risks ahead for Trudeau - who lacks a parliamentary majority and requires the support of at least one other party to stay in power.

According to a survey by Nanos Research for Bloomberg News earlier this month, almost 60% of respondents say they are at least "somewhat comfortable" with Trudeau's pledge to continue "supporting people and businesses through this crisis as long as it lasts, whatever it takes." About 40% were either uncomfortable or somewhat uncomfortable.

But stronger divisions emerge over the direction of fiscal policy post-COVID. A separate Nanos poll published by the Globe and Mail newspaper this week found slightly more than one third of Canadians back borrowing to invest in "social and economic priorities" beyond pandemic needs. Nearly 60% said the government should show restraint or only borrow for pandemic purposes.

The opposition is also trying to straddle the difference between the two types of spending. In contrast to the U.S. where lawmakers have been unable to agree on new stimulus measures, the Conservatives supported legislation last month to beef up programs for unemployed Canadians.

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