The Liberal government of Canada is trying to revive the economy
OTO THE next four decades, Canada’s per capita growth is expected to be the lowest OECD, a club mostly made up of wealthy countries. On April 7, Chrystia Freeland, the Minister of Finance, sought to correct this. In presenting the federal budget for the 2022-23 fiscal year, which began April 1, she pledged to tackle the “insidious” problem of weak productivity growth. She paired that with a pledge to reduce debt, which has skyrocketed during the pandemic, in proportion to GDP.
The budget looks like an attempt by the Liberals, in power since 2015, to reclaim their reputation for centrism after years of increased federal spending. Critics say it falls short. It comes as Prime Minister Justin Trudeau’s fortunes improve after a tough time. Police cleared anti-government protesters from the streets of Ottawa, the capital, in February. The recent spike in Canadian export commodity prices should help shield its economy from an expected decline in global growth. In March, Trudeau, who leads a minority government, reached a “confidence and supply” agreement with the left-leaning New Democrats (NDP), which will likely keep him in power until the 2025 election. Opposition Conservatives are concerned about choosing a new leader in a vote due to take place in September.
Ms Freeland also has money to spend, in part because of a post-pandemic economic recovery. It plans to disburse C$9.5 billion ($7.5 billion) over five years, or 0.4% of total spending, for measures to boost housing construction. A 50% rise in house prices over the past two years is one of the main concerns of voters. Construction is expected to double over the next decade. Foreigners, implausibly accused of driving up prices, will be banned from buying homes for two years.
Despite the agreement with the NDP, Ms Freeland “has shown some restraint” in her spending, says Rebekah Young, an economist at Scotiabank. The budget leaves almost nothing aside for a proposal, supported by both parties, to provide universal coverage for the cost of prescription drugs. Debt is expected to fall from 46.5% of GDP last year to 41.5% in 2026-27. But the government should do more to limit deficits “when times are good”, says Ms Young. She argues that the government’s plans to support growth lack “coherent vision”.
Ms. Freeland’s most notable idea is to establish an “arm’s length” Canada Growth Fund. Initially capitalized at C$15 billion, it is expected to attract at least three times as much from the private sector to boost green businesses and exports. The budget lacks measures that would bring in more, such as giving the provinces incentives to eliminate barriers to trade. Ms. Freeland’s quest for growth could have been bolder.
This article appeared in The Americas section of the print edition under the title “Going for growth”