Will Chrystia Freeland’s budget cost too much? These Liberals are worried

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This article was published 05/04/2022 (996 days ago), so information in it may no longer be current.

OTTAWA—When Finance Minister Chrystia Freeland tables Thursday’s federal budget, the Liberals’ first since striking its accord with the New Democrats, she will have to prove to Canadians — and her party — that spending on social programs and economic growth are not at odds.

Indeed, one day after the deal was announced, long-time Liberal MP John McKay told reporters he didn’t “envy” Freeland’s duty to reconcile a multitude of spending concerns.

“This is going to be a fiscally very tight budget,” he said. “She’s got immense challenges.”

The Trudeau government, which has broken the long Liberal tradition of balanced budgets and debt reduction, has repeatedly signalled that Thursday’s budget will continue its turn toward more active government and social spending — and that this approach is essential for a strong economy.

But for some centrist and fiscally conservative Liberals, the budget will be a test of whether the party is still committed to fiscal caution amid mounting global crises and soaring inflation.

In an interview with the Star this week, McKay said that while “demands on the fiscal framework are enormous,” Canada is at an inflection point where it has a “chance to do this right.”

“I would like to see some fiscal guardrails, some guidelines as to both debt-to-GDP, but also the cost of debt servicing. I don’t know what the ratio might be, but pick one you think you can achieve and stick with that goal,” said McKay, who considers himself a member of Paul Martin’s Liberal camp who prioritizes getting “the fiscal house in order” before turning to spending.

“And I just point to things like the Ukrainian war — I don’t think this time last year anybody anticipated the Ukrainian war would happen,” he said. “Any government has to have some cushions built in for unforeseen events. So I’d like to see some fiscal cushions as well.”

Some in the party worry that the government’s confidence and supply agreement with the NDP will mean the Liberals hew too heavily toward spending.

“Undoubtedly yes, I’m hoping to see a signal — I think so too are the business Liberals in the caucus — that we maintain that fiscal balance,” said one Liberal MP who spoke to the Star on the condition they not be named.

On his way into question period on Wednesday, Prime Minister Justin Trudeau hinted that Thursday’s budget would seek to strike a balance, saying it would invest in Canadians and help with the cost of living, while “remaining fiscally responsible and building for the future.”

“But it’s not this budget,” the MP said. “It’s the next three years, as you start to look forward to some of these programs rolling out, at how do we make that sustainable over time as part of the 44th Parliament?”

The MP said they were not alone among their caucus colleagues in expressing concern over spending at a time when the government should be looking at repairing the economic damage wrought by the COVID-19 pandemic.

But the MP also expressed hope that that sentiment would be reflected in this year’s budget.

“Budgets are communication documents about government priorities. Certainly hoping for language that will speak to the economic opportunities that are available in Canada, talking about transition to a low-carbon economy, you know, important things around critical minerals. That’s all going to be important elements.”

One source, who has advised multiple Liberal governments over the past two decades, echoed concerns about a potentially free-spending budget. “I think if (the budget) sounds like the NDP government, it will be significant for the brand of the party. I think it will cause significant damage in the medium to long term,” said the source, who spoke on the condition that they not be named.

“If they show a budget that keeps spending, especially on social programs, with not much real focus on growth … then I think this is what people will look out for.”

The source said the Liberal-NDP pact, which is underpinned by promises to implement national dental care and pharmacare programs, sparked “discomfort” among some within the Liberal caucus and cabinet.

“Growth should be at the top of the agenda, not at the bottom. So I think this is the part where there’s a split right now,” they said. “There’s no one in this government who really pays attention to creating growth. It’s all about giving money away.”

Trudeau and Freeland have both repeatedly made the case that social spending and growth are not necessarily in tension.

However, the source suggested that so-called “blue Liberals” who continue to feel overlooked in Trudeau’s party might well look elsewhere for a home. Conservative leadership hopeful Jean Charest might provide them with one such option, the source said, or they may become political “orphans.”

Liberal MP Nathaniel Erskine-Smith says the Trudeau government has sometimes failed at articulating its dual focus on both social issues and the economy.

“What we want to see in tomorrow’s budget is how the government is going to deliver on the core objectives and core priorities that we promised Canadians in the last election, but doing so in a fiscally sustainable way,” he told the Star.

“That should be our core message,” he said.

Raisa Patel is an Ottawa-based reporter covering federal politics for the Star. Follow her on Twitter: @R_SPatel