The Trudeau government’s inconsistent commitment to fiscal prudence is beginning to trouble some members of the Liberal family, and not just the prime minister’s vocal foes. Freeland’s predecessor, Bill Morneau, cautioned his former colleagues against growing overly ambitious with new goals and programs, given the lack of fiscal capacity and a recession looming on the horizon.

“We can’t deal with all of those (priorities) without having some restraint in some places,” Morneau said at an event at Toronto Metropolitan University on Jan. 24. “We need to have targets of what we want to do fiscally, we need to decide places where we’re going to play in, places where we’re not going to play.”

Dodge’s bullet
If Morneau was a lone voice, he might be easy for Prime Minister Justin Trudeau to dismiss. Morneau is promoting a book that is critical of his former boss, and he resigned amid an ethics scandal in the summer of 2020. He’s a flawed critic.

But Morneau has backup. Former Bank of Canada governor David Dodge, a respected voice in policy circles, also argued that there were growing risks to the economic outlook that could throw the government’s finely laid path back to balance off track.
Dodge, who was deputy finance minister when Jean Chrétien’s Liberal government ended a generation of budget deficits in the mid-1990s, released a report that concluded that Ottawa’s fiscal balance was unsustainable over the next decade, as both debt as percentage of GDP and interest charges as a percentage of revenue were on track to reach dangerous levels.

“Clearly, the ballooned levels of debt and deficits in (fiscal year) 2021-22 that resulted mainly from spending increases in 2020 are unlikely to be sustainable,” Dodge, now senior advisor for law firm Bennett Jones LLP, wrote in the report. “Action to restore a sustainable balance between revenue and expenditure was, and continues to be, required.”

While Dodge sees the debt-to-GDP ratio reaching pre-COVID levels in his base case scenario, he and his team pointed to risks like increased fiscal spending, a recession, continued supply constraints — or a combination of all of these risks. Dodge authored the report alongside fellow Bennett Jones adviser Richard Dion. They collaborated with Robert Asselin of the Business Council of Canada, who used to advise Morneau.

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