Andrew Lawton and Joe Oliver on Justin Trudeau’s broken balanced budget promise
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Summary
In this episode, former Finance Minister Joe Oliver joins me to talk about the challenges facing Canada's economy and the need for a balanced budget. We discuss the challenges of balancing the books, the effects of high interest rates, and the role of the federal government in stimulating the economy.
Transcript
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And very pleased to be joined by the former Minister of Finance for Canada, the Honourable
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So one of the big themes, and you're talking about this at the Manning Conference this
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year, the idea of really this fiscal situation we find ourselves in in Canada.
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We had a budget that is probably not surprising in an election year, just giving out money
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But one question that I think has come up a lot in political discussions, are the minute
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details that matter to you as a former finance minister, that matter to policy wonks, are
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these things that actually resonate with Canadians, that fiscal health of the country when it
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Well, this is, of course, one of the challenges.
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The problem is, of course, we don't want to be in a crisis, and you have to prevent
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a crisis by being prudent over the longer term.
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And unfortunately, that's not what's happening.
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As you recall, I was, if you're old enough to remember and nostalgic enough to care, I
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was the first one to present a balanced budget in some period of time, and the Liberal government
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coming in made sure that that year's budget turned into a deficit budget.
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The first 11 months were all in surplus, and it totaled about $7.5 billion, and so in the
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last month they put in well over $9 billion to substantiate their pretense that they were
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As you recall, the Liberals said in their platform they would start with a modest $10 billion budget,
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they would never go above that, and then by 2019 they'd be in surplus.
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Of course, right now there have been a series of large, much larger deficits, and there
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The consequences of that can be particularly dire if we encounter a downturn, which of course
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is inevitable and most economists think will happen in the next year or two.
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When that occurs, automatic stabilizers go into operation, which means costs go up, revenue
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is already down because it's a downturn, and then there's a political tendency to stimulate
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even more so that a $20 billion deficit, which is what the current budget envisages, could easily
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So that's when you get into severe problems, and at that point the public will become aware
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In the meantime, the challenge is to tell them what the problems are ongoing.
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And one of the consequences of deficit financing is that your interest payments continue to increase.
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If you combine federal, provincial, and municipal debt, the total interest payment per capita
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That means the average person is paying over $1,700 a year just for interest.
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They're getting nothing for it, but of course it's an obligation.
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So you start $1,700 behind, and of course those who are in the middle class or upper middle
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In addition to that, when you have more government spending, you crowd out the private sector,
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and you inhibit growth, because to the extent you have to pay tens of billions or hundreds
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of billions of dollars in debt, then of course that eats away at growth, which at the end
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of the day reduces revenue to the government, so there's sort of a vicious cycle that comes
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The challenge is to communicate that in a convincing way to the public, which is difficult to do,
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because in a lot of cases they think this is kind of an arcane sort of subject, so you
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somehow have to get it down to a level where they can see how it impacts them, and it's
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Yes, and I think that when you talk about the forecasting here, obviously just last week
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You had a forecasted recession that was impacting and putting a lot of pessimism there, and I
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know that when it comes to stimulating the economy, which is sometimes controversial because
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spending and investing look differently to some people and look the same to others, but
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does the money that Justin Trudeau is pumping into Canada, in his view, through this budget,
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I mean, with what you're seeing in this budget, does this actually stimulate anything?
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They started by saying, you know, we're in a period of slower growth, we've got to stimulate
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Well, you can't indefinitely spend more than you earn and expect that to continually raise
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up the growth rate because the more you do it, the more interest you pay and the more
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They also said, well, it's a period of low interest rates, we need critical infrastructure,
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let's spend it on infrastructure because that has a long-term value.
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The problem is they haven't really been spending it on this kind of infrastructure that would
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have a long-term value, and a lot of it has gone to social spending, however, you know,
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And that creates a problem because it's really a current expenditure, which becomes entrenched.
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So then you have a structural deficit built into your fiscal framework, and it's extraordinarily
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The so-called multiplier effect that they claim they would get out of government spending
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that, you know, if they put in a dollar, it'll generate more, is economically unsound, and
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the Bank of Canada has said that a smaller economy with a floating currency and open trade doesn't
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really benefit from the multiplier effect that the liberal government claims to be in place.
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So I mean, part of it is where they've chosen to spend the money, and part of it is, of course,
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the total amount that they've chosen to spend, and in both cases, they've created longer-term problems.
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And then, of course, there's a moral issue, which is that no family would want to saddle
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their children with debt for expenses they've incurred for their own enjoyment, and no country
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Yeah, and that actually ties into, I think, the very valid point you made at the beginning
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of this, which is that people need to understand that relationship between how the government's
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managing its finances and how a household manages theirs, and no household could be afloat if
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And I guess that's where I get very pessimistic on this, because we went from Justin Trudeau
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saying there's going to be that little tiny deficit that I know the former Prime Minister
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Stephen Harper made fun of, I think, very effectively, and then this has become, okay, you know,
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And now it's not even like they're kicking the can to a particular point.
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And one thing we've seen from, I think, Justin Trudeau and Bill Morneau is this idea that
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when the economy's going well, we can afford to spend, and when the economy's not going
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And I'm waiting for the scenario where no spending is required.
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When you don't, you know, and if it's just moving along, that's a, you know, the Keynesian,
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I mean, Keynes would be rolling in his grave, because, you know, he felt that expenditures
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should be undertaken when there's a downturn, not when you're in a period of growth.
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And let's face it, it's not only Conservatives that have sometimes missed the message.
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In Alberta, when oil was at $100 a barrel, they were spending more than they were earning,
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But on that question, though, of Alberta, I mean, do you think we as a country have
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to move beyond being resource dependent, or do you think we already have from an economic
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Well, from an economic perspective, the bulk, I mean, the oil and gas industry is very
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I mean, oil and gas represents 10% of the GDP, so we're pretty diversified.
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But the tragedy, of course, is that, you know, we're landlocked, and we have no access to
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We're paying an immense discount to the international price when we export our oil and gas to the
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It reached a high of about $40 billion on an annualized basis.
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And there's, I don't know, 150,000 people in Alberta who were formerly employed in the
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There's national security implications and so on.
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And, you know, it's all because we haven't been able to build a pipeline that would transport
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our oil and gas to Tidewater in the east and the west.
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That's one of the structural impediments to more robust growth.
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So, you know, no one is saying that we shouldn't be focusing on technology and manufacturing and
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We've been enormously blessed with the third largest proven oil reserves in the entire world.
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And we are the fourth biggest producer of natural gas in the world.
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You know, we've got 171 billion barrels of proven oil.
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And I think it's 415 trillion cubic feet of natural gas.
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It's because government policy, government regulation and opposition to the development
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of our resources has put an industry on its back, an industry that should be flourishing
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for the benefit not only of Alberta, but the entire country.
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And it's forgotten how much Alberta contributes.
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And, you know, and Quebec is the inverse of that.
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You're killing the goose that laid the golden egg.
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And it's hurting people first in Alberta, but right across the country.
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It's hurting blue-collar workers and the economically disadvantaged.
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And that's why I think it's profoundly immoral.
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One last question then, Joe, and that is on trade.
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I know that it was a point of pride for the government in which you were a part,
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And even ones that weren't as high profile, that were very significant.
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And when you look at, ultimately, the biggest trade deal of Justin Trudeau's premiership,
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which is the replacement to NAFTA, the USMCA, or we're supposed to call it the CMUSA,
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or whatever it is, this deal, is it one that you think will deal with the issues that were in NAFTA?
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Well, first of all, it hasn't been signed in the United States.
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They don't want to give a victory to President Trump,
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but they've got other things that they care about more.
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In the meantime, of course, there's still tariffs on steel and aluminum.
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I think, you know, it wasn't a great deal, but it was better than no deal.
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And, you know, one is that we're going to need permission from the United States
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to enter into a deal with a non-market economy.
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Now, I'm certainly not one to argue that we need to have or should have a free trade deal with China.
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And, of course, the best thing we could possibly do is get the pipelines built
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Just get it to market because there is a strategic complementarity between Canada and China on this issue.
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They want to diversify their sources of supply.
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So it's, you know, and I was there and I spoke actually directly to the President of China, Xi Jinping,
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But after a while, you know, they're not interested anymore because we simply can't deliver.
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I think the trade deal is our right, but we should focus right now as much as we can on trade diversification.
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We don't want to be dependent, quite as dependent.
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But, you know, since Justin Trudeau's father talked about a third way, and, you know, what happened?
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Well, there's been more and more focus on the U.S. market.
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Now, I think 76% of our trade goes to the United States, and it's highly asymmetrical, as we know.