Juno News - Andrew Lawton and Joe Oliver on Justin Trudeau’s broken balanced budget promise

00:00:00.000 And very pleased to be joined by the former Minister of Finance for Canada, the Honourable

00:00:10.080 Joe Oliver.

00:00:11.080 Joe, it's good to see you.

00:00:12.080 Thanks for coming in.

00:00:13.080 Great to be here.

00:00:14.080 So one of the big themes, and you're talking about this at the Manning Conference this

00:00:16.920 year, the idea of really this fiscal situation we find ourselves in in Canada.

00:00:22.560 We had a budget that is probably not surprising in an election year, just giving out money

00:00:27.960 to everyone imaginable from the Liberals.

00:00:30.460 But one question that I think has come up a lot in political discussions, are the minute

00:00:36.720 details that matter to you as a former finance minister, that matter to policy wonks, are

00:00:41.000 these things that actually resonate with Canadians, that fiscal health of the country when it

00:00:45.400 comes to elections?

00:00:46.400 Well, this is, of course, one of the challenges.

00:00:49.400 People do focus when we're in a crisis.

00:00:52.360 The problem is, of course, we don't want to be in a crisis, and you have to prevent

00:00:57.480 a crisis by being prudent over the longer term.

00:01:02.160 And unfortunately, that's not what's happening.

00:01:05.640 As you recall, I was, if you're old enough to remember and nostalgic enough to care, I

00:01:13.520 was the first one to present a balanced budget in some period of time, and the Liberal government

00:01:24.480 coming in made sure that that year's budget turned into a deficit budget.

00:01:31.020 The first 11 months were all in surplus, and it totaled about $7.5 billion, and so in the

00:01:37.020 last month they put in well over $9 billion to substantiate their pretense that they were

00:01:47.260 left with a deficit.

00:01:51.840 As you recall, the Liberals said in their platform they would start with a modest $10 billion budget,

00:02:00.480 they would never go above that, and then by 2019 they'd be in surplus.

00:02:06.520 Of course, right now there have been a series of large, much larger deficits, and there

00:02:13.400 is no balanced budget in sight.

00:02:16.920 The consequences of that can be particularly dire if we encounter a downturn, which of course

00:02:24.040 is inevitable and most economists think will happen in the next year or two.

00:02:28.920 When that occurs, automatic stabilizers go into operation, which means costs go up, revenue

00:02:37.580 is already down because it's a downturn, and then there's a political tendency to stimulate

00:02:43.740 even more so that a $20 billion deficit, which is what the current budget envisages, could easily

00:02:53.580 double or even triple.

00:02:57.040 So that's when you get into severe problems, and at that point the public will become aware

00:03:02.340 of the issue.

00:03:03.840 In the meantime, the challenge is to tell them what the problems are ongoing.

00:03:09.500 And one of the consequences of deficit financing is that your interest payments continue to increase.

00:03:18.380 So right now-

00:03:19.380 And not insignificantly, either.

00:03:20.380 No, not at all, exactly.

00:03:23.600 If you combine federal, provincial, and municipal debt, the total interest payment per capita

00:03:31.380 annually is over $1,700.

00:03:35.520 That means the average person is paying over $1,700 a year just for interest.

00:03:41.380 They're getting nothing for it, but of course it's an obligation.

00:03:45.000 So you start $1,700 behind, and of course those who are in the middle class or upper middle

00:03:51.380 class are paying in effect multiples of that.

00:03:55.880 So there were real consequences.

00:03:57.700 In addition to that, when you have more government spending, you crowd out the private sector,

00:04:04.320 and you inhibit growth, because to the extent you have to pay tens of billions or hundreds

00:04:12.180 of billions of dollars in debt, then of course that eats away at growth, which at the end

00:04:19.840 of the day reduces revenue to the government, so there's sort of a vicious cycle that comes

00:04:27.700 into play.

00:04:30.140 The challenge is to communicate that in a convincing way to the public, which is difficult to do,

00:04:42.020 because in a lot of cases they think this is kind of an arcane sort of subject, so you

00:04:46.300 somehow have to get it down to a level where they can see how it impacts them, and it's

00:04:56.120 a continuing challenge.

00:04:57.120 Yes, and I think that when you talk about the forecasting here, obviously just last week

00:05:02.500 we had a very negative day for markets.

00:05:04.240 You had a forecasted recession that was impacting and putting a lot of pessimism there, and I

00:05:09.880 know that when it comes to stimulating the economy, which is sometimes controversial because

00:05:15.060 spending and investing look differently to some people and look the same to others, but

00:05:19.780 does the money that Justin Trudeau is pumping into Canada, in his view, through this budget,

00:05:25.080 does that help the economy in any way?

00:05:27.460 I mean, with what you're seeing in this budget, does this actually stimulate anything?

00:05:31.460 Well, you see, this is the issue.

00:05:33.600 They started by saying, you know, we're in a period of slower growth, we've got to stimulate

00:05:38.160 the economy to raise that.

00:05:41.460 Well, you can't indefinitely spend more than you earn and expect that to continually raise

00:05:50.040 up the growth rate because the more you do it, the more interest you pay and the more

00:05:54.340 it has the opposite effect.

00:05:59.920 So they started by saying that.

00:06:01.320 They also said, well, it's a period of low interest rates, we need critical infrastructure,

00:06:07.680 let's spend it on infrastructure because that has a long-term value.

00:06:12.080 The problem is they haven't really been spending it on this kind of infrastructure that would

00:06:16.800 have a long-term value, and a lot of it has gone to social spending, however, you know,

00:06:21.680 they've chosen to name it.

00:06:24.080 And that creates a problem because it's really a current expenditure, which becomes entrenched.

00:06:30.300 So then you have a structural deficit built into your fiscal framework, and it's extraordinarily

00:06:39.140 difficult to escape from that.

00:06:42.700 So you get yourself into a trap.

00:06:49.340 The so-called multiplier effect that they claim they would get out of government spending

00:06:56.300 that, you know, if they put in a dollar, it'll generate more, is economically unsound, and

00:07:01.060 the Bank of Canada has said that a smaller economy with a floating currency and open trade doesn't

00:07:14.340 really benefit from the multiplier effect that the liberal government claims to be in place.

00:07:24.900 So I mean, part of it is where they've chosen to spend the money, and part of it is, of course,

00:07:30.360 the total amount that they've chosen to spend, and in both cases, they've created longer-term problems.

00:07:36.600 And then, of course, there's a moral issue, which is that no family would want to saddle 0.98

00:07:43.360 their children with debt for expenses they've incurred for their own enjoyment, and no country

00:07:50.800 should either.

00:07:51.800 Yeah, and that actually ties into, I think, the very valid point you made at the beginning

00:07:56.540 of this, which is that people need to understand that relationship between how the government's

00:08:01.700 managing its finances and how a household manages theirs, and no household could be afloat if

00:08:06.700 they ran things the way the government is.

00:08:09.380 And I guess that's where I get very pessimistic on this, because we went from Justin Trudeau

00:08:14.760 saying there's going to be that little tiny deficit that I know the former Prime Minister

00:08:17.820 Stephen Harper made fun of, I think, very effectively, and then this has become, okay, you know,

00:08:22.500 in four years.

00:08:23.680 And now it's not even like they're kicking the can to a particular point.

00:08:26.940 It's that this honestly is not a priority.

00:08:29.560 And one thing we've seen from, I think, Justin Trudeau and Bill Morneau is this idea that

00:08:34.020 when the economy's going well, we can afford to spend, and when the economy's not going

00:08:38.520 well, we need to spend.

00:08:40.240 And I'm waiting for the scenario where no spending is required.

00:08:43.380 When you don't, you know, and if it's just moving along, that's a, you know, the Keynesian,

00:08:51.000 I mean, Keynes would be rolling in his grave, because, you know, he felt that expenditures

00:08:55.200 should be undertaken when there's a downturn, not when you're in a period of growth.

00:09:01.480 And let's face it, it's not only Conservatives that have sometimes missed the message.

00:09:07.300 In Alberta, when oil was at $100 a barrel, they were spending more than they were earning,

00:09:14.120 and now they're paying dearly for that.

00:09:18.200 There are a whole host of other issues.

00:09:19.880 But on that question, though, of Alberta, I mean, do you think we as a country have

00:09:25.680 to move beyond being resource dependent, or do you think we already have from an economic

00:09:30.260 perspective?

00:09:31.160 Well, from an economic perspective, the bulk, I mean, the oil and gas industry is very

00:09:36.320 important, but it isn't the bulk of our GDP.

00:09:40.840 I mean, oil and gas represents 10% of the GDP, so we're pretty diversified.

00:09:45.960 But the tragedy, of course, is that, you know, we're landlocked, and we have no access to

00:09:52.760 overseas market.

00:09:53.640 We're paying an immense discount to the international price when we export our oil and gas to the

00:10:02.200 United States.

00:10:02.920 It's averaged about $15 billion a year.

00:10:05.080 It reached a high of about $40 billion on an annualized basis.

00:10:09.640 And there's, I don't know, 150,000 people in Alberta who were formerly employed in the

00:10:17.400 oil and gas industry who were unemployed.

00:10:20.280 So this is a very serious issue.

00:10:23.200 There's national security implications and so on.

00:10:26.500 And, you know, it's all because we haven't been able to build a pipeline that would transport

00:10:32.840 our oil and gas to Tidewater in the east and the west.

00:10:36.320 That's one of the structural impediments to more robust growth.

00:10:43.680 So, you know, no one is saying that we shouldn't be focusing on technology and manufacturing and

00:10:52.040 so on.

00:10:52.420 But here we've got these resources.

00:10:54.720 We've been enormously blessed with the third largest proven oil reserves in the entire world.

00:11:01.240 And we are the fourth biggest producer of natural gas in the world.

00:11:08.260 You know, we've got 171 billion barrels of proven oil.

00:11:13.300 And I think it's 415 trillion cubic feet of natural gas.

00:11:18.640 And yet our industry is on its back.

00:11:20.880 Well, why is that?

00:11:21.840 We know why.

00:11:22.560 It's because government policy, government regulation and opposition to the development

00:11:29.240 of our resources has put an industry on its back, an industry that should be flourishing

00:11:34.900 for the benefit not only of Alberta, but the entire country.

00:11:39.160 And it's forgotten how much Alberta contributes.

00:11:45.260 Like it's $20 billion more than they receive.

00:11:49.480 And, you know, and Quebec is the inverse of that.

00:11:56.380 And, you know, that's really unfortunate.

00:11:59.520 You're killing the goose that laid the golden egg.

00:12:02.500 And it's hurting people.

00:12:05.180 And it's hurting people first in Alberta, but right across the country.

00:12:09.540 And who's it hurting the most?

00:12:10.760 It's hurting blue-collar workers and the economically disadvantaged.

00:12:16.820 And that's why I think it's profoundly immoral.

00:12:20.780 One last question then, Joe, and that is on trade.

00:12:23.920 I know that it was a point of pride for the government in which you were a part,

00:12:27.220 all of the trade deals that were ranked.

00:12:29.060 Yeah, over 50.

00:12:29.940 And even ones that weren't as high profile, that were very significant.

00:12:33.600 And when you look at, ultimately, the biggest trade deal of Justin Trudeau's premiership,

00:12:39.120 which is the replacement to NAFTA, the USMCA, or we're supposed to call it the CMUSA,

00:12:44.580 or whatever it is, this deal, is it one that you think will deal with the issues that were in NAFTA?

00:12:52.580 Well, first of all, it hasn't been signed in the United States.

00:12:56.820 And, you know, it may not be for some time.

00:13:00.580 It's not a high priority for Congress.

00:13:03.900 The Democrats put it in the back drawer.

00:13:07.820 They don't want to give a victory to President Trump,

00:13:11.760 but they've got other things that they care about more.

00:13:14.500 And so that's a real concern.

00:13:17.980 In the meantime, of course, there's still tariffs on steel and aluminum.

00:13:23.420 I think, you know, it wasn't a great deal, but it was better than no deal.

00:13:31.200 And hopefully we won't have no deal.

00:13:34.600 There are a few problematic aspects to it.

00:13:39.180 And, you know, one is that we're going to need permission from the United States

00:13:45.420 to enter into a deal with a non-market economy.

00:13:50.620 Now, I'm certainly not one to argue that we need to have or should have a free trade deal with China.

00:13:58.980 I think we should do it on a sectoral basis.

00:14:01.280 And, of course, the best thing we could possibly do is get the pipelines built

00:14:06.320 and start transporting our oil to China.

00:14:09.960 There's no compromise needed in that regard.

00:14:13.840 Just get it to market.

00:14:14.740 Just get it to market because there is a strategic complementarity between Canada and China on this issue.

00:14:22.340 We want to diversify our markets.

00:14:25.560 They want to diversify their sources of supply.

00:14:29.160 So it's, you know, and I was there and I spoke actually directly to the President of China, Xi Jinping,

00:14:36.900 and that was his view as well.

00:14:39.000 I mean, it's obviously the case.

00:14:40.540 But after a while, you know, they're not interested anymore because we simply can't deliver.

00:14:47.860 I think the trade deal is our right, but we should focus right now as much as we can on trade diversification.

00:15:00.620 We don't want to be dependent, quite as dependent.

00:15:03.800 I mean, this is a very old story.

00:15:05.260 But, you know, since Justin Trudeau's father talked about a third way, and, you know, what happened?

00:15:14.020 Well, there's been more and more focus on the U.S. market.

00:15:19.440 Now, I think 76% of our trade goes to the United States, and it's highly asymmetrical, as we know.

00:15:30.860 Former Federal Finance Minister Joe Oliver.

00:15:32.940 Joe, thank you very much for your time.

00:15:34.180 Great to chat.

Juno News - April 07, 2019

Andrew Lawton and Joe Oliver on Justin Trudeau’s broken balanced budget promise

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