Justin Trudeau’s economic promises off to a sluggish start

Trudeau Report Card: When will the government’s economic plans for bigger deficits pay off?

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Prime Minister Justin Trudeau makes an announcement with Ontario Premier Kathleen Wynne, not shown, regarding new funding for transit in Barrie, Ont., on Tuesday, August 23, 2016. (Nathan Denette/CP)

Prime Minister Justin Trudeau makes an announcement with Ontario Premier Kathleen Wynne, not shown, regarding new funding for transit in Barrie, Ont., on Tuesday, August 23, 2016. (Nathan Denette/CP)
Prime Minister Justin Trudeau makes an announcement about new funding for transit in Barrie, Ont., August 23, 2016. (Nathan Denette, CP)

A year after a stunning majority win, Maclean’s adds up the stumbles and successes of Justin Trudeau’s government in our Trudeau Report Card. The hard work of delivering on more than 200 campaign promises—and breaking some along the way—has only just begun. Read our analysis of how the Liberals are handling security, immigration, the economy, and much more in our full Report Card coverage here.

Prime Minister Justin Trudeau stands before a packed room on the 29th floor of a gleaming downtown Toronto skyscraper to celebrate a homecoming of sorts: Thomson Reuters, the global information and technology giant, has just revealed it will expand operations in Canada and add 1,500 new jobs over several years, and that CEO Jim Smith will move to Toronto from New York. (Thomson Reuters is headquartered in Stamford, Conn., but remains legally domiciled in Ontario, where Thomson began life in 1934 as publisher of the Timmins Daily Press). Better yet, wooing Thomson Reuters and its top brass didn’t cost Canadian taxpayers a dime. Rather, Trudeau says the government merely helped smooth the immigration process for “Jim’s big move here to Canada,” as well as for other senior employees.

For Trudeau, the semi-repatriation of a Canadian icon is a chance to demonstrate his economic policies are paying dividends. “We want to put Canada on the map as a global hub for innovation,” he says, after it was revealed Thomson Reuters would set up a technology centre in Toronto to complement its innovation lab in nearby Waterloo. “We want to have good, well-paying jobs for middle-class Canadians and we want to grow our local and national economies.”

If the Harper government’s vision of economic success was balanced budgets and pipelines full of crude oil, Trudeau is striving to foster an economy where future growth is driven by big public infrastructure investments and clever new smartphone apps. The beating heart of the Liberal plan stems from the party’s unorthodox election campaign promise to run deficits as big as $10 billion for the next two fiscal years to help pay for a doubling of federal infrastructure spending to $120 billion over the next decade. It was a bold pitch—one based on the idea, championed by the International Monetary Fund and others, that the world’s central bankers needed help jump-starting a sluggish global economy. In fact, IMF managing director Christine Lagarde recently praised Trudeau’s plans, saying she wished they would “go viral” around the world.

International Monetary Fund (IMF) Managing Director Christine Lagarde holds a news conference after the closing of the G20 Summit in Hangzhou, Zhejiang province, China, September 5, 2016. REUTERS/Stringer ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. EDITORIAL USE ONLY. CHINA OUT. NO COMMERCIAL OR EDITORIAL SALES IN CHINA. - RTX2O6YM
International Monetary Fund (IMF) managing director Christine Lagarde. (REUTERS/Stringer)

Is it working? To be sure, the Trudeau government hasn’t had any problem diving into the red. This year’s federal deficit projection ballooned to nearly $30 billion, in part due to an economy that had deteriorated by the time Trudeau was sworn in. But it’s simply too soon to tell whether the government’s grander vision of using infrastructure—mass transit, border crossings, seaports—to expand Canada’s economic potential will ultimately bear fruit. “They have thrust a lot of irons into the fire and most of them remain there,” says Don Drummond, an adjunct professor at Queen’s University and a former big-bank chief economist. Success will depend on how well Ottawa executes its plan in the years ahead. “Deficits are fine if you can ultimately get back to balance,” adds Drummond. “But that test is a long way off. Infrastructure is fine if it makes economic sense. But will the right projects be selected?”

So far, the first phase of the plan involves spending $11.9 billion over five years to repair and modernize aging infrastructure, and to protect it from climate change. That includes, according to the current budget, $3.4 billion for public transit, $5 billion for water and wastewater facilities and another $3.4 billion on affordable housing, early learning and childcare, and cultural and recreational facilities. The work is important, but it’s not the sort of thing that will transform the Canadian economy. For that, we will have to wait until phase two is unveiled with a promise to build “cost-effective, sustainable, integrated transportation networks” in Canada’s biggest cities, and create “efficient trade corridors that allow Canadian exporters to benefit fully from international trade.”

What’s clear is Canada’s economy hasn’t markedly improved under Trudeau. GDP is expected to grow by just 1.2 per cent this year, according to the IMF. That’s up just slightly from 0.9 per cent in 2015. Craig Alexander, the chief economist at the Conference Board of Canada, says Ottawa’s deficit-spending program is only expected to add about 0.2 to 0.3 per cent annually to GDP growth as long as it’s in place. Beyond that, the success or failure of the program will depend on whether the projects selected actually help to grease the wheels of economic growth. Getting it right is more important than doing it quickly, Alexander says.

That said, Alexander says he’s concerned by the most recent budget projections. Whereas the Liberals originally promised to balance the books by 2019, the most recent budget forecast an $18-billion deficit for that fiscal year and a $14-billion deficit the year following. “The one thing I would like to see in the next budget is more guidance on how long the deficits are going to persist,” he says.

The Trudeau government’s performance is easier to track—at least at first glance—in the realm of taxation. In the March budget, the government made good on its promise to cut the income tax rate to 20.5 per cent from 22 per cent on earnings between $45,282 and $90,563. It also raised taxes on income in excess of $200,000 to 33 per cent, from 29 per cent. The change was a key part of Trudeau’s promise to offer “real help to Canada’s middle class and all those working hard to join it.” But it later came with a caveat: Morneau said in December that raising taxes on upper income earners wouldn’t, as promised, pay for the cuts given to the middle class. As a result, Ottawa is now expecting a $1.2 billion revenue shortfall.

Canadian Prime Minister Justin Trudeau shakes hands with Russell Scarrow as Charlotte and James Farther look on during a visit to a restaurant Wednesday July 20, 2016 in Aylmer, Que. The new Canada Child Benefit starts today. (Adrian Wyld/CP)
Prime Minister Justin Trudeau shakes hands with Russell Scarrow as Charlotte and James Farther look on during a visit to a restaurant in Aylmer, Que. on July 20, 2016.  (Adrian Wyld/CP)

Another proposal adopted by the Trudeau government to put more money in the pockets of the middle class is the Canada Child Benefit. The program replaces the previous Canada Child Tax Benefit, including the National Child Benefit Supplement and the Universal Child Care Benefit, and is touted as simpler and better targeted to the families that need it most. The government also claims 90 per cent of families will receive more under the new system, and that families earning less than $30,000 annually benefit the most. A recent study by the parliamentary budget office found that families will see their average payments increase by $1,858. It also found that the new program will cost more than ones it’s replacing, but that the costs will decline over time because the new system isn’t indexed to inflation. A spokesperson for Jean-Yves Duclos, the minister of families, children and social development, says the government anticipates the changes will lift more than 300,000 children out of poverty by 2017.

With the government estimating more than a million Canadians don’t have enough money for retirement, Trudeau is also claiming victory after B.C. last week agreed to ratify a deal signed earlier this year to expand the Canada Pension Plan. The agreement, inked by nine of the 10 provinces (Quebec manages its own independent pension program, although it may adopt some enhancements of its own), will see employers begin deducting gradually greater sums from their employees’ paycheques over a seven-year period beginning in 2019. That, in turn, will pave the way for bigger pension payouts for retirees down the road—up to one-third their incomes as opposed to the current one-quarter. The upper cap on earnings will also be increased, to $82,700 from $54,900.

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The changes to CPP will no doubt make it easier for many Canadians to meet their retirement goals at a time when private sector employers are dumping their defined-benefit pension schemes. But critics say the government’s tax plan, when viewed holistically, leaves much to be desired. Charles Lammam, the director of fiscal studies at the Fraser Institute, says his calculations show that those middle-income Canadians set to receive a tax break from the federal government will actually see the overall amount of tax they pay increase as a result of additional CPP contributions made by themselves and their employer—even after they deduct a portion of those payments on their income taxes. “They’re not getting that tax break they were promised,” says Lammam, who also takes issue with the wisdom of raising taxes on wealthier Canadians who already face a high rate. “It’s worse even for lower-income Canadians—people below the $45,000 mark. They’re not going to see any personal tax cuts, but now they will be paying more in CPP. They won’t get anything as a result of the government’s tax plan.”

Perhaps the most ambitious economic policy promise made by Trudeau’s government is its vow to boost innovation. Canada’s productivity score—essentially a measure of how much GDP can be produced per capita—has been on the decline for years and lags much of developed world’s, but economists have been at a loss to explain why. Nevertheless, Trudeau says his government’s yet-to-be unveiled innovation agenda will help Canadian companies stay at the forefront of technological change, with the benefits flowing to the middle class instead of the one per cent. In the meantime, Ottawa, in its most recent budget, earmarked $2 billion for university research over the next three years and $800 million for incubators and so-called innovation clusters over the next four years. Experts aren’t holding their breath. “A lot has been tried over the past 30 years, and our productivity performance still sucks,” says Drummond. “And none of [the benefits] have gone to the middle class.”

Back in Toronto, Trudeau jokes about his tax hike on upper income earners. He motions to Smith, the Thomson Reuters CEO and soon-to-be Torontonian. “I don’t think he realized that I just raised taxes on him,” Trudeau says, earning a hearty guffaw from the room. But if Trudeau’s economic policies don’t yield the promised growth—all while saddling taxpayers with giant deficits—the Canadians who voted for him won’t be smiling for very long.


In the bag: The Canada Child Benefit overhauled payments to parents with children, with most receiving bigger monthly cheques.

In progress: Improving innovation is supposed to fix Canada’s poor productivity, but earlier government attempts failed.

In jeopardy: The path back to growth called for small, manageable budget deficits to pay for big, economy-expanding infrastructure projects. So far we’ve got rivers of red ink and not much else.

Maclean’s complete Trudeau Report Card:

OVERVIEW: A bumpy road ahead

ECONOMY: A sluggish start to delivering on promises

ELECTORAL REFORM: A long way from a breakthrough

CLIMATE CHANGE: After flexing muscle, year two will tell

SECURITY AND MILITARY: Lowering expectations

INDIGENOUS PEOPLE: A relationship sours

TOUGHEST TASKS: Immigration, marijuana, home care

LEADERS: The six change influencers to watch in year two