The Battle of Bill Morneau

Canada’s federal finance minister on his catastrophic autumn, what went wrong and how he’s fighting back

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Minister Bill Morneau announces changes to the small business tax rate at Pastaggio Italian Eatery in Stouffville. October 16, 2017. (Adam Scotti/PMO)

Federal Finance Minister Bill Morneau
Minister Bill Morneau announcing changes to the small business tax rate at Pastaggio Italian Eatery in Stouffville, Ont., October 16, 2017. (Adam Scotti/PMO)

Jet Fuel Coffee on Parliament Street in Toronto is a shotgun shack, long and narrow, with almost all the action concentrated at the bar just inside the front door. Farther back there’s a second room where patrons who aren’t in a rush, which is almost none of them, can sip their caffeine at leisure. A man in that quiet room, facing away from the front door, can sit unnoticed for most of an hour, talking with a visitor about how his year has gone. On a recent Friday morning, that man was Bill Morneau.

“So how have the last five months been?” the finance minister said, repeating my question. “Well, there’ve been fun days.”

Morneau is 55, the same age Paul Martin was when he became finance minister and only two years younger than Jim Flaherty when he got the job. But even after all he’s been through, he looks much younger than his predecessors, as though he could have been seconded to carry their papers. Trim, athletic and casual in a cashmere blazer as soft as butter, open-necked dress shirt and chinos, he was nursing a head cold and trying to make sense of the chaotic days since July.

July was when he announced a series of changes to the tax treatment of small businesses and provoked an outburst of taxpayer wrath he didn’t foresee.

“I mean, there’ve absolutely been a few really frustrating periods, as you can imagine.” One can indeed. By the time Parliament finally rose in mid-December, Morneau had been fined $200 by Mary Dawson, the ethics commissioner, for failing to report the corporation he had set up in France to run his private villa there. The Conservative opposition was calling for his resignation. Much of the country saw him as a rich guy launching an inexplicable attack on the plucky mom-and-pop businesses that made Canada great.

How did that happen? Listening to him, it became clear Morneau hasn’t entirely digested the experience. “I guess I sort of look at it as two distinct things.” By “things,” he meant two distinct periods. An early period, fairly smooth, and a later period, pretty hellish.

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“The first thing is our introduction of the tax changes.” The changes had been coming for a while. As early as the 2015 campaign, Justin Trudeau told the CBC that “a large percentage of small businesses are actually just ways for wealthier Canadians to save on their taxes.” He promised “a little tweaking… around that.” By the time Morneau delivered the 2017 budget in March, the big budget book contained half a page on the topic of “tax planning using private corporations.” The government would be laying out “proposed policy responses soon,” the budget document said.

And in a May speech at the Toronto Board of Trade, Morneau sounded positively eager for what he was getting himself into. “In the coming weeks, our government intends to release a discussion paper looking at these tax planning schemes in more detail,” he said then. “That’s sure to create some debate. That’s good. That’s what I’m after.”

So the minister and his boss had fired three warning shots, and not a lot of people had reacted at all. It looked like clear sailing. “And then,” Morneau said, “we announced the changes in July. And that actually went off quite well. People sort of accepted what we were trying to achieve. We’d telegraphed it a long way in advance.”

And then?

“And then there was just a tsunami of concerns from a collection of different constituents that, frankly, we didn’t prepare for as adequately as we should have.”

As Morneau spoke, the sound system at Jet Fuel Coffee—big, powerful speakers that make the place sound more like a nightclub than a coffee joint—began playing Johnny Cash’s 2002 cover of a Nine Inch Nails song. “I hurt myself today, to see if I still feel; I focus on the pain, the only thing that’s real.”

MORE: Why Shepell is not happy with Morneau

He had warned the Liberal caucus in June, he said, and they didn’t tell him not to proceed. He told Trudeau a little later. They were on a flight somewhere. “I said, ‘We’re prepared, right? Because this is going to be challenging when we do this.’ And he was absolutely on board for the challenge.

“And then, honestly, I think what happened was, it went better than expected when we initially rolled it out.” So Morneau and his staff got complacent. This is credible. Complacency has stalked this Liberal government since its election, and in some ways it’s been richly earned. So many things that looked like trouble at first for Trudeau and his charges turned out not to be much trouble at all. Admitting they would run bigger deficits than they had promised in the campaign. Passing assisted-dying legislation and a reform to public pensions. Getting every province to accept a new health care funding arrangement the provinces had unanimously rejected as too miserly the first time they heard it. So many crises averted. Maybe the tax changes would be a cinch too.

“And once the strong pushback came, we weren’t leaning forward. And it just got away from us. And the strength of the concerns was such that it was very hard for us to get back into the discussion.”

Federal Finance Minister Bill Morneau with a sign that reads “Cutting taxes for small business”
Finance Minister Bill Morneau looks on as Prime Minister Justin Trudeau speaks to members of the media at a press conference in Stouffville, Ont., on Monday, October 16, 2017. (Nathan Denette/CP)

At times it was painful to watch. At a town hall-style listening session in Oakville, Ont., on Sept. 29, the event’s nominal host, Democratic Institutions Minister Karina Gould, had to plead repeatedly for silence while several people in the audience heckled Morneau.

Morneau ran for public office for the first time in 2015 in Toronto Centre, a riding where just about no politician ever gets a rough ride and where the winners for most of Morneau’s lifetime have been a succession of clubbable Liberals—Donald Macdonald, Bill Graham, Bob Rae—leavened by the odd Albany Club Tory, temperamentally indistinguishable from the Liberals they replaced.

He learned few political lessons on his way to Ottawa and found himself in a caucus of rookies where few of his colleagues had much to teach him. Watching video of the Oakville town hall, what’s clearest is how few political chops Morneau has. You can see him deciding he needs to push back, but all that comes out of his mouth is the corporate jargon he refined into a highly lucrative art as CEO of the rapidly expanding human resources company Morneau Shepell in the ’90s and 2000s.

“I will tell you that we have looked at the system and concluded that some of the dynamics in the system are not what was intended,” he tells the Oakville crowd. “So—” Angry shouts shut him down.

“I hear you that some of you are not in, in, in agreement with some of what we’re doing,” he stammers. “We are trying to listen to the impacts on businesses, to try to make sure they continue to have an incentive to invest.”

More shouts. A few in the crowd try to push back on Morneau’s behalf. “Why don’t we let the minister speak, people. You all had your opportunity!” “Let’s have some respect.” “Please let the minister speak.” But the day is already pretty much a write-off.

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Seventeen days later, Morneau kicked off a series of events to announce a package of measures designed to mollify outraged small business owners: Accelerated cuts to the small-business tax rate; indexing of the Canada Child Benefit; an increase to the Working Income Tax Benefit.

“Hindsight, now, we look back and say we should have been articulating, from the very first day, what the benefits would have been,” Morneau said at Jet Fuel Coffee, summing up his experience. “What we didn’t do, we didn’t say to the people in this coffee shop, ‘The reason we’re doing it is because in the end this is going to allow us to do some other things.’ To do the indexation of the CCB, or to do the WITB. To do the things we knew we were going to end up doing.”

What about the part where Pierre Poilievre, the indefatigable Conservative finance critic, spent months calling Morneau a rich guy who doesn’t want to do a thing about his own advantages?

“The whole discussion about my personal finances—from day one, I thought this was entirely an opposition tactic,” Morneau said. “But they grabbed the megaphone because it’s complicated, because I didn’t have a way to articulate exactly what the answer was.”

At about this point, Morneau plainly decided he had indulged in enough introspection. The Johnny Cash song was over.

“So it wasn’t fun every day. But for me, honestly, you’ve always got to come back and say, ‘So why did you get into this adventure?’ And I got into this adventure because I thought there were big things that I could be a part of doing. And here we are now, two years in, where the stuff we’ve done, in my estimation—and I think the evidence is absolutely supportive of this—is having a really big impact. And frankly, even bigger, sooner, than we expected it was going to have.

“I’d still do this. I’d come back and do this again and again. It’s worth it. But it’s hard.”

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Did anyone on his staff, or in the Prime Minister’s Office, lean forward while he was preparing to announce all these small-business tax measures and say, “Hey minister, you’re a rich guy, and that’s going to make you a target?” Did anyone tell him his biography should be a concern?

“I think my biography was the reason I was a candidate for the job. Think back to my biography. I’m the guy who went into a family business in 1990 that had a couple of hundred employees. And who absolutely, from day one, thought about the really long term.”

It’s true that Morneau Shepell was a far bigger firm by the time Morneau left it than when he started. It’s also true that he and his wife, Nancy McCain, heiress of the frozen-food clan, are long-time regulars on the philanthropic circuit in Toronto. “And if you’re going to be successful, which is sort of a card for doing the kind of job I’m doing, what did you do with the success? Did you buy a Ferrari or did you spend your time on doing stuff that you thought was going to make a difference?”

So the whole thing about being rich? “We didn’t sit around and say anything about this as a negative. We saw it as a positive.”

That’s great, except the opposition saw it as a negative, and they used it to ring Morneau’s bells for Q3 and Q4 of 2017. So maybe instead of reminding himself what a great life story he’s lived, he could have spotted the openings it provided to his opponents.

What’s it like to take a question in the House of Commons, I asked. It was a leading question. Even when the questions were easier, it was clear Morneau was not a big fan of the daily 45-minute hot-seat session.

“Well,” he said, “I find Question Period to be, uh, Question Period. It’s more about the questioner than it is about the answers. Because clearly the opposition is trying to use it as their space to create friction, to create noise, to make it interesting for journalists as opposed to trying to illuminate an issue or really advance the cause of making the country better.”

Sometimes he is accused of sounding bitter. He sounded like he was catching himself sounding bitter. “That’s not to denigrate what the opposition is doing. That’s just their role. They’re the opposition. So for me, what that means is, my job is not to react in a way that adds gasoline to the fire. It’s to answer the question in a respectful way, but to understand the dynamics.”

If their job is to create noise, they had a good fall, I said.

“Oh really, do you think?”

I laughed. Morneau persisted.

“No, seriously, do you think? Because look at the outcome. I mean, if you look at what’s happened over the course of the fall, we’ve done something we said we were going to do, which is to look at some tax issues we felt were advantaging a small subset of the population. And from 30,000 feet, we’re doing exactly what we said we were going to do. And the math is going to be very easy for people to understand in the budget. They’re going to be able to see that the tax changes that have been made will fund the increase in the Canada Child Benefit and the Working Income Tax Benefit and the small-business tax cut. Not dollar for dollar, but very close. And I think people are going to say, ‘Okay, now I get it.’

“They’ve wasted a lot of precious time on things that are meant to distract. That’s not actually helpful to them. If they’re doing that because they don’t have anything else to say, I don’t know, it doesn’t feel like it’s working. And certainly the by-election results don’t suggest it’s working.”

The results in question were from four by-elections on Dec. 11: two Liberal holds, a Conservative hold and a British Columbia seat the Liberals took from the Conservatives. Out of 12 by-elections since the 2015 elections, the only ridings to change seats were two that had been Conservative but have gone Liberal. This is the story Liberals tell themselves these days. I heard it from a backbencher on Sparks Street the day before Morneau recited it: The opposition is loud and the opinion columns are vexed, but if the people have had enough of Morneau or of the Trudeau Liberals more generally, they have a funny way of showing it.

Federal Finance Minister Bill Morneau with Prime Minister Justin Trudeau
Morneau and Prime Minister Justin Trudeau carry copies of the 2017 Federal Budget on Parliament Hill, March 22, 2017. (David Kawai/Bloomberg/Getty Images)

Meanwhile, Morneau works on the next budget. His cabinet colleagues spent October sending him formal letters with their budget requests. November was devoted to evaluating those requests, along with hundreds of others from stakeholders. Morneau’s first formal meeting with Trudeau to discuss the broad outline of the budget was on Dec.14, the day before I met Morneau at Jet Fuel.

His main goal when he became finance minister was to increase economic growth, at more or less the precise moment—now—when an aging population would tend to slow growth down. So far his luck has held. “I look at five indicators,” Morneau said, ticking them off with his fingers. “Global growth is better than we expected.” That was one. “Housing is fuelling our economy even more than we expected.” Two. “The stuff we did, the Canada Child Benefit, that’s still impacting the economy and we’ve got disposable income growth.” Three. The Canada Child Benefit was designed to be spent, and that’s what’s happening to it, in large part. “The rebound in Alberta is going a little better than we expected.” Four. “And then obviously we’ve still got stimulative interest rates.” Five.

Not that Morneau is getting clapped on the back by a grateful nation everywhere he goes. As we left Jet Fuel, a guy at the coffee bar grabbed Morneau’s hand, shook it harder and longer than courtesy dictated, and leaned in to tell the minister something.

“He wanted to take the photo for our budget cover,” Morneau said ruefully once he had escaped to the sidewalk. “Said he could save us a lot of money.” This was over an October story in Blacklock’s Reporter, an Ottawa news website, that said Morneau’s department had spent $212,234 on “artistic themes” for the 2017 budget. Morneau had explained that the money had gone to pay for a lot more than the budget document’s cover photo. The guy at the coffee bar had not been particularly mollified. “It’s funny what people remember,” Morneau said.

On this particular day, the theme of Morneau’s pre-budget consultations was science. Morneau has been saying science will be one of the themes in his spring budget, along with improving women’s economic success and preparing workers for a fast-changing job market.

In some ways, with whatever they end up doing on science funding, the Liberals hope to get some natural allies off their back. Science researchers and university administrators have surprised the Trudeau government by complaining all year about stagnant funding for the big federal granting councils that pay for much of the country’s basic research. Declining funding per researcher is a trend line the Liberals inherited from their Conservative predecessors, but so far they haven’t done much to change it. In April, a report commissioned by Morneau’s colleague Kirsty Duncan, the science minister, called for federal funding to the granting councils to increase over four years until it’s $1.3 billion higher than today.

The report’s author was David Naylor, a glowering former president of the University of Toronto who was a national leader on higher-education issues when he led that institution. He has spent the year since April rallying support for his funding demands. The response from federal Liberals has been an elevated level of annoyance. If scientists don’t love Liberals unconditionally, who will? Naylor’s report is asking for a lot, one of Morneau’s staffers told me later: $1.3 billion is almost as much as the total amount of new spending Morneau announced in his 2017 budget for everything the government does. (It’s not an entirely fair comparison. The 2016 budget had so much new spending in it, after a Conservative decade in power, it was like a fire sale in a candy factory. The reason new spending was so low in 2017 was that the previous year’s budget had already accounted for years of new spending.)

Federal Finance Minister Bill Morneau at his constituency office
Bill Morneau having lunch with his constituency office staff. (Yasin Osman)

But Morneau can’t simply ignore a report that has backing from just about every university in the country. So after a preliminary meeting with Naylor in the autumn, he’d invited him back for some follow-up. When Morneau arrived at his riding office from the café, Naylor was sitting in the office’s compact boardroom.

The two men have known each other for years. Naylor took one look at the cold-bedraggled minister. “Are you sleeping as much as you used to?”

No, Morneau admitted.

“Are you exercising?”

Not a lot, Morneau said.

Naylor was a physician before he got into the administration racket. He slipped easily into his old role. “You need a routine of early-morning exercise,” he admonished Morneau gently. “You need to exasperate the catecholamines and have enough fatigue built up at night so you can sleep.”

I had agreed in advance not to report the substantive contents of the meeting, but Naylor gave Morneau a stern talking-to. At the end, Morneau thanked Naylor for his time with a chilly cordiality that made his visitor laugh out loud.

“He’s not much of a backslapper,” a Morneau adviser told me later. “Not much for small talk,” another agreed.

If anything, this makes Morneau relatively appealing among Trudeau ministers. Covering Justin Trudeau’s cabinet can be like finding yourself snowed in at a ski lodge with a touring production of Up With People: the non-stop cheerfulness and five-alarm groupthink can be wearying. Morneau stands a little distant from his colleagues and, indeed, from most other people in a room. He keeps his counsel.

To some extent, that introversion, with gusts to caginess, came close to ruining him in the autumn: When the time came to tell his side of a story his opponents had effectively personalized, he had no instinct for a heart-tugging yarn. But in the cockpit during the budget crunch, his detachment probably keeps him sane.

By the time he delivered his first budget in 2016, he said, his cabinet colleagues’ spending requests had outspent the available money by 15 to one. Last year they had it down to eight to one. This year they’re still closer to making real-world requests, he said. But theirs aren’t the only demands on a finance minister’s purse. The Commons finance committee hears from dozens of groups. Lobbyists and professional associations have meetings with Morneau’s staff all the time. In long meetings with bureaucrats from the finance department, Morneau’s staff has been busy deciding which requests they can actually accommodate.

“You want to do everything,” Morneau told me, “but you can’t.”

He will—barring a truly astonishing decision by the Prime Minister to hoist him from the finance minister’s job near the end of a budget cycle—get his next big chance when he delivers his third budget this spring. There’s no doubt that Morneau is, by now, seriously damaged political goods. But everyone gets damaged in politics at some point. It’s a cruel business. The question is whether the decisions he’s proud of—better pensions, the Canada Child Benefit, the suite of measures designed to attract highly talented workers to Canada with a minimum of paperwork and red tape—benefit Canada in the long term in ways that outweigh Morneau’s catastrophic autumn.

Morneau has been a key player in most of the policy initiatives Trudeau plans to run on when he seeks re-election in 2019. Whichever outcome that contest produces—defeat or victory—Trudeau will owe much of it to the quiet rookie who has proved to be anything but a natural.