Justin Trudeau’s message to world: Let government spending do the work

Canadian Pm Justin Trudeau is urging global leaders to rely more on government spending and fewer on monetary policy to spur growth because he prepares a budget which will push his country into deficit.

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In a wide-ranging interview Wednesday in Vancouver, Trudeau highlighted the significance of infrastructure spending and measures to bolster incomes of middle classes he states are important to driving growth. He also defended his plan to go willingly into the red.

“My message with other government leaders is don’t fall into the trap that believing that balancing the books” is an end in itself, he said. “It’s a way to a finish.”

Trudeau’s arrival on the global scene and his endorsement of deficits marks a clear, crisp about face from his predecessor, Stephen Harper. Together with German Chancellor Angela Merkel and U.K. Pm David Cameron, Harper championed the budget austerity alliance within the Number of Seven that usually clashed using the U.S. on fiscal policy. 

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President Barack Obama will hear a new message next week as he hosts a situation dinner for Trudeau at the White House. The Canadian leader’s debut also coincides with an increasing sense in global circles that monetary policy is reaching its limit, fueled in part by Japan’s surprise proceed to adopt negative rates of interest that caused turmoil in foreign currency markets.

“Making sure monetary policy and fiscal policy are aligned and complementary is obviously an advantage to any economy. But simultaneously I don’t desire to be overly preachy,” Trudeau said. Other countries should think about balanced budgets when feasible “but don’t make it the be-all and end-all since you may be missing out on opportunities to increase your economy – to help citizens prosper – this too much rigidity would actually hinder.”



G-20 Consensus

At several 20 meeting in Shanghai a week ago attended by Trudeau’s finance minister, Bill Morneau, officials in the world’s top economies committed their governments to doing more to boost growth amid mounting concerns within the potency of monetary policy.

Trudeau, 44, hinted he is considering expanding on pledges which have his country on pace for a deficit of nearly $30 billion within the fiscal year that begins April

1. Having promised $10.5 billion in new spending during the campaign, Morneau delivered a fiscal update recently showing the federal government is starting from the deficit of $18.4 billion as Canada grapples with the oil-price shock.

“It’s to me a lot more of a reason why we need to be investing intelligently in infrastructure, in profit the pockets of the middle class, to grow the economy,” Trudeau said of the fiscal situation he inherited after his majority win in the Oct. 19 election. 

Debut Budget

He offered no detail on which new spending might be included in the budget, due March 22, but eliminated big-ticket surprises. “I don’t think we want massive stimulus,” he said. “There’s a restriction how much you are able to flow infrastructure dollars very quickly frame from the standing start.”

A $30 billion deficit could be 1.5 per cent of gross domestic product. That’s a swing of 1.4 percentage points, from an expected deficit of 0.1 per cent of GDP in the current year. Since the end of World War II, there have been only four one-year expansionary fiscal swings of more than 1.4 percentage points of GDP.

Even with $30 billion in red ink, Canada’s debt-to-GDP ratio would remain one of the lowest within the G-7. “That leaves us with increased flexibility,” Trudeau said. “If we were sitting at 90 percent debt to GDP, we probably wouldn’t be contemplating the sorts of things we all know we’re able to perform. If interest rates were radically different -much higher, to consider money to invest in our economy – we’d be checking out different types of investments.”

Anemic Growth

The commodities slump prompted the Bank of Canada to chop its overnight rate twice last year, to 0.5 per cent, and has dimmed the economic outlook. This week, Statistics Canada reported that output grew just 1.2 percent in 2015, down from 2.5 percent in 2014. To Trudeau, that’s a reason to invest more rather than securing to get rid of the deficit, as Harper had argued in last year’s election campaign.

“Cuts could have been terrible for that economy,” Trudeau said.

The new pm stop short, however, of opening the taps endlessly, reiterating dedication to lowering Canada’s debt-to-GDP ratio with time.

“Balancing that fiscal responsibility that Liberals have always had with an understanding that in order to grow we need to invest,” he said, “may be the balance we’re spending so much time to strike.”

Bloomberg.com