The incoming federal finance minister will inherit a financial mess and the largest deficit in Canadian history
Chrystia Freeland is in charge of the country’s fiscal policy.
This morning, several media outlets are reported that Prime Minister Justin Trudeau will name the former financial journalist and author as finance minister following Bill Morneau’s resignation on Monday night.
Freeland was officially sworn into the role during a short ceremony at Rideau Hall in Ottawa in the afternoon. She will retain her deputy prime minister title.
Dominic LeBlanc took over Freeland’s previous role as minister of intergovernmental affairs.
Freeland was a financial writer and editor at the Financial Times, Globe and Mail, and Thomson Reuters before being elected in a by-election in Toronto’s University-Rosedale riding in 2013.
She has also written two books, including the award-winning Plutocrats: The Rise Of The New Global Super-Rich And The Fall Of Everyone Else.
In her new position, she’ll inherit a financial mess.
In 2020-21, Canada is expected to post a $343.2-billion annual deficit. That’s the largest in Canadian history.
The federal debt-to-GDP ratio is expected to increase from 31 per cent in 2019-20 to 49 per cent in the coming year.
That’s due to a range of federal stimulus measures in response to the COVID-19 pandemic, including a federal wage subsidy. It’s expected to cost $82.3 billion by the end of December.
Under this program, eligible businesses receive federal funds covering 75 per cent of their payroll costs.
The federal government also paid out $43.51 billion through June 4 under the Canada Emergency Response Benefit.
According to a June 23 report by the Parliamentary Budget Office, the CERB’s total cost will be $71.3 billion. It’s a taxable benefit paying $500 per week to workers who lost their income due to the COVID-19 pandemic.
Fortunately, the pandemic struck when Canada’s debt-to-GDP rate was significantly lower than in the mid 1990s. This gave Morneau some fiscal room to stimulate the economy without risking a collapse in the value of the Canadian dollar.
Over the past week, the Canadian dollar has remained above US$0.75. Should the value of the loonie fall, it will lead to higher food prices for Canadians.
Another of the PBO’s recent reports indicated that federal Crown corporations are expected to lose $12 billion in 2020-21. That’s a steep drop from the $7.3-billion in profit in 2019-20.
The same report highlighted another challenge facing Freeland. Based on the federal finance department’s projections, Canada could blow past the maximum amount allowed under the Borrowing Authority Act by at least $150 billion.
“While EFS [Economic and Fiscal Update] 2020 details the Government’s COVID-19 response plan, it does not mention or reaffirm the Government’s commitment to (ultimately) reduce the federal debt-to-GDP ratio,” the PBO declared. “Fiscal transparency and accountability would be enhanced if the Government identifies its fiscal anchor. Further, this commitment should be supported with the Government’s detailed economic and fiscal projections over a medium- and longer-term horizon.”
One of Freeland’s biggest challenges over the medium to long term will be to transition Canada’s economy onto a more sustainable path.
Former finance minister Bill Morneau didn’t make that job any easier by supporting the federal government’s purchase of the Trans Mountain pipeline system from Kinder Morgan in 2018.
That cost the treasury $4.5 billion. And the feds plan to sink another $12.6 billion into a pipeline expansion even though oil prices could remain low for the foreseeable future.
Former Conservative prime minister Stephen Harper tried to turn Canada into an energy superpower with the full-throttled support of the Alberta and Saskatchewan governments, along with the national media.
It remains to be seen whether the Alberta-born Freeland will change course now that Trudeau is receiving advice from former Bank of Canada governor Mark Carney.
In December, Mark Carney was appointed as the UN’s Special Envoy on Climate Action and Finance.
“As Special Envoy, he will focus on ambitious implementation of climate action, with special attention to significantly shifting public and private finance markets and mobilizing private finance to the levels needed to achieve the 1.5°C goal of the Paris Agreement,” the UN said in a statement at the time.
“This will include building the frameworks for financial reporting, risk management and returns in order to bring the impacts of climate change to the mainstream of private financial decision making and to support the transition to a net zero carbon economy.”
This story has been updated.
This story originally appeared in the Georgia Straight.