You Have to Be Prepared to Act
Bloomberg Markets|June - July 2021
To repair the economic damage wrought by the pandemic, Freeland says she’s using lessons from her journalism career and the collapse of the Soviet Union
STEPHANIE FLANDERS

When Chrystia Freeland became Canada’s minister of finance in August, she had a mandate from Prime Minister Justin Trudeau to aggressively pursue economic growth. She was already Trudeau’s deputy and had led the government’s international trade and foreign ministries, making her a leading candidate to eventually succeed Trudeau even though she’d been a politician for less than a decade. She’s spent plenty of time thinking and writing about economics and government as a journalist at the Financial Times, the Globe and Mail, and Thomson Reuters Corp. and as the author of books about Russia and the rise of the global super rich. Freeland, 52, spoke with Bloomberg Markets in late April—soon after she presented her first budget—about spending, deficits, taxation, globalization, China, and which workers are really essential. She also talked about Mark Carney, the former Bank of Canada and Bank of England governor who’s become an economic adviser to Trudeau—and a potential rival to her as Trudeau’s successor. The interview was edited for clarity and length.

STEPHANIE FLANDERS: We have lots to talk about, but we should touch first on your first budget, which passed [in April]. There’s more spending in there and more borrowing, much of it in response obviously to the Covid pandemic. Canada’s debt as a share of GDP will have risen through this period from 30% to 50% of GDP. Is that it, as far as you’re concerned?

CHRYSTIA FREELAND: What we said in the budget was that now is the time that we need to finish the fight against Covid, and that does cost money.

But, Canada being Canada, we are proud of our reputation for fiscal prudence, and that’s something that I would say is built into Canada’s institutional DNA. And in this budget we show from this year—’21-22—to ’25-26 a steadily declining debt-to-GDP ratio, falling to 49.2% in ’25-26, and we show a steadily declining deficit, falling to just over 1% in ’25-26. So we are confident that the fiscal track we have put forward is reasonable and sustainable. I was glad to see that S&P confirmed Canada’s triple-A rating and Canada continues to have—notwithstanding the extraordinary spending we have had to get through Covid—the lowest debt-to-GDP ratio in the G-7.

I would also say, Stephanie, that we think that our spending has been economically effective. We took the view that the job of the federal government was to support businesses and workers to get through the disaster and what we really needed to focus on was to avoid economic scarring insofar as possible. And I think you already see that in the numbers. In the fourth quarter, with Covid still with us, the Canadian economy grew by almost 10%. That is a testament to the resilience and the entrepreneurship of Canadian businesses, but also the fact that really significant government support helped us to avoid scarring to our economic tissue.

SF: I heard Mark Carney on a podcast say he thought it would take several more budgets to have the kind of growth strategy that the country needs. Do you agree with him that this was less focused on supporting long-term growth than we’ve maybe seen in other countries?

CF: I haven’t heard that podcast of Mark’s, so I can’t comment specifically to what he said. But we set ourselves three tasks: finish the fight against Covid, support a strong and fast recovery, and put in place measures to push us up to a higher long-term growth trajectory. On the long-term growth front, I think this budget has a number of measures that do that. And I can list maybe the top four areas.

One is a real focus on supporting higher labor force participation. And this budget does that in two important ways. One is a big commitment, C$30 billion [$24.9 billion] over five years, to build a universal system across Canada of affordable, high-quality early learning and child care. We believe long term that’s going to boost Canada’s GDP by 1.2%. We think it’s the most significant economic policy, if we can get it built, since Nafta [the North American Free Trade Agreement], simply because it will boost the participation of Canadian women in the labor force. The other labor force participation measure is we have significantly increased the Canada workers’ benefit, which is a top-up for people who are working and are poor. We see that as supporting them, supporting consumption, but in terms of long-term growth, supporting labor force participation at the bottom. Really, really important, especially post-Covid, when we’ve all seen how important our essential workers are. So labor force participation is the No. 1 long-term growth push.

The second is a real push in terms of technology adoption by Canadian companies, especially in the small businesses that are the heart of the Canadian economy. We have a number of programs in place to create tax incentives for businesses to invest in themselves and also to provide support from the government with targeted advice to help small and medium-size businesses invest in their own productivity. We’ve seen a lot of small businesses really being pushed by Covid to adopt technology that maybe they had been thinking about for the past five years. I spoke this morning in a roundtable with women entrepreneurs from Newfoundland and Labrador. One of them talked about how she had set out virtual cooking classes alongside her restaurant. And there are thousands and thousands of stories like that across the country.

Third is a significant investment in our green transition. There is a big investment in our Net Zero Accelerator: C$5 billion in this budget, and we invested C$3 billion in December, so that’s C$8 billion to help Canadian companies invest in their own green transformation, and there are some powerful tax incentives in the budget to help our green technology companies, to help the development of carbon capture storage and utilization, to help development of green hydrogen in Canada. So I would say all of those are big investments in long-term productivity growth.

And then the fourth is investment in growing Canada. We are a country where there is a broad national consensus that we like welcoming immigrants. We think it makes our country even better, and that is a real driver of economic growth. For the next three years we’re going to have higher than-usual immigration levels to make up for the loss during the Covid year. This budget invests in that, including investing in housing and public transit, which we need because we’re a growing country. So I would say there are a lot of long-term growth measures there, and that was definitely something that we had in mind in putting together this budget.

SF: You have this big step-change in debt. Other countries have now been contemplating and planning tax increases. When would you start considering that kind of thing? And why have you not thought about tax increases to give yourself a bit more fiscal space?

CF: Well, we did enter this crisis in a stronger fiscal position than any other G-7 country. We’re glad to have had that position, and that has shaped our response. We are very conscious of the need to maintain that position and be ready for the next crisis.

In terms of this budget in particular, it is very much a jobs and growth budget. Our view is the best way to pay off our debt is to grow our economy and to grow our country. That’s where our emphasis in terms of policy is right now.

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