Freeland is no old school finance minister. Expect big green spending this fall
Chrystia Freeland isn’t talking like a typical Canadian finance minister. That’s according to economists who see the first woman in the powerful post playing an unconventional role, as the Liberals aim to simultaneously revive the economy and advance climate goals through new green spending measures.
Last week, Freeland endorsed Prime Minister Justin Trudeau’s vision of lifting Canada out of a pandemic-driven recession by greening the economy to better compete in a world increasingly impacted by climate change. She replaced Bill Morneau, Trudeau’s finance minister for nearly five years, who resigned amid reports that he was not aligned with plans for new stimulus on the heels of massive spending to offset the impact of COVID-19.
Don Drummond, a former TD Bank chief economist who also held a number of senior roles at the finance department, said Freeland’s insistence that “the restart of our economy needs to be green” signals a break from Morneau’s handling of the finance portfolio, and from that of his predecessors.
“It’s definitely a different dynamic. More often that not, the finance ministers have been the ones to tell the cautionary tales about new initiatives for the environment,” he told Yahoo Finance Canada. “This is more of an interventionist approach.”
Freeland, who will continue to serve as deputy prime minister, was quick to affirm her support for Trudeau’s “safer, greener and more competitive” policy agenda. She said decarbonization must be part of Canada’s economic path, along with equality, inclusivity, jobs and growth.
Doug Porter, chief economist at the Bank of Montreal, was also struck by Freeland’s messaging in her first speech as finance minister last week. He now expects a significant acceleration of spending to address climate risks and the economy when Parliament resumes in the fall.
Porter sees the environment as an important consideration for the government, but questions what role a finance minister should play in advancing that agenda.
“It’s not obvious that it’s up to the finance minister to lead the way on that front,” Porter said in an interview. “It seems a lot of green goals can be accomplished through regulations and other measures.”
“The priority really should be, number one, getting people back employed again,” he added.
Reflecting on the mid-pandemic finance minister swap, Deloitte Canada chief economist Craig Alexander said he believes Morneau was on-side with creating the environmentally sustainable economic growth sought by Trudeau and others in the government. That said, he was unfazed by reports of friction over the scope and scale of new spending. The government expects a record-setting $343.2 billion deficit this year. That’s 16 per cent of Canada’s GDP.
“The finance minister is often the person at the cabinet table that says ‘no’ or ‘this is what I think we can afford,’” Alexander said. “Minister Freeland is stepping into the finance minister role, and I think that this is going to be one of the challenges. She’s going to want to achieve the government objectives, but she has to be mindful of the public purse.”
Bigger, broader and greener
Work on a green stimulus package has been underway since early spring, overseen by Environment Minister Johathan Wilkinson, Infrastructure Minister Catherine McKenna and Heritage Minister Steven Guilbeault.
Wilkinson told HuffPost in a recent interview that his department plans to aim stimulus dollars at hitting Canada’s climate targets, which include net-zero emissions by 2050. He said the government will need to fast-track investments to deploy more zero emission vehicles, reduce pollution from oil and gas sites, phase out coal, and improve the efficiency of buildings.
Trudeau prorogued Parliament until the fall on the same day he announced Freeland would replace Morneau. He’s promised to spell out details of an “ambitious plan” in a throne speech set for Sept. 23.
“Is the Liberal party going to throw away any semblance of a fiscal anchor or fiscal framework? It seems like they are prepared to do that,” Drummond said. “Whether that’s a good idea or not, and whether voters will give them another mandate and accept that, is another question.”
Drummond said the most powerful environmental lever Ottawa could pull would be to hike its controversial carbon tax and pump the revenue through the economy to support an array of green initiatives. That’s unlikely, he said, given Trudeau’s insistence that tax hikes are not on the table. Instead, Drummond expects the government will opt for more popular policies, such as retrofitting government buildings and offering tax breaks to home builders that follow green standards.
Porter thinks something bigger is in the government’s cards.
“One has to assume that they are looking at some pretty significant spending measures or tax deductions that actually advantage or encourage the clean energy industry in a very significant way,” he said. “Things like retrofitting buildings almost seems like too small of a project. They must be thinking about something bigger and broader.”
Alexander sees Ottawa’s recent aid to the energy sector involving the cleanup of orphaned oil and gas wells, and emissions reduction incentives for offshore drillers, as an indication of what’s to come this fall.
“They can simultaneously layer over a green lens,” he said. “It can’t be that every measure is going to have a green dimension to it, but if a majority of measures have a green element, then you are still providing broad-based support to the economy.”
He said upgrades to Canada’s electrical infrastructure could be a focal point for new spending.
“When I do a long-term forecast for Canada, and I try to envision what a green Canada looks like in 2030, it actually requires an awful lot of investment in electricity infrastructure in all of its different forms.”
The three economists said the government’s ability to spur activity in the private sector will largely define the success of a green recovery.
Tom Rand, managing partner at ArcTern Venture and a cleantech advisor to the Toronto-based MaRS Discovery District, sees an opportunity for the government to call in a favour post-COVID. He said lobby groups have already descended on Ottawa to tap potential new spending.
“This is exactly the time to strong-arm our corporate leaders. Say, ‘You have to step up and play on this file now, because we just saved your bacon,” he said, referring to the COVID-19 recovery stimulus aimed at large businesses.
Rand is encouraged by Freeland’s early reference to building a greener Canadian economy, calling major environmental policies not directly backed by the finance department “a sideshow.” He suggests the formation of a “green bank” to deploy funds to private firms able to fill gaps in areas like biofuel and electrical infrastructure.
Building upon Trudeau’s words last week about a “window of opportunity” opened by COVID-19 to pivot the economy, Rand sees the public health response to the pandemic underscoring the importance of mass adoption of science-backed policies to solve global problems.
“The public has watched what happens when you ignore experts. Look at Canada’s response to COVID, compared to the Americans. If you listen to experts, you reduce the risk. Climate experts are telling us to act very quickly and aggressively,” he said. “The public has had a taste of what happens when you don’t listen.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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