• Commodity rout, currency meltdown threaten to derail agenda
  • Finance chief tries to stay on message during listening tour

Canada’s rookie finance minister, Bill Morneau, woke up Monday to a power failure in his Halifax hotel, where he was kicking off cross-country consultations for his first budget. A generator allowed for a single industrial light in his bathroom, but it died too. With Morneau in the shower.

From there it was all downhill. As the week wore on, the bullish script of economic growth and fiscal prudence prepared for Morneau by Prime Minister Justin Trudeau was beset by dark clouds as oil fell to near $30 and the dollar dipped below 70 cents on its longest losing streak ever.

QuickTake Canada

“Interestingly -- I don’t know if this is an omen -- the rest of the city is fine. It’s just the Westin hotel,” Morneau recalled the next day, speaking in Montreal. He’d been forced to cancel a breakfast with his Nova Scotia counterpart. “I had a good excuse, I think. I couldn’t find my clothing.”

The Liberal Party catapulted from third to first in the country’s election campaign last fall in large measure on Trudeau’s image as a happy warrior conveying a more hopeful future -- what he called the “sunny ways.” The question now is to what extent the drumbeat of negative news will unravel his government’s agenda.

On Morneau’s first day on the road this week the Canadian dollar dropped 0.3 percent. It fell by the same amount the next day in Montreal, and 0.6 percent as his tour continued in Toronto on Wednesday. It has tumbled 9.4 percent since Trudeau’s victory, with oil also down 32 percent and the benchmark Standard & Poor’s/TSX Composite Index hitting bear territory on the fourth trading day this year.

‘Extraordinary Times’

Trudeau remains preternaturally upbeat, saying in Toronto on Wednesday that Canadians maintain their “optimism and positivity.” While grim numbers are increasing pressure on Morneau to move faster on infrastructure spending, a senior government official -- speaking on condition of anonymity because the budget isn’t yet finalized -- said the Liberals will largely stick to their plan instead of rushing cash out the door. (Perhaps it was another omen that a fire alarm went off at Toronto city hall during Trudeau’s meeting with Mayor John Tory.) 

“The finance minister going around the country by himself isn’t helping the matter,” said Conservative lawmaker Lisa Raitt, who wants Trudeau’s government to recall the House of Commons early and strike a finance committee to study the best way to reverse the dollar’s slide. “These are extraordinary times. Extraordinary measures,” she said.

Morneau, a 53-year-old former pension executive and first-term lawmaker, has until about March -- when Canada’s budget is normally delivered -- to figure it out. The country’s economic fortunes have faded since summer, when the Liberals released their election platform, and even more since Nov. 20, when the finance department released a fiscal update that showed deficit projections were worse than feared.

Bigger Boost?

Trudeau has already abandoned his promised C$10 billion ($7 billion) deficit cap, and there are calls for him to double -- or even triple -- it. Avery Shenfeld, chief economist at the Canadian Imperial Bank of Commerce, said in a research note Thursday the ailing economy requires a substantial jolt of stimulus, even if it pushes the deficit to C$30 billion.

Morneau, however, is so far sticking to the government’s two other fiscal pillars: a declining debt-to-GDP ratio and a balanced budget by 2019, when the next election is scheduled.

“We’re going to be focused on infrastructure that’s going to improve the growth rate of the country, not just in the short term but the long term,” he said in Toronto. “So we expect that will help us get into a balanced budget over the course of our mandate. And that is absolutely one of our goals.”

Shifting Rhetoric

In some of his public statements, Morneau -- who routinely ad-libs, occasionally creating headaches for staff -- has sounded less definitive.

Last week, when asked why he wouldn’t continue running deficits past 2019 if the economy needed help, he replied he would “leave it until the budget of 2019 to be thinking about that,” raising questions about the balanced-budget pledge. Minutes later he reiterated the commitment to “a balanced budget” by 2019, only to call it a “goal” this week. 

Morneau has acknowledged a steep learning curve in his new political life.

“Frankly, I think their objective is to kill the minister,” he said of his staff in one speech. “Because they made me a number of briefing books that were unbelievably big.”

Competing Priorities

Trudeau’s Liberals began pulling away in the election campaign when they contrasted themselves with both former Prime Minister Stephen Harper’s Conservatives and Tom Mulcair’s New Democrats by declaring their willingness to run deficits to build more infrastructure that would stimulate the economy.

Speaking Wednesday, Morneau brushed aside a question of which of his two priorities -- growth versus a return to balance -- would trump the other. In effect, he’s saying the Trudeau camp can have both. His opponents, down but not out, have a different answer.

“I think they’ve got to be very careful about how much deficit they’ll go into,” Raitt, often touted as a potential successor to Harper, said. “Is this now the time to continue forward on some of the more pricey spending items they have promised in the platform? I would suggest no.”

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