Trudeau says Covid-19 spending levels must not become permanent

18 Jan 21

Canada will use “whatever fiscal firepower” is needed in its fight against the effects of Covid-19, but only in the short term, prime minister Justin Trudeau has said.

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Justin Trudeau Shutterstock 1865566243

Canadian prime minister Justin Trudeau. Image © Naresh777/Shutterstock

Amid a huge deficit and pressure from opposition parties, Trudeau told finance minister Chrystia Freeland that her plans must be “guided by values of sustainability and prudence”.

In a letter setting out Freeland’s mandate, Trudeau said the finance minister must ensure all pandemic measures are temporary.

“You will use whatever fiscal firepower is needed in the short term to support people and businesses during the pandemic, and will keep supporting the economy with emergency measures until the economy improves,” he wrote.

“Doing so, you will avoid creating new permanent spending.”

Freeland is due to present a budget in the next few months, and Trudeau told her she needs to present a plan to regrow the economy, including a “new fiscal anchor to guide this work”.

Prior to Covid-19, the government anchored its fiscal policy on a decreasing debt-to-GDP ratio, but this has been abandoned during the fight against the virus.

Around $420bn (£243bn) of Covid-19 spending has been announced so far, including $100bn (£58bn) spread over the next three years.

In November Canada’s fiscal monitor, the Parliamentary Budget Officer said the federal government could permanently increase spending or reduce taxes by 0.8% of GDP ($19bn at the time) and maintain debt sustainability.

Shadow finance minister Pierre Poilievre has been repeatedly warning against taking on large amounts of debt during the pandemic, claiming the government is betting on interest rates not rising.

During a parliamentary committee stand-off with Freeland, the Conservative MP called the government’s proposal to raise the debt limit to $1.8trn (£1.04trn) “monstrous”, adding that it would lead Canada to a debt crisis.

Trudeau’s letter also urged Freeland to draw up tax plans to support clean energy, and to ensure multinational technology companies pay “appropriate corporate tax” on revenue they make in Canada, either through the ongoing process led by the OECD or a “made-in-Canada” approach if that fails.

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