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Prime Minister Justin Trudeau’s Finance Minister, Bill Morneau, delivered his Fall Economic Statement on Tuesday, All Saint’s Day, and it is chock full of self-congratulation and sunny projections for future economic success.
Now, with the very real prospect of unabashed fascism looming south of the border, the ways in which the Trudeau government might fall short of the expectations of its progressive voters might seem of small significance.
Canada’s current Liberal government, a little more than a year in, has a mixed record on the environment, on reducing inequality, on democratic reform and on building a new partnership with First Nations.
But it is not a frightening, right-wing fringe government. And for that, we have to be truly thankful, given what our U.S. neighbours are facing.
Having said that, in Morneau’s fall statement, he has to admit, up front, that he has not, at this stage, met his own targets on jobs and the deficit.
“Global economic growth remains subdued,” the statement announces, quite honestly and bluntly, although it buries that grim observation in the middle of the document.
The International Monetary Fund (IMF) recently downgraded its short-term global growth forecast. The IMF expects lower growth in 2016 (3.1 per cent) than in 2015 (3.2 per cent). There will be a small uptick in 2017 (to 3.4 per cent), but that will be way below the average annual growth rate of 5.1 per cent the world experienced for the five years prior to the 2008 recession.
And the current figure of 3.1 pre cent is, in fact, deceptively high, because it is pushed by much higher growth in what market economists call emerging economies (such as China and India).
Not too long ago, the emerging economies were booming, at growth rates of well over seven per cent per year. Over the past five years, they have slowed to four per cent. But that is still far more than the mature, developed economies are growing.
Morneau’s statement compares Canada to other G-7 countries and projects that our growth will be above the G-7 average, at 1.8 per cent per year over the next five years. The Economic Statement projects the G-7 average rate for the next half decade to be 1.4 per cent, per year.
Despite that sluggish growth figure, stock markets have been doing well, although, the statement carefully notes, they are highly volatile. One big reason the value of equities, or shares in companies, has been rising is that interest rates in the developed world are somewhere near zero. Investors can’t make money buying bonds or other forms of debt these days, and so are forced to put their money in stocks, however risky they might be.
That’s where one of Morneau’s Economic Statement’s big announcements comes in.
The minister announced that the government of Canada will create a new “Canada Infrastructure Bank.” In this, he has heeded the advice of his high-powered, private-sector-dominated Advisory Council, headed by Dominic Barton, the U.K.-based head of the multinational McKinsey consultancy.
In an age where big institutional investors, such as pension funds, cannot find a safe haven for their money that offers at least a bit of return, the Trudeau government sees an opportunity. Its new Infrastructure Bank, which will not see the light of day before sometime in 2017 or later, would make it possible for private sector funds to invest in Canadian projects.
There is one caveat though: those projects must be of the sort that produce revenues. Think toll roads, or electricity facilities; not such social infrastructure as safe drinking water for First Nations communities.
The government’s main pitch to potential private sector investors in Candian infrastructure is not that they would make a huge return on their investments. The returns would be modest, to say the least. And to make such investments attractive the government would have to, in effect, subsidize many of them, shielding the big institutional players from a measure of risk.
As the minister told journalists on Tuesday, what a Canadian Infrastructure Bank could guarantee investors in a time of “global challenges” is that their money would be safe and earning more that the near-zero returns offered by most government bonds.
Barton and the council he heads recommended privatizing some federal government assets as a way of capitalizing the new bank. That suggestion has elicited considerable negative reaction. But when asked about privatization, Finance Minister Morneau said it was a separate issue, distinct from the proposed infrastructure bank.
Morneau did not rule privatizations out, however. He merely said that while the government might very well be considering the possibility of selling off assets, the federal infrastructure program — including the new bank — was not contingent on revenues such a sell-off might realize.
We’ll have to wait for the other shoe to drop on that one. Many are a bit skeptical.
NDP Leader Tom Mulcair, for one, points out that the Liberals did not allocate as much as they had promised for infrastructure in the last budget — even though building infrastructure was a signature Liberal campaign promise. Now, Mulcair fears we’ll be getting something that resembles the privatization of the entire infrastructure program. The new emphasis — the measure by which projects are approved or rejected — will be on the potential for profit, not the needs of Canadians.
The bottom line for the new Infrastructure Bank, however, is that it is predicated on a low-low interest rate environment. Its main appeal to investors would be safety, stability and predictability. Those are qualities Canada can boast it possesses in spades.
If global interest rates were to go up, the entire business case for the bank could very well fall apart.
However, as one government official put it, there is little chance, at least in the near term, that the global economy will start growing by leaps and bounds, thus triggering significant hikes in interest rates.
In fact, the fallout from what looks increasingly like a truly ghastly, possible, or even probable, outcome on November 8th, south of the border, would be the polar opposite of a global economic growth spurt.
Karl Nerenberg is your reporter on the Hill. Please consider supporting his work with a monthly donation Support Karl on Patreon today for as little as $1 per month!
Image: CPAC
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