(Bloomberg) -- Canada’s finance minister says the country is on track for a soft landing, with inflation in retreat, interest rates on the way down and no recession in sight.
But Chrystia Freeland is realistic enough to know that a little bit of good economic data isn’t enough to turn around the political fortunes of Prime Minister Justin Trudeau’s administration. Polls show his deepening unpopularity – with the public frustrated about the cost of living, housing shortages, crime and a host of other issues.
“Every government that has been in office during Covid and its aftermath has been challenged,” she said in a recent interview with Bloomberg News, adding that the past several years have been a “real trauma.”
“It was like pandemic and lockdowns and people dying, and then it was inflation and shortages,” she said. “And now it is interest rates – my credit card bill is too high, my mortgage is too high.”
“I think people are quite right to say to their governments, ‘Things are hard and I blame you. Your job is to handle it.’”
Exactly how long Freeland will be left in place to handle the finances of the world’s 10th-largest economy is a question mark, after media reports that Trudeau has had conversations with Mark Carney, the former governor of the Bank of Canada and Bank of England, about entering the government. The Globe and Mail newspaper reported Wednesday that the two men talked over the weekend – though it also said the prime minister didn’t offer Carney a cabinet post and has assured Freeland her job is safe for now.
Carney is the chair of Bloomberg Inc. and Brookfield Asset Management, among other business and nonprofit sector roles. He didn’t respond to requests for comment from Bloomberg News.
The prime minister’s office didn’t provide comment on the Globe report. It has previously said it has “full confidence” in Freeland.
The speculation about Carney underscores the intense pressure Trudeau is under to arrest a downward spiral that began to accelerate about a year ago. Current national polls put the Liberals between 15 and 20 points behind Pierre Poilievre’s Conservative Party. Even if that margin narrows a bit, the Conservatives, at the moment, are on track to win a huge victory in an election scheduled for next year.
Voters’ current focus on economic issues doesn’t bode well for Trudeau. A poll by Nanos Research for Bloomberg News found that of the national party leaders, Poilievre holds a strong lead on the question of who is best to support growth – hence the implication that Freeland hasn’t done a good job of communicating the government’s economic message.
Freeland, when asked whether there had been increased tension between her office and the prime minister’s, said: “From my perspective, not at all.” As for whether she’s confident that she’ll still be finance minister in the fall, she said: “I really don’t believe in grading my own homework. I serve at the pleasure of the prime minister. That’s how a cabinet works.”
Last week, she hit the road for meetings with business leaders in New York and Washington, and emphasized that the government is trying to set the right fiscal tone. She noted international investors are keen to buy up more of Canada’s debt – foreigners bought a record-setting net $54 billion (US$39 billion) in federal government bonds over the last six months.
She said it’s always “quite a shock” when she points out to foreign audiences how much better Canada’s fiscal position is than other nations. The federal government is expected to run a budget deficit of 1.3 per cent of gross domestic product next year, according to a Bloomberg survey of economists. That matches Germany as the lowest among Group of Seven countries, a level far below the U.S., where the deficit is forecast at over six per cent.
Still, she rejected suggestions that the country should consider running deeper deficits, insisting that would be irresponsible.
Freeland and Trudeau have come under scrutiny for ramping up spending: Direct program expenses are around eight per cent of GDP — the highest since the early 1990s, outside the Covid-19 crisis. To meet her goals of keeping deficits around $40 billion before reducing them to less one per cent of GDP by 2026-27, Freeland used her budget in April to announce an increase the capital gains tax inclusion rate to two-thirds from one-half. It was a controversial decision, especially in the business community.
Carney and Freeland have known each other for a long time – in fact, Carney is the godfather to Freeland’s son. They speak “pretty often,” she said. “Mark is a great guy. I think it’s very positive for us that he has come out as a Liberal.”
Still, Carney – who joined the Liberal Party after returning to Canada from his stint running the BOE in 2020 — offered veiled criticism of Freeland’s budget, with its capital-gains hike and its heavy focus on housing and intergenerational fairness.
“It was a budget about fairness, as we know, and it wasn’t necessarily a budget about growth and resilience. And we need both,” he said during an event in April. “We need solidarity, but we also need dynamism.”
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