PM’s gamble on economy all comes down to Trump

What is a prime minister’s best attribute?

Certainly, we want them to be moral, ethical and accountable. We might also want them to be willing to think outside the box when confronted with quandaries.

But what about the willingness to take risks? Prime Minister Mark Carney is certainly making his case that a willingness to gamble on the future of the economy is a prime attribute for a first minister.

This week, the Carney government tabled a spring economic update that contained some relatively good news for the federal treasury: the 2025-26 fiscal year will now feature a $67-billion deficit, nearly $11 billion less than forecast just one quarter earlier.

This slightly stronger fiscal performance convinced the Liberals to unleash more than $37 billion in new spending over the next six years, with huge sums going to Indigenous health and community well-being, and programs to train up to 100,000 skilled workers by the end of the decade.

There were affordability measures as well. In addition to the previously announced Groceries and Essentials tax benefit and a temporary removal of the federal excise tax on gasoline, the fiscal update confirmed there will be a cut to CPP premiums starting in 2027.

In Carney’s view, affordability can only be achieved if Canada’s economy is booming and more Canadians have good paying jobs. That is not a bad strategy, although it’s unclear that spending more money now is going to get us there.

This brings us back to the wager that Carney is making on the Canadian economy. In essence, he is looking at modest economic growth and more robust government revenues and betting that things are only going to get better from here.

Higher levels of growth will produce a huge windfall in tax revenues, which should allow Ottawa to continue investing in skill training, economic infrastructure and mega-project fast-tracking while also reducing the deficit.

What are the odds of Carney realizing his economic vision?

Right now, the federal government is reaping a windfall from the increasing price of fossil fuels, which are being driven up by U.S. President Donald Trump’s irrational war in the Middle East. Trump is also playing havoc with the economic fortunes of Canada and other countries with his equally irrational trade war.

Things would have to change for Carney’s economic bet to pay off. But will they?

The somewhat conventional thinking is that Trump will have to find a way out of the war against Iran before mid-term congressional elections. Right now, the polls suggest the Republicans may lose control of both houses of Congress, which could derail Trump’s creeping authoritarianism.

The single best way to give Republicans a fighting chance in November is to wrap up the war in Iran, allow oil, gasoline prices and inflation to go down, and focus the electorate back on Trump’s culture wars.

If Trump does find an off-ramp with Iran, countries like Canada would almost certainly reap economic benefits. And yes, that’s a big “if,” but it’s not a completely unfounded theory on which to bet the treasury.

Carney’s “invest now/pay later” strategy will have to eventually show some progress on reducing the deficit through economic growth, if only to quiet the shrill howls of those who believe deficits and debt will be our undoing.

The Liberals repeatedly point out, with some justification, that the International Monetary Fund recently stated that Canada has the strongest fiscal position of any G7 country. Some may believe that to be an award for being the best of the worst fiscal managers, but it does somewhat support Carney’s ‘now-is-not-the-time-to-panic’ approach.

Whether he hits pay dirt or not, Carney now has the political capital to see his wager through.

Not only do the Liberals enjoy a majority mandate for the first time in seven years, they are confronted by an Opposition that can’t seem to make up its mind on economic policy. Consider the two sides of the Conservative party’s fiscal vision, uttered just days apart.

Last week, when Carney announced he was temporarily removing the excise tax on gasoline, Conservative Leader Pierre Poilievre thundered that it wasn’t enough, and demanded the removal of all gas taxes, forever.

However, just a few days after Carney pledged to give away billions of dollars in tax revenues, Poilievre lambasted him for not doing more to reduce the deficit. “(The) Liberal fiscal update brings more costs, more debt and more bills on the national credit card,” Poilievre stated.

Carney’s wager may backfire, but it won’t be because he bought into a Tory strategy that turns Canada’s precarious fiscal position into an apocalyptic one. Giving away billions of dollars of revenue and then wailing about how the deficit is too high is simply not a serious fiscal strategy.

There are some underlying reasons to believe that Carney’s fiscal bet will pay off. But like all wagers, it all comes down to fate.

Or, in this instance, the fate as dictated by the dictator-in-waiting to the south.

» Dan Lett is a Winnipeg Free Press columnist.