Investors watching throne speech for clues on fiscal plan

With no federal budget tabled yet this year, investors will watch the Liberal government’s throne speech on Wednesday for guidance about fiscal policy. But markets will likely have to wait until later this fall for detailed spending plans, economists say.

The throne speech will be the government’s second in less than a year, though it will be delivered in an economic environment that’s drastically different from when the Liberals laid out their post-election agenda in December.

The 2020 federal budget, scheduled for March, was delayed due to the Covid-19 pandemic. In a July fiscal update, the government forecast a federal deficit of $343.2 billion this year, with a slow economic recovery through next year.

In a report released Friday, CIBC World Markets chief economist Avery Shenfeld said the “timing is all wrong” for the Liberals to announce an ambitious, green-focused plan to rebuild the economy.

“Those may be laudable goals, but they require extensive federal-provincial co-operation and considerable policy innovation to achieve, and governments across the country have other preoccupations these days,” he wrote.

The government will instead be focused on keeping the virus contained as cases rise in certain parts of the country, and helping businesses remain solvent until the economy can fully reopen.

“There’s little doubt that the public will judge this government by its ability to do that, and those efforts aren’t cheap,” the CIBC report said.

A Scotiabank report on Friday took an even dimmer view of the prospects for a detailed fiscal agenda being provided on Wednesday. Throne speeches are “typically long on platitudes, generalities and wishes that may or may not translate effectively into policy,” the research note said.

Earlier this month, Scotiabank economists Jean-François Perrault and Rebekah Young said the government should move to increase women’s labour force participation through a top-up of the Canada Child Benefit for childcare and an increase to the Canada childcare tax credit.

The Canadian Chamber of Commerce proposed emergency childcare support by extending the Canadian emergency wage subsidy to include hiring in-home childcare so business owners can return to work.

Perrault and Young also said the Liberals should commit to a fiscal anchor such as a debt-to-GDP ratio to keep government spending in check — a proposal echoed by the C.D. Howe Institute and others.

The federal government’s deficits are affordable now because of ultra-low interest rates, but keeping yields in check beyond next year will require a fiscal plan that allows the deficit to shrink as the economy recovers, CIBC’s Shenfeld wrote.

“Bond markets will be listening to the tone from the throne for hints that the government also sees it that way, although we’ll have to wait for a budget to be sure,” he wrote.

Mark Burgess

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Mark was the managing editor of Advisor.ca from 2017 to 2024.