Trudeau Tells Finance Chief to Avoid Any New Permanent Spending

(Bloomberg) -- Prime Minister Justin Trudeau is formally instructing Canada’s finance minister to re-establish a firm budgetary target after the Covid-19 crisis and avoid creating any new permanent spending.

In a so-called mandate letter to Chrystia Freeland, who is also deputy prime minister, Trudeau said she should spend as much as need to tackle short-term economic challenges but avoid any new permanent expenditures. The letter was one 36 sent by Trudeau to his ministers Friday after a cabinet shuffle this week.

The government should “preserve Canada’s fiscal advantage and continue to be guided by values of sustainability and prudence by presenting a plan to regrow the economy and presenting a new fiscal anchor to guide this work,” Trudeau said in the letter.

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

The formal mandate doesn’t stray too far from priorities already laid out by Freeland in a November budget update, as she tries to keep the spending taps open without spooking investors. In addition to pandemic-related support, Trudeau wants to move ahead with more funding for social programs and climate change initiatives.

Canada abandoned its last budget rule at the start of the crisis as spending soared. It had previously committed to lowering the nation’s debt-to-output ratio.

The government expects its deficit will surge to 17.5% of gross domestic product for the current fiscal year, up from 1.7% -- one of the largest fiscal swings anywhere. The deluge of emergency spending prompted Fitch Ratings to strip Canada of its AAA credit rating last year, though the two other major agencies have maintained it.