The government needs to align its overall fiscal positioning with reality: Former finance minister
Policymakers have “no good choices” when trying to balance the fight against inflation and minimizing economic impacts on residents, but a former federal finance minister and deputy prime minister said the government should take a hands-off approach and not enact policies that interfere with the Bank of Canada’s aggressive approach.
John Manley made the comments to BNN Bloomberg in an interview following the central bank’s latest rate hike of half a percentage point on Wednesday. The move brought the overnight lending rate to 4.25 per cent in the bank’s ongoing bid to bring inflation down to manageable levels, with a stated target of two per cent.
There are concerns about economic pain to Canadians stemming from months of successive rate hikes.
Manley, now a senior advisor at Bennett Jones, said the federal government has done some work to alleviate pressure on people in need through measures like increasing tax rebates, but he said ultimately now is not the time for government policies that stimulate the economy.
“They’ve got to get their overall fiscal position more aligned with the reality we now live in, which is that this is not a time when you want to be stimulating a lot of growth,” Manley said. “This is a time when you want to give the Bank of Canada the leeway that it needs to get price stability back into the economy.”
He said government economic stimulus coming at the same time will hinder the results of the bank’s policy approach.
“It’s kind of like driving your car with one foot on the gas and one on the break. You push them both at the same time, it’s not optimal for either breaking or accelerating,” he said.
Manley argued that business confidence is “the best stimulus for any economy,” but that confidence is eroded in an unpredictable, high-inflation environment.
He said the central bank’s goal of reducing inflation will be key to economic stability and growth, and noted that Justin Trudeau’s Liberal government is in a good position to allow the bank to carry out its policy approach because affected residents will not be voting to re-elect their federal representatives in the near future.
“Good news for the current government is they don’t face an election any time soon, so they can let the Bank of Canada run this game plan for a while before they have to start to worry about going to the polls,” he said.
He also suggested the government look at low-cost policy options to address the tight labour market and demand for skilled workers, such as allowing immigrants with foreign credentials to enter their fields more easily.