Mark Carney speaks during his Liberal leader campaign launch in Edmonton, on Jan. 16.JASON FRANSON/The Canadian Press
In his farewell speech as Bank of Canada governor, in 2013, Mark Carney cast an admiring eye on the country he was leaving to take on the more challenging task of running Britain’s central bank.
The title of his address – “Canada Works” – said it all.
It was no coincidence that this country had come through the global financial crisis in better shape than other G7 countries, the departing central bank chief said then. Because Canada had pursued responsible fiscal policy, sound monetary policy and prudent financial regulations before the crisis hit, it was better able to withstand the storm.
The basic architecture of our economy – with a floating exchange rate, free trade, strong labour mobility and robust federal fiscal transfers to individuals and poorer provinces – buffered the impact of the 2009 recession and enabled Canada to rebound more quickly than the United States and Europe. This despite a Canadian loonie that hovered around parity with the U.S. currency, as Alberta’s oil boom drove investment in Western Canada, leading to grousing from central Canadian manufacturers about the “Dutch disease.”
“As painful as our recession was, Canada suffered less,” Mr. Carney said. “Relative to our peers, Canada is working.”
As the apparent frontrunner to become the leader of the federal Liberal Party and prime minister, Mr. Carney cannot make the case that “Canada works” like he did in 2013. Federal fiscal policy is now the opposite of responsible as Ottawa overspends on entitlement programs while all but ignoring the country’s investment and productivity deficits. Interprovincial trade barriers exacerbate the efficiency gap. Most provincial governments are staring at a health care spending abyss that threatens to bankrupt them.
On top of it all, the prospect of having to launch multibillion-dollar rescue packages for companies and workers hit by potentially punishing U.S. tariffs has ensured that whoever succeeds Prime Minister Justin Trudeau will face gargantuan economic and fiscal challenges at a time when Canada’s ability to address them has been compromised by a colossal increase in the federal debt since the pandemic.
Over at Mr. Carney’s old stomping grounds, Bank of Canada Governor Tiff Macklem has been endeavouring to rebuild the trust eroded during the fog of the war on inflation. The central bank earns high marks for smoothly unwinding its risky money-printing experiment during the pandemic. But it faces renewed headwinds as U.S. tariffs threaten to both increase inflation and crush output.
“With a single instrument – our policy interest rate – we can’t lean against weaker output and higher inflation at the same time,” Mr. Macklem insisted on Wednesday.
That means that federal fiscal policy will bear most of the burden for helping Canadians adjust to the new normal of a more protectionist United States that demands more of its northern neighbour on everything from border security to defence spending. Protecting the redistributive features of the Canadian economy that we cherish as a society while tackling our productivity deficit and reducing greenhouse gases will become harder to do.
The person who stands perhaps the strongest chance of becoming prime minister in March has had precious little to say about this. To be sure, Mr. Carney has offered no fewer economic-policy specifics than Conservative Leader Pierre Poilievre, the odds-on favourite to win the next election. Still, he has been less voluble than his leadership rival Chrystia Freeland about how he would respond to U.S. tariffs. Ms. Freeland advocates dollar-for-dollar retaliation, a risky strategy that would exacerbate inflation and complicate the Bank of Canada’s job.
On a weekend trip to Quebec, Mr. Carney did tell Radio-Canada that he would seek to balance the budget during his first term in office, though he conceded that “occasional small deficits” might be needed to make growth-enhancing public investments.
In his speeches and op-eds over the past few years, Mr. Carney has also laid down some markers for how he would manage Ottawa’s finances. For example, he has stressed that fiscal policy should not work at cross purposes with monetary policy, a principle Ms. Freeland did not always follow during her four-year stint as finance minister.
Mr. Carney criticized the increase in the capital-gains tax inclusion rate announced in the 2024 budget, an idea that Ms. Freeland has apparently repudiated. “Governments that spend too much and invest too little will eventually pay a heavy price,” Mr. Carney said last April. “The countries that nurture, welcome and celebrate risk-takers will thrive.”
Earlier that same month, he said: “When we’re debating the competing priorities here at home, we should acknowledge that we have less to spend because we’ve become less productive. … We can’t redistribute what we don’t have.”
Still, Canada is not working like it did in 2013. And Mr. Carney has yet to make the case that he can change that.