Finance Minister Bill Morneau Resigns: Implications for Public Policy

The unplanned exit by federal Finance Minister Bill Morneau is a rare and disconcerting event that comes at a very untimely moment. Leaving aside the obvious political damage to the government, the implications for public policy are potentially quite significant and unsettling.

The basic course of the government is now at issue during a global pandemic and unprecedented fast-growing economic dislocation. The Trudeau government will need to move swiftly to answer several key public policy questions:

What is the government’s fiscal approach? Will it seek to move briskly from the free-spending emergency measures period of the last five months, or will Morneau’s exit and the prospect of a second wave of COVID-19 cause a continuation of the Liberal government’s free-spending policy? The timing of Morneau’s departure comes at a particularly inopportune moment in Ottawa’s annual fiscal cycle, as the 2020 Federal Budget was already delayed due to the pandemic. A Fall Economic Statement is (supposedly) weeks away, and now must be cobbled together in some form by a rookie Minister. Setting a credible fiscal approach in this kind of political storm will be an extraordinarily tall order.

What is the federal government’s economic policy? Much talk has circulated publicly and privately in Ottawa about leveraging the crisis to thoroughly overhaul of the Canadian economy in the face of meeting global challenges, especially climate change. Trudeau has an economic team surrounding him that could perhaps undertake such an effort, and with Morneau gone, such plans could build momentum. However, the grave dislocation at federal finance caused by Morneau’s slow-motion fall, and the disruption radiating from the centre of power throughout the federal government, will seriously impair policy making and delivery capacity. This could hobble any ambitious attempts on economic policy if order is not quickly reestablished by a strong new Finance Minister.

What is the government’s approach to national unity? The COVID-19 crisis has reopened the “fiscal imbalance” question behind the scenes on the FPT Zoom call circuit. Serious tensions are emerging between federal and provincial levels of government, with the federal government believing it has borne the fiscal brunt of emergency measures while the provinces have hung back, and the provinces and territories who see matters differently. The turmoil that peaked today only complicates this delicate dance further. It may become a public spectacle of bumper cars, and result in policy mal-coordination as different governments work fiscal and macroeconomic levers absent clear direction from Ottawa.

What is the federal response to sectors in crisis? Through the summer, several stricken sectors – including aviation, tourism and hospitality, energy, discretionary retail, arts and culture – have been stalled in their entreaties for federal support, or even federal leadership in restructuring. Morneau’s rumoured preference for a “sector-agnostic” approach, felt by many to amount to a hands-off, macroeconomics-focused demurral, may now give way. The problem here is that at this moment, no one knows.

Can Canada meaningfully participate in global economic policy coordination? One of the less-reported (in Canada at least) aspects of the COVID-19 crisis is the immense stress placed on already-shaky economies in the emerging world and even in the European Union. Serious cash-crunch events may be coming from these quarters in the months ahead. With Ottawa in turmoil, Canada’s role as a small but reliable and influential player in global responses could be sidelined.

How does this impact Canada’s two most important international relationships with the United States and China? Morneau carried some of the relationship with the Trump administration with a positive relationship with Secretary of the Treasury Mnuchin. He was also a hawk on China, declaring “we are at an impasse” with China last year. His successor will need to contribute to these critical global partnerships, frayed as they are.

With these fundamental and grave questions hanging in the air, the onus is now squarely on Prime Minister Trudeau to move swiftly and stabilize the situation. The Prime Minister is expected to appoint a new Minister “soon”, with no interim Minister appointed. The wrong signals over the next few hours and days could have severe consequences not only for the Trudeau government but also for Canada.