Next week two events will occur that will both shape Canada’s economic future.
On Tuesday, Finance Minister Bill Morneau will bring down his – and the Trudeau Government’s – third budget. And on Sunday, the seventh round of negotiations on changing the North American Free Trade Agreement will get underway in Mexico City.
Although Morneau will no doubt mention the NAFTA negotiations, he won’t emphasize how important Canada’s future economic well-being hinges on the outcome of the talks. For the most part, the Trudeau Government is still publicly talking up the need to “modernize” the 25-year-old trade agreement, even though it is now more than clear that the objective of the Trump Administration is to gut the existing deal and replace it with a pact that will heavily favour the United States.
Behind the scenes, officials in Ottawa are calculating how much of the current NAFTA agreement Canada could abandon and still have something beneficial to this country. And toward that end, there are reports that in Mexico City next week Canada will go along with American demands to weaken or perhaps even eliminate Chapter 11 of the current deal – the chapter that allows private corporations to sue NAFTA governments if they feel they are being discriminated against.
How important is NAFTA to Canada’s economic health? Well we are a trading nation and eighty percent of our trade is with the United States. Many economists estimate that NAFTA, as it currently stands, is worth one per cent to one and a half per cent of Canada’s Gross Domestic Product. So how the NAFTA negotiations turn out is very important to our long term economic wellbeing.
So too is another fact that may not get any direct mention in the budget speech. The federal government has approved the expansion of the Trans Mountain Pipeline that will take the production of the oil sands in Alberta, across British Columbia, to tide water at the Port of Vancouver.
Expansion of the Trans Mountain is essential if Canadian producers are to diversify and add markets other than in the U.S., where Canadian crude is selling at a discount of about $20 a barrel.
But while the pipeline has official approval, work is being delayed by court challenges from environmental and indigenous groups, and by the NDP government in British Columbia which wants to conduct a study on potential oil spills from tankers carrying the oil sands oil.
Why is this important to Bill Morneau, and any future finance ministers?
Well a study by Scotiabank economist recently estimated that the lack of a pipeline to the Pacific Coast will cost the Canadian economy $15.6 billion this year. In other words, a pipeline would add three quarters of a point to Canada’s GDP.
So both the NAFTA talks and the fate of the Trans Mountain Pipeline should be weighing heavily on the mind of the Finance Minister, as he projects new spending for indigenous housing, an infrastructure bank, gender equality programs and money for science and innovation.
Clearly, there is a lot more that goes into budget making and budgets than initially meets the eye.
Don Newman is Senior Counsel at Ensight and Navigator Limited, a Member of the Order of Canada, Chairman of Canada 2020 and a lifetime member of the Canadian Parliamentary Press Gallery.