Trudeau’s fiscal credibility was tied to memories of what his party did when it was last in power. In 2015, he said his plan to run deficits would end before the next election. Once in government, his spending commitment evolved into a promise to keep the debt-to-GDP ratio on a downward track, a wobbly anchor since governments have little influence over the denominator in that equation.
The Liberals added a fiscal commitment in the 2019 campaign, saying they would ensure that Canada retained a top rating from all the main bond rating agencies. But they didn’t talk about that pledge much after election day, and they surely would like to forget about it now that Fitch Ratings has downgraded Canada’s status to AA+ from AAA.
The message for Trudeau from the Fitch downgrade and the universal anxiety of Finance veterans is clear: his credibility as a fiscal manager is shot. If he wants to restore it, he’ll have to start over with a spending restraint that is easy for people to understand.
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