A Challenging Fall for the Government jam can be broken. Meanwhile, with decisions coming out of the International Trade Commission on softwood lumber and hearings underway on Boeing’s filing against Bombardier, irritants continue to define the Canada-U.S. trade relationship. Time is passing and informed observers believe that the impending Mexican presidential election on July 1 will force a hard stop to the NAFTA talks at some point in April. With the future of NAFTA in doubt, the obvious trade policy for Canada is to pursue diversification towards emerging Asian markets, but here too, the way forward has proven to be uphill. At the Asia-Pacific meetings in Vietnam in November, the government advanced its “progressive trade It’s been an “up and down” and often difficult fall for the agenda” and initially telegraphed support for the now Trudeau Government on the policy and issues management renamed Comprehensive and Progressive Agreement for the front. Trans-Pacific Partnership (CPTTP) to other countries, then The details of the small business tax changes signaled in developed cold feet at the last minute. The result was a Budget 2017 were unveiled in mid-July and were quickly miffed Japanese Prime Minister and some highly overtaken by a backlash of criticism from scores of undiplomatic language directed at Canada by other Asia- stakeholders that ultimately caused the government to Pacific leaders. More recently in Beijing, Canada had raised backtrack and recalibrate. The issue became more expectations that the PM’s meetings with the Chinese complicated by a series of disclosures that Finance Minister leadership would yield a kick-off to free trade talks between Morneau had not put all of his private holdings into a blind the two countries, only to return without a formal launch. trust, as well as several alleged conflicts of interest. By the The federal government’s challenges with the ill-fated end of the session last week, Mr. Morneau’s reputation had Phoenix pay system, if anything, worsened instead of been tarnished. improving throughout the fall, with thousands more public On the trade file, the NAFTA renegotiation has now servants unable to be paid promptly or accurately. The proceeded through five inconclusive sessions, with Canada Canadian Revenue Agency contributed several nasty finding five of the U.S. demands to be non-starters. In headlines, being caught attempting to start taxing employee Ottawa, rumours persist that with his tax reform now virtually benefits, denying the disability tax credit to thousands of assured, President Trump may attempt to withdraw the U.S. taxpayers with Type 1 diabetes who had previously qualified, from the agreement, but there remains much debate in the and refusing to believe that separated people were actually U.S. as to whether Congress could override that move. separated. In several cases, the agency denied the various allegations and was then forced to admit publicly that it made The Trudeau government has acknowledged that it is now a mistake. And Minister of Sport and Persons with Disabilities deeply into NAFTA contingency planning, but in the most Kent Hehr was accused of being insensitive to several federal recent bargaining session in Washington, Canadian stakeholders and groups. negotiators did begin to discuss the possibility of presenting counter-offers on the five “poison pills.” All eyes will be on the Montreal round of talks January 23-28 to see if the log- 1 On the positive side, the government can point to some solid 19.1 percent, Greens at 5.7 per cent and the BQ at 3.4 per accomplishments over the fall: cent. • The Canadian economy continues to be buoyant, creating The Prime Minister also retains an even stronger lead as the 390,000 jobs over the past 12 months, the best job preferred choice as PM at 46.8 per cent of Canadians, creation record in the G-7, and dropping unemployment followed by Andrew Scheer (21.9%), Jagmeet Singh (8.2%) to 5.9 per cent in December, the lowest rate since and Elizabeth May (5.9%). Sixteen per cent of Canadians were February 2008. unsure who they preferred. Two additional variables almost • Canada’s first-ever National Housing Strategy was always correlate strongly with voting intention: “Which released in November, promising a $40 billion party/leader do you trust most?” and “Which party/leader investment over ten years and marking a major re- holds values closest to your own?” Based on the most recent engagement by the federal government in housing. The polling results, it appears that despite their recent challenges, initiative has received solid reviews from all sides. the Liberals still enjoy the trust of a plurality of voters and continue to be viewed as the party most aligned with the • The Prime Minister made a well-received apology to the values of mainstream Canada. LGBTQ2 community for the federal government's past treatment of its members, with praise from all sides of This view is borne out by the results of several by-elections the House. over the fall. Both the Liberals and Conservatives won the seats where they were prohibitive favourites, but in Lac-Saint- • The government is moving ahead with its splitting of the Jean in Québec and South Surrey-White Rock in B.C., the former Department of Indigenous and Northern Affairs Liberals were victorious, taking Conservative seats previously into two new departments, Indigenous Services and held by narrow margins. For the NDP, their vote counts Crown-Indigenous Relations and Northern Affairs. This plummeted in all the by-elections held this fall. move is being received positively inside and outside the government, though stakeholders are waiting cautiously None of this is good news for Andrew Scheer or Jagmeet for results. Singh, who assumed the leadership of their respective parties in 2017, but neither leader should be pushing the panic • While much remains to be done, the government began button yet. New leaders at the federal level usually take a to attack its backlog of long-overdue Order-in-Council year or two to find their feet and begin to resonate with appointments, with highly praised picks for the Supreme voters. We are also at that point in the four-year election Court—Judge Richard Wagner as Chief Justice and cycle where opposition leaders need more to put in the Alberta judge Sheilah Martin—and solid choices for window than simple criticism of the government. Both Governor-General, the Lobbying Commissioner, Official parties have policy conventions slated for 2018, the NDP in Languages Commissioner and Senate Ethics Officer. February in Ottawa and the Conservatives in August in The polls, by-elections and the opposition Halifax, so that need will begin to be addressed in 2018. A major theme in the media’s year-end reviews of the government is the paradox that the more challenges the Liberals face with their agenda and ministers getting into trouble, the stronger their apparent standing with the Canadian public as measured in the polls and in the recent by- elections. Clearly the voting public is currently a combination of disengaged and unmoved by the battering the government has taken this fall in Question Period. Despite a drop in support at the height of the small business tax controversy, the Liberals have rebounded and remain strongly in the lead in voter preference. The latest Nanos poll (December 19) found the Liberals at 41.9 per cent support, followed by the Conservatives at 29.3 per cent, the NDP at 2 The Government Agenda As the finance minister prepares his budget, he will also be increasingly aware of the economic uncertainty resulting from the ongoing NAFTA saga, and Bank of Canada Governor Stephen Poloz is not the only one sounding the alarm. Recently, the Export Development Corporation released the results of its semi-annual trade confidence survey, which found almost one quarter of Canadian exporters reporting that the on-going NAFTA renegotiation was having a negative impact on their Canadian operations. Of this 23 per cent, 26 per cent (or 6% of the full sample) were considering moving operations to the United States to avoid potential border disruptions, while a similar number said they would attempt to diversify their exports or investments into markets outside of North America. The national economy Significantly, in his year-end interviews, the Prime Minister Finance Minister Morneau presented his fall economic has been talking about a sharper focus on the national update on October 24, reporting continued growth and lower economy for the government in 2018. deficit projections: • With real GDP growth of 3.7 per cent over the past year, Small business tax reform Canada leads the G-7 economies. Private sector After several months of raucous debate over the economists expect real GDP growth to rise from 1.5 per government’s small business tax proposals, the Liberals cent in 2016 to 3.1 per cent in 2017 – significantly higher completed the second step in their backdown on December than the 2.0 per cent expected in Budget 2017, and the 13 by making public new and clarified rules to rein in income 2.2 per cent originally projected in Budget 2016. sprinkling among family members. Earlier, the government resurrected its long-forgotten promise to deliver a tax cut for • The fiscal picture is notably improved over projections small business, which blows up the $3 billion in tax revenues over Budget 2017: an improvement in the deficit outlook they set out to obtain in the first place through the new at $8.6 billion in 2017-18, $8.8 billion in 2018-19, $6.1 measures. billion in 2019-20 and $4.9 billion in each of 2020-21 and 2021-22.