Canadian News

OTTAWA — The federal government’s refusal to set a new fiscal anchor reinforces the need for greater transparency around Ottawa’s towering pandemic spending plans, several economists and budgetary experts say.

In a talk with the Canadian Chamber of Commerce on Monday, Prime Minister Justin Trudeau said it would be “premature” to set a new fiscal anchor in Ottawa’s upcoming fall economic update, due to a high level of uncertainty in both the national and global economies. The Trudeau Liberals are expected to table the update in November.

The move runs counter to what numerous economists and other experts have recommended in recent months, warning that Ottawa needs to outline its high-level spending plans as it risks sliding into a position of permanent budgetary deficits.

Fiscal anchors effectively outline targets for how much debt governments intend to assume. Ottawa had previously sought to maintain a debt-to-GDP ratio of about 30 per cent, which ballooned to 49 per cent this summer as COVID-19 spending continued to mount. Experts now say Trudeau and Finance Minister Chrystia Freeland need to re-establish a new anchor in order to sketch out their long-term budgetary plans for the country.

“There’s a cost to having effectively no fiscal plan,” said Kevin Page, head of the Institute of Fiscal Studies and Democracy and former Parliamentary Budget Officer. “And right now it’s fair to say we have no fiscal strategy.”

Page and others are sympathetic to claims by the Liberal government that the global economic outlook amid COVID-19 is so uncertain that drafting up long-term spending plans would be nearly impossible.

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But they also suggest that the failure to set a new fiscal target is part of a broader hesitancy in Ottawa to provide transparent information on pandemic spending. The federal government has not provided detailed updates on cash flows of some of its biggest programs, he said, and has instead stuck with highly generalized overviews that provide no detail about funding recipients.

Taken together, Page said, the situation amounts to an increasingly hazy fiscal outlook for the country.

“This is about where the government’s rudder is,” he said. “Where is the policy strategy that guides us through the pandemic, and to the post COVID-19 recovery? We’re missing that.”

Unlike other Western democracies including New Zealand and the U.K., Canada has yet to table a full budget since the beginning of the pandemic in March, citing economic instability. A brief budget update in early summer has served as the sole official document outlining spending plans.

The monthly fiscal monitor provided by Finance Canada outlines spending, but also doesn’t break down transactions into finer details, Page said.

His comments come after the Trudeau government had faced criticism even before the pandemic about its rising fiscal spending measures, which went toward a host of programs aimed at green infrastructure, social housing and other items. Even so, Ottawa largely kept its debt-to-GDP ratio stable as economic growth before the pandemic provided more opportunity to spend.

Rebekah Young, director of provincial and fiscal economics at Scotiabank, has recommended Ottawa set an updated fiscal anchor of 65 per cent of GDP, as well as provide itself with space to move should the economy sour amid successive viral waves.

“I would argue that because of the uncertainty, in fact, they could actually instill more confidence by providing an anchor for coming years,” she said.

“It’s another way to send a signal.”

While Canada’s federal and provincial debt levels continue to soar, however, most economists are largely in agreement that Ottawa maintains plenty of fiscal capacity to continue spending. Low interest rates have kept debt charges well below levels seen in the early 1990s.

The federal deficit in 2021 is expected to surge above $350 billion, according to the government’s last budget update.

The International Monetary Fund in its recent bi-annual economic outlook estimates that Canada’s budgetary shortfall in 2020 will reach 19.9 per cent of GDP, the highest among all Western democracies (the United States will run the second-largest shortfall with 18.7 per cent). By 2021 that shortfall is expected to fall to 8.7 per cent, but still among the largest in developed economies.

Doug Porter, chief economist at Bank of Montreal, says fiscal pressures from immense pandemic spending are uncommonly high at the moment, but don’t spell immediate trouble for the public purse.

He said longer-term spending adjustments will eventually be necessary, but said the announcement by Trudeau on Monday to defer a new fiscal anchor might be the correct course of action.

“I would say it’s not unreasonable, just because there’s so much uncertainty about where things are headed in the next six months,” he said.

“One of the worst things would be for them to reset the fiscal anchor and then have to reset it again. I think that would be pretty demoralizing for everyone.”

• Email: jsnyder@postmedia.com | Twitter: jesse_snyder

OTTAWA — After enduring nearly three weeks of Liberal filibustering, opposition MPs trying to acquire WE Charity speaking contracts involving Prime Minister Justin Trudeau and his wife were shut down Monday when a Bloc Québécois MP voted against the initiative — by mistake.

It was supposed to be a straightforward vote at the federal ethics committee to force the release of all invoices for the speeches Trudeau and his wife delivered to WE Charity in the past decade.

Opposition MPs want to verify how much money WE Charity and its affiliates have paid the Trudeau family in the years leading up to the now-defunct $543.5 million deal to have WE administer a student volunteer grant program for the government.

For weeks, the Liberal members of the committee tried to thwart the vote by filibustering, filling the time with lengthy and often irrelevant speeches, calling countless points of order and asking for more amendments on amendments than anyone would care to count.

The issue came to a head last week when the minority Liberals declared a Conservative proposal to create an “anti-corruption” committee to delve into the WE scandal a matter of confidence. Had the Liberals lost the vote, Canadians would be going to the polls.

The NDP ultimately voted with the Liberals but promised to continue studying the WE Charity scandal in committees such as ethics.

So Monday, after a bit more filibustering and a few more amendments, the Conservative motion at the ethics committee was set to pass with the support from all opposition members, who outnumbered the Liberals.

All was going as expected until the committee clerk called on Bloc Québécois MP Julie Vignola, who had replaced her colleague Marie-Hélène Gaudreau just a few minutes earlier.

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After a few seconds of silence, Vignola unexpectedly said: “I am against the motion.”

A visibly stunned NDP ethics critic Charlie Angus laughed incredulously as he cast the final vote for the motion. But it didn’t matter anymore, the nays (five) defeated the yays (four).

In a scrum minutes after the vote, Bloc Québécois House Leader Alain Therrien admitted it had all been a mistake. Their vote had literally been lost in translation, and the party was scrambling to see if there was a way to change it.

“There were many amendments that were proposed consecutively, and there were issues with translation, so there was a mistake in the vote we made. And now we are looking to see if there is a way to correct the mistake we made,” Therrien said.

In an interview, Angus said the Bloc’s vote felt like being “stabbed in the back.”

He didn’t buy Therrien’s explanation that the error was the result of translation and technical issues, particularly because the party had “unusually” swapped out Gaudreau for Vignola just before the vote.

“I can’t see that they would be that amateurish that on such an important vote, which held up the ethics committee since we returned in September., that they would send someone in and not tell her what the upcoming vote was. You know, you can’t run a ship like that. Bloc Leader Yves-François Blanchet knows what he’s doing,” Angus said.

The Bloc vehemently denied his allegations and said it was actively looking for ways to bring the motion back to the table.

Angus said he is planning to bring a motion to the ethics committee next week to continue studying the WE Charity scandal.

But because the committee just voted against requesting the speaking invoices, he said it’s unlikely those documents will ever make it to the committee.

“Three weeks of work that kept us up into the wee hours of the morning went out the window. And so now we are not going to get those Trudeau documents,” Angus lamented.

The Conservatives preferred not to criticize the Bloc, instead turning their frustration toward the Liberals.

“After weeks of stonewalling, the Liberals voted against transparency and blocked a parliamentary committee from receiving documents related to the WE scandal. It’s clear that Liberal MPs will do everything they can to hide the arrogance and entitlement of this prime minister,” Conservative ethics critic Michael Barrett wrote in a statement.

“Conservatives promised Canadians that we would get answers on the WE scandal. We will keep this promise. I’ll leave it to the Bloc to explain why they didn’t vote for our motion at the ethics committee.”

The federal finance committee is also debating resuming its investigation of the WE Charity scandal; it’s possible that opposition members on that committee succeed in unearthing the Trudeaus’ speaking fee invoices.

• Email: cnardi@postmedia.com | Twitter: ChrisGNardi

NEW YORK/LONDON — These are tough times in the real estate market. The COVID-19 crisis has hit asset values, particularly commercial real estate in cities such as New York. Investors holding debt with upcoming maturities are preparing for tricky negotiations with their debtors.

The negotiations will be trickier if the debtor is the president of the United States.

Virtually all of Donald Trump’s debt — there is at least $1.1B of it, according to his government financial disclosures and other documents — is backed by real estate, mostly linked to a small number of buildings and golf courses that form the core of the Trump business empire. About $900M of that debt will come due in Trump’s second term, should he win the November 3 presidential election.

On paper, Trump is not particularly levered: his net worth has been estimated at $2.5B by Forbes. But the economy is still on a precarious footing, and if his debts come under strain, he could play hardball with his creditors, as he has in the past.

The situation is made more pressing for the U.S. president because his primary source of income in recent years — his work on television — “is drying up,” according to an investigation by The New York Times. Citing the president’s tax filings, the Times also said much of that income was invested in golf courses that are money losers. So while the president is asset-rich, it is unclear how much liquidity he has access to. The Trump Organization declined to comment.

The president’s creditors can be broken into five groups.

1. Trump owes $447M as part of his partnership with Vornado Realty Trust, on towers in New York and San Francisco

Trump owns 30 per cent of 1290 Avenue of the Americas in New York City and 555 California Street in San Francisco, giving him a pro-rata share of the $1.5B debt on the two buildings, which comes due over the next two years. The debt is owed by the partnership, not Trump himself, but changes to the value of the debt, or any default, would directly affect his equity value in the buildings. The loan on 1290 was initially made by Deutsche Bank, UBS, Goldman Sachs and the state-owned Bank of China, but they sold it years ago, and it is not clear who the creditor is now. Nor is it clear who owns the loan on California Street. Vornado declined to comment.

California Street is a 1.8 million square foot office complex, and while the income from the property was down five per cent in the second quarter of this year, it is 99 per cent occupied, according to filings from Vornado. 1290 is a 2.1m sq ft office and retail tower in Midtown Manhattan; Vornado’s latest filings do not provide up-to-date occupancy figures for it.

The value of each building has probably taken a hit during the COVID-19 crisis. Office real estate prices have fallen five per cent and 13 per cent from a year ago in San Francisco and New York, respectively, according to Green Street, a real estate research group.

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2. The bond market: $257M in loans taken against several of the most famous Trump properties have been packaged, along with a bunch of non-Trump loans, into commercial mortgage-backed securities

The banks that originated these mortgages sold them to a CMBS trust, bundling them with other loans and transforming them into tradable debt securities. A servicer is responsible for collecting payments from borrowers. Should borrowers fail to make a payment, a special servicer steps in to get the borrower paying again or foreclose. It is these debt collectors that could be crucial should Trump’s properties fall into arrears.

In total, there are four Trump properties, all in New York, split across six CMBS deals, according to data from Trepp. Most are office buildings and condominiums. The largest is a $100M loan on Trump Tower, at 725 Fifth Avenue, which accounts for just over 10 per cent of a 2012 deal packaged by Wells Fargo.

Most of the Trump loans are small enough that they are not the driving force behind the CMBS’s performance. All the properties are up to date on their payments, according to data from Trepp. There has been little apparent impact on occupancy rates since the COVID-19 crisis began.

However, one loan — the $6.5M mortgage on the Trump International Hotel at 1 Central Park West, New York — has been flagged as being at risk after income on the property dropped dramatically. The property has two tenants, a parking garage and the now-closed Triomphe Restaurant. Should the property slip further, it will be passed to its special servicer, Midland Loan Services, part of PNC. Midland declined to comment.

3. Trump owes up to $340M to Deutsche Bank

Trump’s biggest bank lender has financed his hotels in Chicago and Washington, and his Miami golf resort.

According to Trump’s tax returns, disclosed by The New York Times, both National Doral in Miami and the International Hotel in Washington have generated big losses. The Doral suffered $162M in losses between 2012 and 2018, and the Washington hotel lost $55.5M between 2016, when it opened, and 2018.

4. Trump has at least $25M in debt with four small banks and one asset manager

All of the loans are between $5M and $25M. Most do not mature within the next four years. Two of them are mortgages on Trump family properties, in the New York suburbs and in Palm Beach, Florida; two are on Trump golf courses in New Jersey and Washington, DC; and one, which matures this year, is on a residential tower in Midtown Manhattan.

The New York apartment market has experienced a 17 per cent price decline this year, according to Green Street.

5. There is a $50M debt to Chicago Unit Acquisition Trust, secured against the Trump International Hotel and Tower in Chicago

This debt is mysterious. The trust is a corporation owned by DJT Holdings LLC — that is, Donald J Trump. Trump appears to owe the money to himself. Asked about this unusual arrangement by The New York Times in 2016, Trump said: “I have the mortgage. That is all there is. Very simple. I am the bank.” But he is the debtor, too, and it is not a typical mortgage; it is a “springing loan,” meaning it only comes due under specific conditions — typically a credit event such as a decline in credit rating. It has been suggested that this arrangement could be part of a tax avoidance strategy.

Additional reporting by Laura Noonan in New York

OTTAWA – The Conservatives pushed a motion through Parliament Monday that will require the Liberals to disclose documents on vaccines, personal protective equipment and rapid testing, over government objections that the move could pose a risk to the country’s supplies.

The Conservatives won the vote with support from the Bloc Québécois, NDP and the Green Party, requiring the government to deliver the documents to the Health Committee within 30 days.

In addition to covering PPE and vaccines, the motion will also examine every aspect of the federal response, including the government’s decision to shut down a vital public health surveillance tool, the provision of paid sick leave, the adequacy of provincial health transfers and decisions around border closures and travel restrictions.

Prior to the vote, Procurement Minister Anita Anand said the motion would risk ongoing negotiations for essential supplies during the pandemic.

“We are in the middle of negotiation for vaccine, PPE and rapid test kits. Extensive disclosure as contemplated will threaten our ability to procure these goods,” she said. “We are in the middle of a second wave, we are in the middle of negotiations, and we are in the middle of our contracting.”

Anand was joined by drug companies, manufacturers and the co-chairs of Canada’s vaccine task force in calling for some secrecy to be maintained in the contracts until after the crisis.

In a letter to all party leaders, the co-chairs of the vaccine task force offered to brief MPs from all parties, but worried that doing so publicly would jeopardize confidentiality contracts they signed with the companies developing the vaccine.

“Without this guarantee of commercial confidentiality, it would not have been possible for us to meaningful engage with these firms nor to obtain the data needed to make evidence-based, informed recommendations,” reads the letter.

The motion allows for certain redactions for commercial confidentiality along with national security, but they would be performed by the House of Commons law clerk, rather than public servants in the Privy Council Office as the Liberals were suggesting.

Conservative MP Michelle Rempel Garner said the government was fear mongering and the experience they had during the WE Charity scandal suggests the government cannot be trusted to censor the documents.

“The Privy Council office is an arm of the government,” she said. “I don’t believe that the government should be redacting its own documents.”

Rempel Garner said the government should welcome scrutiny, which is Parliament’s responsibility, to ensure the country is on the right track in its response.

“There is no shame. In fact, it is the job of Parliament to ask these questions, we need to understand where we’re going.”

Anand said the government was willing to release details on contracts when the risk was over and pointed to $6 billion in contracts that had already been disclosed with more to come. She said the government wanted to protect its ability to negotiate while some supplies like vaccines were still in high demand.

She warned that without the promise of confidentiality, the government could struggle to secure confidentiality.

“I do not want to be back here to explain to Canadians that because of the disclosure that we were forced to make, we were not able to secure vaccines or PPE for Canadians because our suppliers chose to walk away.”

After the vote, Liberal House leader Pablo Rodriguez said he was disappointed in the outcome, but said the government would work to meet the demands the House of Commons.

“I am disappointed that the opposition parties didn’t listen to our health experts, to people from the private sector, from the companies producing the vaccine,” he said. The public servants will do their best. They are asking for tons of documents from the same public sectors workers who are delivering for Canadians.

Conservative leader Erin O’Toole said the questions his party was asking were non-partisan and straightforward. He said the Liberals made this a political issue and accused Prime Minister Justin Trudeau of wanting an election.

“When Canadians are getting rapid tests shouldn’t be a partisan issue. Canada’s place in the vaccine queue shouldn’t be a partisan issue. Improving our pandemic response shouldn’t be a partisan issue. It’s shameful that the Liberals keep trying to make them one.”

Unlike last week’s Conservative motion that became a test of confidence, the Liberals did not make the motion a confidence vote, meaning there will be no trip to the polls as a result of the defeat.

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Email: rtumilty@postmedia.com