Carney is a market-based progressive, but what does this actually mean for our PM and defacto Chief Economist?

Key Points:

  • Technology is a fundamental enabler of future prosperity and future public service delivery. 
  • Business experience and reorganization of the public service are critical elements of the macroeconomic agenda.
  • Attracting investment is about incentives, not mandates and prohibitions.
  • Unions are core to higher wages – not just productivity in and of itself.
  • Competition is a necessary ingredient to a more dynamic economy.
  • Fiscal multipliers matter. 

This is the last instalment of the Carneynomics essay before Budget 2025 is released next week and some of my analysis is put to the test. I’ll continue with more on this in future posts as relevant. But in light of the imminent Budget let me address a few wide-ranging points about how Prime Minister Carney’s fiscal and economic approach are different from Trudeau that I haven’t yet delved into. (To see more of this series, consult part 1 and part 2 on the changing budgeting framework and fiscal rules). 

There are six points to make:

  • Technology is a fundamental enabler of future prosperity and future public service delivery. 
  • Business experience and reorganization of the public service are critical elements of the macroeconomic agenda.
  • Attracting investment is about incentives, not mandates and prohibitions.
  • Unions are core to higher wages – not just productivity in and of itself.
  • Competition is a necessary ingredient to a more dynamic economy.
  • Fiscal multipliers matter. 

I’ll elaborate on these one-by-one. 

The Next Technological Revolution – At Home and in the Public Service 

We all know that Canada lacks for capital investment and has for a long time. The consequence is that Canadian workers have fewer tools compared to their peers to do their jobs, leading to lower productivity.

This is partly why artificial intelligence is something that is all over the 2025 Liberal platform – and there has been the appointment of a Minister specifically responsible for this new portfolio. It is the latest area where Canada must up its game to make sure workers can keep up with and ideally leap ahead in our race to be a more productive country. 

The “build” agenda the PM has outlined might sound very old economy to some – housing, ports, minerals, energy resources, and trade corridors – but moving at the speed desired will require more technologically intensive processes in these areas, as well as a separate process to build a greater Canadian advantage in the creation of patents and intangibles. If we are going to actually double the rate of the production of housing it means addressing the chronic lack of technology in housing, which is why modular construction is so central to the mandate of Build Canada Homes. 

While I do not believe productivity automatically leads to higher wages, in recent decades income and productivity gains have diverged and there is no question that this is also what motivates the PM’s very ambitious views about how government itself can be more efficient. 

In this respect, project proponents and policy advocates need to think about how they can directly leverage technology as an enabler to move faster. This helps improve efficiency while also maintaining the integrity of systems that are core to the public trust.

In the Carneynomics mindset there is no trade-off between speed and public interest. Think about the government’s own ambitious plan to streamline approval processes on national interest projects to within two-years or less. There is a huge opportunity here to leverage generative AI to augment mitigation analysis for impact assessment. Smart environmental advocates should be thinking about how to harness this idea just as much as oil and gas opponents. 

Organizational Structure and Business Experience Matter 

A lot of the Carney agenda thus far has been about building and staffing new institutions that will lead important, across-government missions; Build Canada Homes, the Defence Investment Agency, Major Projects Office and the recently announced Canada Financial Crimes Agency. Three of these four were direct products of the Liberal platform and very intentionally seen by the PM as setting out his new agenda. 

Conservatives have criticized this approach as just more bureaucracy building. Setting aside that the PM very specifically campaigned on reducing the future growth of the public service, the opposition may be missing the point. Organizational restructuring is an inherent enabler in the PM’s mind to a more outcomes-focused Canadian government.

To achieve these missions, new skillsets are required and new ways of doing things, beyond what is possible in the public service. It is also notable that so far these have all been staffed by seasoned corporate executives with (usually but not always) prior experience in both the public and private sector. Combined with leaders like Michael Sabia and Marc-Andre Blanchard to lead the Privy Council Office and the Prime Minister’s Office, Carney is developing a 21st century version of The Ottawa Men (and now women like Dawn Ferrell and Ana Bailao) who, as historian Jack Granatstein has catalogued, were integral to helping Ottawa establish and transition out of a war-footing in the mid-20th century. 

Advocates should not see this as free-licence to propose all manner of new agencies and commissions, but it’s a reminder that the PM desires a mandate to remake the public service beyond what it has traditionally been able to do. And that means also bringing in additional expertise, the kind of which will be increasingly important to have as the public service undertakes more complex commercial negotiations with counterparties like housing developers, LNG proponents and pension funds interested in infrastructure concessions. This is actually about elevating the public interest, recognizing that we need to compete on a higher level if we are to avoid being taken advantage of by those with monied interests.

Attracting Investment is About Incentives

The PM has staked a large part of his ambition and mandate on the goal of unlocking up to $500 billion in private capital. This might seem like a tall order for a small country, but we should remember Canada is one of the largest creditor nations in the world, thanks in large part to sovereign wealth created by our pension funds. That is because we have been really, really good at sending our money abroad – the Canada Pension Plan alone now holds about 50% of its assets in the United States, nearly $400 billion.

While Minister Joly has continued to muse about seeking additional investment from Canada’s pension funds here at home, we are likely to see a break in the Trudeau government approach on this file. 

As opposed to the idea previously advanced by then-Finance Minister Chrystia Freeland, which would have entailed a possible set of tax consequences for funds that do not invest more actively in Canada, Carney seems more intent on simply incentivizing the behaviour. The Major Projects Office, along with a buffet of possible investment incentives that will be outlined in Budget, are all in the service of creating the conditions that improve how these institutional investors, along with other large international players, see potential Canadian investments. 

The same line runs through the PM’s potential adjustment to walk back the oil and gas cap. He is not someone who appears to instinctively prefer a regulatory or prohibitionist approach. As a market-based progressive he tends to favour how instruments of tax, finance and market structure policy can be used to create the reinforcing conditions that enable capital players to part with their own money willingly.

This isn’t to say that Carney is a modern-day neoliberal. He is not. This is something some market watchers can easily confuse, as was the case earlier this month when the PM’s musings at Toronto Global were interpreted to possibly tilt at broad-based reduction in the corporate tax rate. I am skeptical of this interpretation in part because a general corporate rate reduction would be hard to square with the need to classify this general fiscal relief as “capital” under the PM’s own accounting framework. 

What is more likely the case is that he may be setting the stage for a set of more fine-tuned changes to the marginal effective tax rate on investment – like a broader definition of expensing and depreciation rules to compete with Trump’s One Big Beautiful Bill.

Time will tell whether this is the right balance to achieve the intended outcome. But needless to say, if we want to meet our ambitions for building Canada we need a deeper capital market and bigger pools of capital.

The Importance of Unions

The PM’s primetime pre-Budget speech last week referenced unions multiple times, linking in particular the government’s own build agenda with the implicit expectation that this will have the spinoff effect of creating more good-paying unionized jobs. The focus on unions is not accidental.

Unionization is often correlated with workplaces that have higher productivity (which may not be causal – often higher productivity workplaces can sustain the wage premium attached to unionized work) and this directly improves production by ensuring better, safer on time performance. 

And, while he has not said it this way publicly that I know of, I am sure the PM also cares about the fact that if public dollars are going to be used to bankroll an infrastructure agenda it should do so in ways that create best in class standards – that raise wages, promote new opportunities for apprenticeship and have positive spillover effects on the benefits and training that workers get across an industry like construction trades.

As Unifor’s Lana Payne noted on our recent podcast, the political power that organized labour is appropriating of late is not just because of one party – but because Liberals, Conservatives and New Democrats are now all fighting over the same battle space for blue collar votes. Having visited many unionized workplaces during his campaign tour, it’s likely the PM understands this well too.

Pre-budget announcements made earlier this week to expand funding for union-based skills training and introduce new benefits for low-paid PSW healthcare workers underscores this point in clear and direct terms. Initiatives that succeed with this government will be ones that have also thoughtfully developed and leveraged union partners where there is common interest. 

Competition Policy is Everything

It is easy to see a two-time central banker and former chair of Brookfield Asset Management as an advocate for competition – but that is indeed Mark Carney. 

In fact, his very own PhD thesis devoted hundreds of pages to a multi-part model illustrating the dynamic affects that competition can add to a country’s macro and micro-economic performance. As a former board member of fintech Stripe and having overseen the implementation of open banking and open finance while at the Bank of England, Carney has kept a close eye throughout his career on how market structures influence consumer and producer behaviours and where there are opportunities to optimize things. 

In fact, if you trace the history of Carney’s public commentary prior to running for public office you will notice that the very first time he introduced the concept of “build, baby build”, which would later become the initial policy backbone of his leadership campaign, he did so alongside a discussion in the same speech about open banking. 

Not to make too much of a small thing but open banking is the poorly named idea that consumers should be in charge of their own data. Doing so is intrinsic to how we think critically about the future of things like payment rails that will in-turn help drive greater consumer choice and reduce billions of dollars in lost transaction costs as our financial institutions face lower barriers to competition and entry.

Mark Carney didn’t get a chance in the last election campaign to talk much about competition because the election was overshadowed by all things Donald Trump. That doesn’t mean he likely doesn’t care about the issue, as his past writings would suggest otherwise.

The outgoing Trudeau government actually did a lot to improve Canadian competition policy, having undertaken several wide-ranging changes to the Competition Act when now Finance Minister Champagne was at ISED. The next phase of what needs to be done goes beyond the Act and into much thornier territory of federal statutes in areas like financial services and telecommunications. This will be an interesting file to watch.

Fiscal Multipliers Matter

One of the most unique additions to the 2025 Liberal Platform was the inclusion of fiscal multipliers as described in Annex A of the document. 

Essentially, this is meant to help quantify what the potential net-change in total economic activity will occur given a dollar spent in a certain way, at a certain time in the business cycle, by government. 

This is important because a dollar spent on broad tax cuts as opposed to investment incentives or social benefits will have far different effects in the economy as the economy itself adjusts savings, prices, capital and labour in response. 

A dollar spent may not actually produce a dollar of benefits; or the opposite, in a low demand environment it could in fact have an even bigger impact. 

This shows how and why the PM is infact our Chief Economist. He cares about understanding and demonstrating that the given plan is rigorous and will have an impact. This is why the PM talks frequently about “catalyzing” private sector investment alongside a given public policy. Not only will dollars have value in how they are spent in the economy, the goal is to create a new investment climate in Canada.

Organizations lobbying for a given project have often supplemented their public affairs campaigns with analysis from organizations like the Conference Board of Canada to demonstrate a version of the same thing. Public office holders at the Department of Finance are used to seeing these kinds of economic impact reports coming through the door. The difference here is the level of rigour.

Whereas it is commonplace for industry lobbyists in Ottawa to claim that a given investment will yield 5-6-7 dollars of added value in the economy – any good policy expert knows this is borderline bs, arrived at by counting a version of what multiple people might/maybe/perhaps do if properly induced after several rounds of dollars being recycled through the economy.

The multiplier analysis the PM is talking about is a much more narrowcast analysis that focuses on the first and a limited amount of second-order effects, which will in turn be sensitive to where we are at the current moment in the business cycle. 

Stakeholder Ottawa will need to up its game and be far more rigorous in demonstrating a strong evidence base for claims. As the PM has said of climate policy, we care now about outcomes, not objectives. 

And Meredith Boessekool & Phillips is here to help guide stakeholders through this new world of Carneynomics. 

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