Michael Sabia's New $100 Billion Credit Card

Imagine you get a call from your credit card company. They have some good news for you.

They’ve increased your spending limit for the next year. Maybe longer. No matter - your new limit is now four times higher than your current one!

And it gets better. They’ve dropped the interest rate on your unpaid balances down to a measly one per cent! Maybe at some point down the road that rate might go up, but for the next few years, it’s going to be down in this range.

Wow! Amazing! So, what to do with this newfound money?

Where will Michael Sabia help spend $100 billion?

Do you go out and run up the card on a new boat, ATV or dining room set? Maybe all three?

Or would you instead sign up for a course learning how to write code, or maybe enroll in an online Executive MBA program? Or would you buy a honking new sewing machine so you can mass produce your home-made pandemic masks that your friends and family all rave about and sell them on Shopify or Etsy?

The first options will be fun, but will leave you with a debt hangover for a long time. Lose your job or misfortune strikes and you’re in deep trouble. The second option, though, has an excellent chance of rewarding you with increased income and opportunities for growth down the road. Clearly, that’s the smarter use of the windfall you’ve been given.

This is the situation that Michael Sabia finds himself in today. He’s the former chair of the Caisse de Depot et Placement du Quebec, and for the past nine months has been chair of the struggling Canada Infrastructure Bank.

On Monday he becomes the new Deputy Minister of Finance and the person who will have a huge influence on decisions that Finance Minister Chrystia Freeland and the Liberal government will make as they roll out their $100 billion stimulus spending package next year.

The big unknown is how Mr. Sabia plans to help spend $100 billion of taxpayer money.

And that’s lot to spend – even in these times when it’s hard to keep track of what’s going out the door. Remember this: Canada’s 2020-21 deficit is set to rise to $381 billion, up more than 15x the $24.9 billion deficit of the previous fiscal year.

The $100 billion stimulus package coming next year – money Mr. Sabia will get to work with – is still four times greater than our $24.9 billion deficit from last fiscal year.

In other words, Michael Sabia has our national credit card in his pocket. We’re told not to be too concerned about the extra spending because rates are low and will stay that way.

So, we’re supposed to sit back and watch Mr. Sabia run up our credit card while he and the Liberals “build back better”.   

Build Back Smarter and Quicker

Maybe. It all depends what choices Mr. Sabia makes, just like we had to do with our credit card windfall above. Deficits come back to bite us when money is spent on poor choices. The best use of our debt right now, after short term emergency funding has past, is to stimulate the economy.

Here’s the problem. If we don’t spur economic growth with our spending spree, at some point we’ll have to pay the piper. If growth stalls, that means only one thing: tax rates will have to go up, and go up a lot.

So, if we’re wanting to continue to pile on debt under the banner of low interest rates, the money spent must have a direct impact on fueling economic growth.

It really does depend on what we spend the money on, and if that debt has any sort of multiplier effect. And where’s the best place to find that multiplier effect? The private sector – the true catalyst for economic growth.

We need to make sure that Mr. Sabia favours investment that allows the private sector to create new wealth and make the calls on where funding goes, which is much less risky than the government trying to make “strategic investments” and taking a hands-on approach on its own.

Look no further than the Canada Infrastructure Bank before Mr. Sabia arrived there to see a perfect example of how the government cannot get money out the door fast enough to where it’s needed. In its first three years since its inception in 2017, the bank sat on $35 billion and not one single shovel was put into the ground on a project.

Here are three key initiatives Mr. Sabia, along with Finance Minister Freeland and the government, can take to stimulate the economy with their $100 billion stimulus package:

1. Roll out infrastructure projects quickly and efficient. Mr. Sabia made a good start in his short tenure at the infrastructure bank – keep that going.
   
   
2. Eliminate federal corporate income tax for the next 12 months. We need to kick-start entrepreneurs and investment – let’s tell the world we’re open for business. Most of the “corporate’ income tax in Canada is paid by small businesses – and they’re the ones that have been hurt most in the pandemic. Let’s let them get back on their feet and reinvest whatever revenue they make back into their businesses and their futures.
   
   
3. Set aside a $5 billion energy transition innovation fund that, within 12 months, will quickly deploy non-dilutive funding to late-stage private companies involved in energy transition technologies. Oversight on the fund provided by investment banking heads of six Canadian investment dealers (three bank-owned, three independents) and chaired by Sabia himself. There is huge demand for capital at this stage, with projects in nuclear, hydrogen, carbon capture, geothermal, wind and solar across the country. Let’s kick start these projects and entrepreneurs at a time when we need it most.

Let’s focus on private sector investments that will build back smarter and quicker. Let’s kick start the entrepreneurial talent of the men and women and families who run our small businesses. Let’s get money out the door quickly to new technologies that will lead our energy transition efforts.

Let’s be sure we continue to offer short term help for those who need it the most. But once that’s covered, let’s let the private sector unleash the power of wealth creation for generations to come.

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