Front Burner - Trudeau’s WE Charity controversy deepens, and deficit 101

Episode Date: July 13, 2020

This is not your average quiet July in Ottawa. Prime Minister Justin Trudeau is embroiled in a new ethics investigation, and now there are revelations about members of his family receiving payment for their appearances at WE Charity events. On top of that, the Liberal government released an “economic and fiscal snapshot” showing the federal government’s deficit hitting an unprecedented $343 billion this year. Today on Front Burner, CBC Parliamentary reporter J.P. Tasker updates us on the latest in the Trudeau WE Charity controversy, and gives a back-to-basics explainer of the deficit.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Josh Bloch. Usually July is a pretty quiet month in Ottawa, but this is 2020, and it's not your average summer. So today, we asked CBC parliamentary reporter J.P. Tasker to swing by and start our week with an update about what's going on in our nation's capital. From the projected $343 billion deficit. Reality is that we've faced an enormous shock to our system. We took on debt so Canadians wouldn't have to. What we didn't hear was any kind of a

plan to support the reopening of our economy. To the latest in the Liberals' We Charity saga. For weeks now, the We Charity has denied it had a financial connection to the Trudeau family. Some of that money was actually paid directly from the charity, which it describes as a billing error. This is Frontburner. Hi JP, thank you for joining us. Hello Josh, thanks for having me. So we have a lot to talk about today. I want to start with the WE story, which we covered in last week's show.

The opposition is calling for a federal watchdog to look at how a charity with ties to the prime minister was able to get a $900 million sole-sourced contract. The way this situation has unfolded has been unfortunate. sourced contract. The way this situation has unfolded has been unfortunate. We will continue to work hard to make sure that young people get the opportunities to serve their country, but it will no longer be with the organization WE. We since learned that members of the Trudeau family had in fact been paid to speak at WE charity events. Can you explain to me, like, why is this a big deal? Yeah, with every passing day, there seems to be a new development to this story. And there were, as you say, some significant revelations last week on this file.

For one, we now know just how intertwined financially the Trudeau family is with this organization. In the case of Margaret Trudeau. I'm so proud to be part of WE as well. Now, WE, I love it the most because it is neither a political movement... She's received a quarter of a million dollars, $250,000 in speaking fees in the last four years. She did 28 different events for WE between 2016 and 2020. And in the case of Alexandre, Sasha Trudeau, the prime minister's brother, he collected over 30 grand from the group in the same period. Great adventure started up for me at a young age with a prime minister father and a world traveler one to boot.

This is recent stuff. We're not talking about payments from a decade ago. In some cases, this was for events this year. And remember, Josh, we maintained all along that it hadn't been paying Margaret Trudeau. You know, we asked specifically about any payments that they might have made, and they said, no, there was no cash exchange. And we know that's simply not true. You know, we recanted those earlier statements and came clean about the payments after the news blog, Canada Land, was about to publish a story with receipts showing that the two of them had been paid. We also learned that Sophie Gregoire Trudeau, the prime minister's wife,

was also paid by WE. We know that she's been hosting this podcast. I am Sophie Gregoire Trudeau, ambassador and ally for WE Wellbeing. She's been doing that for free for them. But some years ago, she was paid about $1,500 to do work for them, although that did come before Justin Trudeau had the top job. But all that to say, there are so many more questions now as to why the federal government and cabinet agreed to hand such a big contract to a charity that has such close personal ties to the prime minister. to the prime minister. Well, and it's interesting to note that past guests at WE charity events and these WE days have since also come out and been like, whoa, I didn't realize people were getting paid.

I was asked to do this for free. Yeah, oops, right? We learned that Le Devoir, a columnist there named Emily Nicolas, and a former hockey player, NHL star Theo Fleury, R&B singer Julie Black. We day, can I hear you make some noise? You know, a big name in Canadian music. She posted on her Instagram feed last week that she also wasn't paid for her appearance.

So they were told they didn't pay speakers. You know, we said that that's not in the cards. So there seems to be some sort of a double standard here. So we've also learned that the Trudeau family isn't the only one in the government with connections to WE. What do we know about Finance Minister Bill Morneau's ties to the charity? Yeah, exactly. It's not just Prime Minister Justin Trudeau. Finance Minister Bill Morneau's daughter works for the charity, Grace Atkan. She's a paid employee of the charity's travel department and has been since 2019.

And then his other daughter, Claire, has also been involved with the We Charity. She's spoken at these We Day events. Tens of thousands in attendance. Hundreds of thousands watching online. There are like these big arena concert style celebrations where there's, you know, thousands of school-aged kids and students and they gather to hear motivational speeches she was one of those speechifiers she was at one of those events so there are questions about moreno's involvement with this grants contract but also other money that he's given we were learning more about other contracts uh that the charity has gotten from the federal government in august 2019 they got three million, the WE organization from the federal government, to create youth-led enterprises to address social issues. Morneau personally made that announcement on behalf of

the government department responsible. So there's that and other contracts and grants and other cases where Ottawa has floated money to WE to pay for various initiatives. And Morneau's, of course, the guy who has his eye on the finances. He's the one who has to sign off at the end of the day and all this stuff. So we're learning that he too has family tied to this charity. And to be clear, his daughter Claire spoke at WE Day events, but she wasn't paid. That's according to Morneau's office. That's right. Yeah, that's according to Morneau's spokesperson. That's right. Yeah, that's according to Morneau's spokesperson. And so we have these ties between the Trudeau family and we, between Morneau's family and we,

and yet this big contract for we went through without either of them recusing themselves. Yeah, that was a big revelation as well last week. The Prime Minister was asked directly, did you recuse yourself from cabinet discussions about this charitable contract? Were you clear with your cabinet colleagues that you had these family ties? And he wasn't quite clear on that question, but he did make it clear that yes, he discussed and approved awarding this contract with his cabinet colleagues, but he did not recuse himself. Did you recuse yourself from that discussion and the decision at cabinet? No, I did not. Despite his family's involvement with the charity, he was still privy to all these cabinet talks about, you know, giving we this opportunity. I should say, though, the government maintains, and they have said all along that all

was above board, that it wasn't actually the prime minister or Bill Morneau, the finance minister who put forward WE as a possible name to administer the student grants program. It was actually public servants. And as the public service dug into it, they came back with only one organization that was capable of networking and organizing and delivering this program on the scale that we needed it, and that was the WE program.

It had nothing to do with the prime minister's past relationship with the charity. They didn't get it because they were trying to curry favour with the prime minister. But then critics will say at some point the cabinet did have to approve it, even if it didn't originate with the PMO. That's right. And they didn't recuse themselves in both cases, despite those fairly substantial financial and personal ties. I know NDP ethics critic Charlie Angus said on Power and Politics that given these close connections between we and the Trudeau family, he called it the stupidest scandal. Tell me more about the political reaction to these revelations.

Tell me more about the political reaction to these revelations. Yeah, the political reaction has been fast, furious, and entirely negative, as you point out. A lot of people are saying, how could this happen? You would have thought there was an adult in the room with the prime minister saying, hey, Justin, you cannot give a billion dollars to people that your family worked for. I mean, Black Quebecois leader Yves-François Bachelet is calling on the prime minister to temporarily step aside, you know, to hand the reins to Deputy Prime Minister Chrystia Freeland until the ethics commissioner has had a chance to take a look at all this,

because we know he's doing that now. But beyond an ethics probe, the conservatives are actually calling for a criminal investigation. They want the RCMP to take a look at how all this came to be. Canadians deserve to have a prime minister. They deserve to have a cabinet and a parliament that they have confidence in. And it is clear that that confidence has been shaken. This is such a huge conflict of interest if it proves to be true

that Canadians and Quebecers cannot go on. You know, they're pointing to a section in the criminal code that relates to frauds on the government. And it's not clear if it applies to this, but it's clear there is an offense on the books that it is criminal to give an elected official or a member of their family a loan or reward and advantage or, you know, a benefit of any kind in exchange for a contract or or a transaction of some sort with the government so they said that could be an avenue for the police to explore in this case i'm wondering if you've heard anything about that investigation and what do you believe is criminal about the the we scandal a controversy well uh first of all the

rcmp says that claims that they don't make uh that they don't make public the status or non-status of an investigation. So they will not tell us what they're planning to do at this point. That said, we're watching very carefully. So where does this go next well it'll be up to the ethics commissioner to investigate the prime minister and pierre polyev the finance critic for the conservative party was asking the ethics commission to extend uh that probe to include more note now that we know about his family ties and and all his connections to this affair. So we might see that. I mean, these take a long time.

These ethics probes can last for months on end. But I imagine the Conservatives will do all they can, and the other opposition parties will do all they can to keep this in the headlines, because they know ethical scandals like this in the past, like SNC-Lavalin, the Prime Minister's trip to that private island, really hurt the Liberal Party's standing in the eyes of Canadians. So I expect them to keep banging this drum for some time. OK, well, we'll continue to watch that story.

But of course, while all this is going on, we also had this fiscal snapshot last week that the government provided us. We've obviously taken on enormous challenges as a country over the course of the last few months. The federal government has taken a position that we need to support Canadians. And it showed that the federal government's deficit is hitting $343 billion. Finance Minister Bill Morneau said that the reality is we've witnessed an unprecedented shock to our system with COVID.

I know that this is a very dynamic challenge. Our economic outcomes will be very much about how we successfully manage the health challenge. So we will continue to make decisions in a dynamic way. In future episodes, we're going to talk a bit more about the different approaches to dealing with national debt. But for today, I'm hoping that you could walk me through the basics of this.

Like, how did we arrive at $343 billion of debt? Yeah, it's massive. Yeah, the government is projected to spend more this year, in 2020, 2021, in the fiscal year of the government and more than any other year since the second world war and that deficit will push the total federal debt to over a trillion dollars up from 765 billion now we're looking at about 1.2 trillion dollars in federal debt this year and yeah it's not a mystery it's not a mystery. It's not a mystery, as you say, why we're in the midst of really crazy times and they've increased spending substantially to prop up an

economy that's on the ropes, you know, helping out people who are in really difficult times. They have big ticket items that they've rolled out. Extension of the CERB, the Canada Emergency Response Benefit, the CERB as people like to call it, an extra $50 billion for the wage subsidy. There's another $10 billion in here as well for the Employment Insurance Program. So there are dozens of programs in the works that have really added up. I imagine also revenues have plummeted as people are working less. Absolutely, yeah. We've seen massive drops in that too. The amount of personal income taxes that the government is going to collect this year, they project to collect, is down 30% year over year. Corporate taxes are down 10% year over year. Every tax you can think of is down considerably, and that's blown a huge hole in the budget.

As you mentioned, our debt may surpass a trillion dollars. Who do we owe this money to? Yeah, it's all a bit opaque. It's hard for the average person to understand. But basically, the government raises money from the public or from institutions that are buying. They're buying our securities. They're buying our bonds. So the government is selling securities and bonds to investors. Most of them are Canadians, like mutual funds, big banks, institutional investors. Some of them are foreigners as well. But in return for lending to the government, essentially lending money to the government, investors get a guaranteed return on that investment. It's a very safe investment. Investors know that Canada isn't

likely to default on its debt. And, you know, in these crazy times, these uncertain times, people are really hoovering up Canadian debt because they know they'll make, you know, an all but guaranteed amount down the line. So they buy short term securities, like for five years, they buy long term securities, like they'll be due in 30 years time. But with the bank rate so low, I mean, we're at 0.25% right now, the cost for the Canadian government to borrow this money from investors is so low, extremely low, you know, it's a fraction of what it was in the 80s and 90s. So that's why Morneau said this week, you know,

the federal government has the capacity to borrow more at lower rates over a longer period of time than most consumers or Canadian businesses or what have you. So it made sense for Ottawa to be sort of this fiscal backstop, if you will, to shoulder all of the burden, all the financial burden at this time, because they are able to do so at such favorable rates. Rather than ordinary Canadians having to take on these debts themselves. Yeah, exactly. When you float $2,000 a month to the average person with the CERB, they're not putting that on their credit card, right? They're going to have more flexibility, more financial flexibility. It costs the government, but at least you're not, you know,

borrowing more on your visa at 19% annual interest rates. You know, the government's getting it at 0.25. If the federal government hadn't taken on significant debt in order to send money to Canadians to support businesses and households, what would Canadians have done? They would have loaded up their credit cards. They would have scrambled to try and find ways to pay their bills and pay their groceries. And as you mentioned, these loans, they last for different amounts of time. So some loans

are paid back at five years, some at 30 years. So it's not like tomorrow or next year, suddenly the Canadian government's going to owe a trillion dollars and have to pay it back. Yeah, no, absolutely. It is over the longer term. But of course, you have to worry about being on this debt treadmill, if you will, you know, you just, you don't want to have more and more of the federal budget going to pay and service debt costs. Although they did say this week that even though the size of the debt has exploded, the cost to service the debt, at least in the short term, at least this year, will actually be $4 billion lower than what they projected last December. Even though they're spending so much more money, it's actually going to be less in borrowing costs this year because of those lower interest rates, because of the longer terms they've been able to negotiate, and because there's such a strong demand from bondholders who are looking to buy Canadian debt, Morneau said this is a better situation than they could ever imagine. You know, they'd never thought even if they'd be spending this much more,

they'd actually be paying less this year to service it. So we're in a decent position. Well, it's interesting that you mentioned that because it does seem like despite these huge numbers, economists aren't freaking out. And is it because of what you've just mentioned? Yeah, I mean, it depends which economists you talk to, of course. Everyone's got their own opinion. But yeah, the eye-popping deficit numbers aside, I mean, the debt-to-GDP ratio, which really measures the size of the debt compared to the entire country's economy, that's really gone up significantly as well. It's gone from, I think it was 30% they projected last year. It's now going to be about 49%. So that huge swing is attributed to a shrinking economy. Of course, people aren't going to restaurants, hotels,

the oil sector's in trouble. People aren't buying homes and cars. So the debt is higher and the economy is smaller. But the bright side, as you say, with economists is that that debt to GDP ratio is actually lower than what it was in the 90s. It peaked at 66 percent in 1995. So we're at 49 now. So we still have a lot of fiscal room. I mean, in the 90s, they said the Wall Street Journal, I don't know if you remember this, called Canada, you know, an honorary member of the third world because our debt problem was just so unmanageable. There are times in the progress of a people when fundamental challenges must be faced and a new course charted. For Canada, this is one of those times.

And the budget measures Paul Martin introduced do indeed chart a new course for the country. Well, we're not at that point. We're 20 points back from that. So while, you know, the size of the debt has exploded relative to the size of our economy, it's actually lower than it's been in the past. It was interesting that I saw that Scotiabank recently put out this analysis saying that if the government hadn't provided the relief that it did, if it hadn't spent the way it spent, it actually would have been worse for the economy and would only slightly increase our position in terms of our debt level. I mean, there seems to

be a kind of consensus. I mean, obviously, there's differing opinions, but that the spending kind of had to happen in the way it happened. Bill Morneau said that last week, you know, we had to support people. There could have been millions more jobs lost if we didn't have the wage subsidy. There'd be millions more people going to food banks if we hadn't floated the CERB. You know, there'd be restaurants really hurting if they didn't have access to the business account to get, you know, $10,000 in forgivable loans. The consensus is that, yes, it's a bit painful to take on this much debt, but the alternative would have been a lot worse. alternative would have been a lot worse. empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here.

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vision together. To listen to this podcast, just search for Money for Couples. And so now we get to this stickier matter of what do governments do to start to actually deal with that debt? And this is a question that we'll continue to explore in the weeks and months ahead. But I want to ask you, what do most governments do when they start to have to address a huge debt or deficit like this? address a huge debt or deficit like this? So there are concerns that if we don't rein in, that the debt will spiral out of control. Because listen, we're just talking about what we spent so far. There's still some talk of a fiscal stimulus plan to rebuild the economy when the pandemic has died down. So beyond relief, let's talk about recovery. So the government could, in theory, down. So beyond relief, let's talk about recovery. So the government could, in theory, be spending billions more this year alone to jumpstart certain sectors. We might see more subway lines. We might

see some hockey rinks pop up or community centers and communities across the country as part of sort of a fiscal stimulus plan. The goal is to enable us to do that safely so that demand will be there for our economy. And of course the level of that demand, the level of our effectiveness together in getting back to work and getting jobs going again will very much determine the next steps. There's even talk about massive investments in childcare to help working parents. Having access to childcare is going to be critically important for us to get back to work. Women have been harder hit through the course of this pandemic,

and our measures therefore need to consider that challenge. That could only add to what is an impressive level of spending, but I maintain that that spending cannot go on forever. And at some point they will have to either cut, or they will have to raise taxes, or a bit of both. And when do you expect that we are going to get some kind of announcement from the government about which direction they will be taking? I think it will be weeks down the line, months down the line,

because we're just not out of it yet. They've said, you know, it's fine to talk about the future, but we really need to focus on the right now. And the right now is still concerning. You know, we still have the highest unemployment rate in the group of seven nations. We have the highest in the developed world right now. So I think it will be quite some time before we get any sort of permanent fiscal plan to really pay down this deficit and this debt. I don't think we'll be seeing anything concrete from this

government in 2020. Well, between, you, between a pandemic and our economic situation and the issues surrounding the weed charity, it sounds like at least some people in Ottawa will be working through the summer. I'll have a job for sure. JP, thank you so much for speaking with me. Thanks, Josh. So before we say goodbye today... Welcome home. Welcome home. That's the sound of masked but clearly smiling Disney World staff announcing this weekend's reopening of the Orlando, Florida resort in a promotional video.

Disney World has been closed since March 15th, but partially reopened Saturday to thousands of adoring fans. The move to reopen coincided with other Florida news. On Sunday, the Sunshine State shattered the U.S. record for the largest single-day increase in coronavirus cases, with over 15,000 people testing positive. That's all for today. I'm Josh Bloch. Thanks for listening to FrontBurner.