As Conservative leader Pierre Poilievre transitioned from criticizing the government’s mini-budget on Thursday to suggesting what he would do instead, he turned around to have a private conversation with his caucus.

“We’re going to inherit this mess, all of us. We’re going to have to fix the problem. We have a big job ahead of us, don’t we?” he said.

There were a few surprised laughs from his colleagues, some cheers, and a spasm of bewildered heckles from the government benches.

It’s rare that a member of Parliament will turn his back to the speaker and the opposite benches, and rarer still for an opposition leader to talk about assuming power with all the enthusiasm of a weary school janitor getting ready to tackle a messy lunchroom.

Poilievre’s speech in the House of Commons travelled the same terrain as the ones he delivered during the Conservative leadership race, taking aim at gatekeepers of all kinds and promising to restrain government spending, but it also illuminated some key areas of agreement and disagreement with his political adversaries.

Poilievre front-loaded the disagreements, painting a picture of small-government Conservatives and big-government Liberals.

“When we Conservatives learn that the costly coalition was going to table this fall economic statement, we had two demands first, no new taxes. Second, no new spending unless that spending is paid through savings made elsewhere,” said Poilievre.

Although Freeland’s speech warned that the finances will be tighter in a world seized by high inflation, global conflict, and an ambient buzz of uncertainty, she still touted government as the main buffer against these threats.

“Canada cannot avoid the global slowdown any more than we could have avoided COVID once it had begun infecting the world. But we will be ready. Indeed, we are ready. That’s because for the past seven years, our government has been reinforcing Canada’s social safety net,” said Freeland.

“We have improved many important programs and added some new ones too,” said Freeland.

The balance sheets in the fall economic statement back Freeland up.

Even a few years down the road, when budget surpluses are on the horizon, the government is projecting that program spending will continue to be higher than it has been in the last two decades.

At about 15 percent of GDP this year, program spending has reached levels not seen since 1993, said University of Calgary economist Trevor Tombe, in an interview with The Hub. That number will taper off over the next five years but still remain about a percentage point higher than the average of the previous 20 years, according to Tombe’s calculations.

Anyone listening carefully to Poilievre’s words will notice that he hasn’t exactly called for cuts, but simply not to create programs without finding room in the budget first. He’s also promised to lead a government that does “a few important things well rather than many things poorly.”

And although Poilievre and Freeland both talked up their disagreements, the areas of consensus could be revealing.

Freeland has spoken recently about “friend-shoring,” which means bringing home vital manufacturing to Canada and its allies.

“We have the critical minerals and metals that are essential for everything, from cell phones to batteries, to appliances, to electric cars,” said Freeland, who promised to invest in these industries and bring skilled workers.

Poilievre seemed to agree with the premise but mocked the idea that the government could get it done.

“The minister said today, she’s going to pitch the world on our critical minerals. Problem is, she can’t get them out of the ground. She’s gonna tell everyone that they exist. Out there in that field, there’s some lithium and copper and nickel. But you have to wait seven years for us to give a permit for anyone to dig that mine,” said Poilievre.

A recent paper about a Canadian “supply rebuild,” co-authored by Edward Greenspon, the president and CEO of the Public Policy Forum, and Sean Speer, The Hub‘s editor-at-large, pointed out that these initiatives are naturally appealing to those on the moderate-right because they invariably involve an effort to slash red tape.

In the wake of the pandemic and the Russian invasion of Ukraine, both of which have snarled global supply chains, there has been a cross-ideological effort to lessen Western dependency on adversaries like China and Russia.

United States Treasury secretary Janet Yellen has referred to it as a “modern supply-side economics” and, in conversations with Freeland, has suggested that Canada could benefit from a concerted friend-shoring movement that pulls jobs away from China and toward U.S. allies.

Considering that inflation continues to confound many of the world’s largest economies, the idea of increasing costs further with friend-shoring efforts could be unappealing to many firms, wrote Michael Every, a global strategist at Rabobank, a large Dutch financial services company.

But in a note to clients, Every points out that the trend was already underway prior to the pandemic and could accelerate with governments putting their thumbs on the scale for national security reasons.

A Rabobank simulation of this accelerated friend-shoring movement finds that up to 28 million critical jobs could theoretically leave China, which would see China’s trade surplus decline from 3 percent to -0.6 percent of GDP.

While most of the manufacturing jobs will end up in countries like India and Bangladesh, Canada could lay claim to more than 100,000 high-tech jobs, according to the Rabobank estimates.

Are Prime Minister Justin Trudeau’s Liberals turning back the clock on almost eight years of rising federal spending? 

On November 3, Ottawa will release its fall economic statement, an annual update of revenue and spending projections in the near term, which is expected to contain notice of more restrained spending by the federal government going forward. 

Finance Minister Chrystia Freeland is already reported to have told her cabinet colleagues that money for new programs will have to be partially offset by cuts to existing ones. 

According to Statistics Canada, 2022 is projected to be just the second year that public spending as a share of GDP shrinks since the Liberals won the 2015 federal election. It is a departure for Trudeau’s government, which first came to power promising budget deficits to boost government spending. 

“I don’t think they ever wanted to, or ever probably anticipated, the need to enter into some kind of real austerity agenda, and I’m not sure they will yet,” says Eugene Lang, a former chief of staff in the governments of Liberal Prime Ministers Jean Chretien and Paul Martin.

While the word “austerity” has been spread on social media to describe Freeland’s upcoming spending plans, the federal deficit was still projected to be $25.8 billion for the 2022-2023 fiscal year by the Parliamentary Budget Office last month.

During the COVID-19 pandemic, the federal government ran deficits of $327.7 billion in 2020-21 and $90.2 billion in 2021-22. These historic deficits were due to a combination of a big drop in revenues and a massive increase in program spending including emergency programs.

In a separate yet related development, the Bank of Canada has begun hiking interest rates to quell inflation brought about by, among other reasons, too many new Canadian dollars in the economy and too little supply of too many different goods. Rate hikes are expected to continue even if the Bank’s tighter monetary policy pushes Canada’s economy into a recession.

Philip Cross, a Senior Fellow at the Macdonald-Laurier Institute, believes that a constrained federal budget paired with Bank rate hikes will be no coincidence. 

“All of that tells me that the Bank and the Department of Finance are in regular communication,” says Cross. “You want fiscal and monetary policy working together.” 

The aftermath of U.K. Prime Minister Liz Truss’ own disastrous mini-budget, containing significant tax cuts without offsetting spending reductions, now looms over fiscal policy decisions in Canada and elsewhere. Truss’ expansionary mini-budget, which was projected to cause a surge in debt, caused bond markets to panic, resulting in an economic and political fallout that ultimately led to Truss losing her job.

The Bank of England was undergoing its own program of rate hikes to curb inflation in the U.K. at the time. Like the Bank of Canada, the Bank of England has kept raising rates as Rishi Sunak, Truss’ replacement as prime minister, has reversed the government’s mini-budget and promised greater fiscal restraint.

“I think there’s a big risk if you go up against monetary policy by increasing fiscal, and in a way that is clearly inflationary,” says Karyne Charbonneau, Executive Director of Economics at CIBC Capital Markets. “It’s really going to rattle the markets because you’re forcing the central bank to do even more, which is going to push the economy into a bigger, deeper hole.” 

Charbonneau says fiscal policy by the federal government, and monetary policy by the central bank, have been responsibly aligned in Canada.

Prior to the pandemic beginning in February 2020, the Trudeau government ran a series of consecutive deficits including $17.8 billion in 2016-2017, $19 billion in 2017-2018, $14.0 billion in 2018-2019, and $39.4 billion in 2019-2020.

There are also no indications that the federal budget is expected to be balanced for several years, which is consistent with historical fiscal trends. A 2017 Fraser Institute study found that from 1867 to 2017, nearly 75 percent of all federal budgets passed in Canada had incurred deficits. 

As for political economy dynamics at play around this week’s economic statement, Lang says sensitivity to private sector concerns has not been the Trudeau government’s speciality, despite its emergency measures to aid businesses during the pandemic, such as $40,000 interest-free loans.

“This is not their constituency, it’s not their brand. If you will, it’s not the terrain on which they feel comfortable,” says Lang. 

Regarding lower federal spending, Lang says the massive budgets of the pandemic were unsustainable.

Lang also says fiscally-minded Liberals from the more austere Chretien and Martin governments, also known as Blue Liberals, are probably feeling some satisfaction at the likely budget reductions to help tame inflation. 

Many of these Blue Liberals have expressed concerns about the economic risks of the Trudeau government spending too much borrowed money.  

“It’s always great to have your biases confirmed with reality,” says Lang. “I’m sure there are lots of ‘I told you so’ going on.” 

The fall economic statement will be unveiled on Thursday, November 3. `