Paul Bagnell and Robert Tétrault
Paul: We’re back one more time with Rob Tetrault. He’s Portfolio Manager and Vice President at National Bank Financial. You’ve got some interesting thoughts on building surpluses. Surpluses that are building at the provincial government level and many provincial governments, and at the Federal level as well, and how that’s likely to be dealt with by those governments, how it may play into Canadian GDP.
Rob: Uh hm. The GDP numbers are – I think – are going to come out tomorrow. I think they’re going to be good, 3 1/2, 3.6, something like that. The surplus spending has caused a ton of dollars in the coffers, taxes now in the government’s coffers, both provincially and federally. They have a built-in buffer, if you will, of about 3 billion federally and 2.5 billion provincially, and in addition to that, we’re looking at anywhere from 5 to 10 billion in addition surplus. Now remember, the annual deficit is only 28 billion federally. So if we’re talking about, you know, maybe a $10 billion buffer that we can do there, the question is always, what have governments typically done? Do they put this to the bottom line or do they spend it? So obviously if they put it to the bottom line, the debt gets reduced, but in my view, we’ve done some research historically, and there’s actually a reverse correlation as to whether or not they actually put it in a growth market, whether or not they actually put the dollars towards the deficit or whether they spend it. We would expect them to likely spend it on infrastructure or payments to the provinces.
Paul: And do you expect that to further drive elevated GDP numbers? 3 1/2% is a pretty strong number, and that is the consensus call for tomorrow’s GDP winner.
Rob: These are very strong GDP numbers, and if you’re adding. It’s the ball that keeps rolling. If you’re adding another 5 to $10 billion, yes you’re going to create spending and GDP number increase.
Paul: Well, Tetrault, thanks a lot of being here. Please come back soon.
Rob: My pleasure, Paul.
Paul: That’s Rob Tetrault of the National Bank financial.