(Bloomberg) — Canadian Finance Minister Bill Morneau resigned after a rift with Justin Trudeau proved impossible to repair, leaving the cabinet with a major hole in the midst of a deep recession.
Morneau made the announcement at a press conference in Ottawa on Monday evening, saying he told the prime minister earlier in the day that he doesn’t intend to run in the next election. Trudeau didn’t immediately name a replacement, but the job won’t be filled by former Bank of England governor Mark Carney, according to two people familiar with the matter.
The departure comes at a critical moment for Trudeau as his government crafts a plan for economic recovery amid historically high unemployment. Morneau was seen as one of the more fiscally cautious members of the cabinet, and the prime minister’s office and the finance department have disagreed over how to direct C$240 billion ($182 billion) in Covid-19 emergency spending. Canada is poised to run a record deficit of about 16% of gross domestic product this year.
The Canadian dollar was little changed, initially falling less than 0.1% to C$1.3232 per U.S. dollar before bouncing back. It was trading at C$1.3196 as of 10:31 p.m. Ottawa time.
Bill Morneau speaks during a news conference in Ottawa, Ontario, Canada, on Aug. 17.
Photographer: David Kawai/Bloomberg
“Any serious market reaction is likely to await the announcement of a replacement, and thus any related potential shift in policy direction,”
Doug Porter, chief economist at Bank of Montreal, said in a report to investors. “The longer term issue is whether the pandemic-related surge in spending to support the economy through the shutdowns morphs into something more permanent with the accompanying deficit, debt and tax implications.”
Deputy Prime Minister Chrystia Freeland’s name has been circulated as a potential replacement for Morneau. She would be the first woman to hold the job. Foreign Minister Francois-Philippe Champagne, one of Trudeau’s most trusted ministers, is considered a possibility, as is Jean-Yves Duclos, a Quebec economist who is president of the Treasury board, a cabinet post.
“It’s the right time for a new finance minister to deliver on that plan for the long and challenging road ahead,” Morneau said.
“Like any job, there’s a time where you’re the appropriate person in the role, and there’s a time when you have to decide when you’re not the appropriate person in the role.”
Morneau said he would put his name forward to be secretary general of the Organisation for Economic Co-operation and Development.
The Trudeau-Morneau rift burst into full view after Bloomberg reported on Aug. 10 that Carney, the only person to run two major nations’ central banks, is advising the prime minister on an economic recovery plan. Trudeau released an extraordinary statement the following afternoon stating his “full confidence” in Morneau, as speculation grew over whether the minister would be replaced in an expected cabinet shuffle.
The two men met on Monday at Rideau Cottage, Trudeau’s residence, for about 30 minutes, according to a person familiar with events.
Multiple officials told Bloomberg that divisions between the prime minister’s office and Morneau’s finance department grew over how to design the government’s response to Covid-19. Points of debate have included how much unemployed workers should receive under the government’s flagship Covid-19 income support program and whether to increase a wage subsidy for businesses affected by the pandemic.
Morneau was also caught by surprise by Carney’s recent involvement, according to one person familiar with the situation.
“A finance minister needs to have a compelling vision for the economic future of the country and be empowered to achieve it,” said Jean-Francois Perrault, chief economist at Bank of Nova Scotia.
Justin Trudeau shakes hands with Bill Morneau during a swearing in ceremony for the new Liberal cabinet in 2019.
Photographer: David Kawai/Bloomberg
The controversy over a C$43.5 million government student grant contract had also strained the relationship. Trudeau and Morneau are both under investigation by the government’s ethics watchdog over potential conflict of interest in the awarding of the contract to the WE Charity, which has used Trudeau’s mother, brother and wife as paid speakers at events and employed Morneau’s daughter. Both men appeared before parliamentary committees over the matter.
“Every step of the way, Bill and I have worked closely together, along with our team of cabinet ministers and caucus members to help Canadians navigate this challenging time,” Trudeau said in a statement. “Our number one priority has been supporting Canadian families and businesses the best and fastest way possible.”
(Updates with Canadian dollar trading information and information about the meeting between Morneau and Trudeau on Monday.)
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