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This week’s cabinet retreat in St. Andrews, N.B., was mainly about one thing: the economy, and what’s to be done for it.

Stimulus in the form of accelerated infrastructure spending is the most obvious policy prescription for an ailing economy. That implies a deficit bigger than the $10 billion figure promised by the Liberals in last fall’s election campaign.

But in a news conference following the meeting, Prime Minister Justin Trudeau declined to answer a question about whether the deficit would exceed $10 billion.

That was a mistake. For one thing, Trudeau was only delaying the inevitable sticker shock; the deficit is now expected to be at least $20 billion, possibly more.

For another, the election campaign ended three months ago, in another economic era. Back then, the benchmark price of oil was $49 U.S.; on Tuesday it was trading at just $29 a barrel. The Canadian dollar, then at 76 cents U.S., has plummeted to around 69 cents. These are both 13-year lows.

When the Canadian discount is included on oil exports to the U.S., our benchmark Western Canadian Select is selling at only $15 — less than half the cost of getting heavy crude out of the oilsands.

This is costing Ottawa billions in revenue. With oil trading $20 a barrel below the price when the Liberals took office, and with every $5 drop costing the federal treasury $1 billion, Ottawa is looking at a $4 billion shortfall — on top of the $3.5 billion deficit they unexpectedly inherited from the Conservatives, plus a $1.2 billion miss from the Liberals’ own failed promise to offset the cost of their middle tax class cut with a tax increase on the top 1 per cent of earners. A $10 billion deficit is no longer the target — it’s the floor, before even a dollar’s worth of stimulative spending begins to flow.

As for the losses Canadians have suffered due to the oil shock and other drops in commodity prices, Bank of Canada Governor Stephen Poloz put it quite succinctly in a speech two weeks ago. “Measured at annual rates,” he said of the crash in commodities since 2014, “this represents a loss of more than $50 billion in annual income, or about $1,500 for every Canadian.” Not just for everyone in the work force — for every man, woman and child in the country.

Poloz went on: “The fact is that a decline in commodity prices such as the one we have seen is one of the most complex price shocks that a policy-maker can face.”

With the Federal Reserve going in the other direction in the U.S., a rate cut might put further downward pressure on the loonie. On the other hand, a rate cut might be already priced in. With the Federal Reserve going in the other direction in the U.S., a rate cut might put further downward pressure on the loonie. On the other hand, a rate cut might be already priced in.

And the worst may not be over. With the lifting of economic sanctions against Iran, more oil will soon be flooding the market, pushing prices down even further. On Monday, Iran announced it would increase oil production by 500,000 barrels per day, all of it for export.

The Bank of Canada’s latest quarterly Business Outlook Survey found the business community in a gloomy mood, reporting low investment and hiring intentions. And the survey was taken before the accelerated January slide in oil and the loonie. On Wednesday, the Bank will release its quarterly Monetary Policy Report, including its forecast for the Canadian economy. Conditions clearly have deteriorated since its last report in October, when the Bank forecast 1.1 per cent economic growth for 2015 and 2 per cent growth for 2016.

No one is blaming any of this on the Liberals. None of it is their fault. The question is, what are they going to do about it now?

One option is to speed up infrastructure spending and start getting money out the door for shovel-ready projects even before the budget, which is probably still two months away. (The third week in March, leading into the Easter break, is the most likely window, and since budgets are usually tabled on Tuesdays, circle March 22 on your calendar.)

There’s no doubt that infrastructure spending has the desired effect of stimulating the economy. The Department of Finance calculates that every dollar of infrastructure spending generates $1.50 in economic activity.

Then there’s the matter of the infrastructure funding formula, which traditionally splits costs three ways between Ottawa, the provinces and municipalities. Some provinces and municipalities are saying they’re strapped for cash. Alberta, once the motor of the Canadian economy, is in a recession, with its NDP government looking at a $6 billion current deficit. Infrastructure and Communities Minister Amarjeet Sohi, himself an Albertan from the Edmonton region, told CTV’s Question Period Sunday he sympathizes with the plight of hard-pressed provinces and cities, indicating a degree of flexibility in the funding formula might be considered.

“Whether we change the funding formula,” he said, “that will be done in consultations with them.”

The previous Conservative government already had budgeted $65 billion in infrastructure spending over the next years, and the Liberals promised a further $60 billion for transit, green and social spending over that time. But only $17 billion of that was to have been spent during the Liberals’ current four-year term.

That was then, this is now. As for the deficit, at $18 billion it would be only 1 per cent of GDP. Even at $25 billion it would only hit 1.4 per cent of GDP. The more important ratio is debt-to-GDP, and Ottawa’s is just over 30 per cent, lowest in the G7. (It’s not surprisingly, then, that debt-to-GDP has become the Liberals’ reference point.)

Fiscal policy is one tool for stimulating the economy — monetary policy is obviously another. Governor Poloz will be making an announcement on the Bank’s overnight rate Wednesday and the market is divided on whether he will (or should) cut another 25 basis points to 0.25 per cent. With the Federal Reserve going in the other direction in the U.S., that might put further downward pressure on the loonie. On the other hand, a rate cut might be already priced in.

This is an important moment — and a difficult call.

L. Ian MacDonald is editor of Policy, the bi-monthly magazine of Canadian politics and public policy. He is the author of five books. He served as chief speechwriter to Prime Minister Brian Mulroney from 1985-88, and later as head of the public affairs division of the Canadian Embassy in Washington from 1992-94.

The views, opinions and positions expressed by all iPolitics columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of iPolitics.