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REFILE-Canada's Trudeau, finance minister clash over green plans, soaring deficit

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OTTAWA, Aug 16 (Reuters) - A deepening rift between Canadian Prime Minister Justin Trudeau and his finance minister about coronavirus spending is also fueled by disagreements over the scope and scale of proposed green initiatives, three sources familiar with the matter said.

Trudeau and Finance Minister Bill Morneau are scheduled to meet on Monday in a bid to sort out their differences, said a fourth source aware of the meeting. The sources requested anonymity given the sensitivity of the situation.

Morneau and his team have pushed back against other cabinet ministers about how much funding was needed, including to what extent the recovery could be helped by investing in environmental projects, the people added.

Trudeau, who campaigned on a platform to tackle climate change, believes the 2021 budget should have an ambitious environmental element to start weaning the heavily oil-dependent economy off fossil fuels and has recently hired former Bank of England governor Mark Carney as an informal adviser, aides say.

The appointment, coupled with a Globe and Mail report that Trudeau and Morneau had clashed over the amount of money Ottawa is spending to combat the coronavirus, led to speculation about the future of the finance minister. Morneau, 57, has been in the job since the Liberals took power in late 2015.

Asked for a reaction to the Reuters reporting, Trudeau spokesman Cameron Ahmad noted the prime minister issued a statement on Tuesday saying he had “full confidence” in Morneau, who confidants say is alarmed by ballooning budget deficits.

Environment Minister Jonathan Wilkinson along with Infrastructure Minister Catherine McKenna, who is a former environment minister, have met with top civil servants to discuss options that could involve billions of dollars in extra spending, said one of the three sources familiar with the matter. Heritage Minister Steven Guilbeault, a life-long green activist, also attended the meetings.

Morneau’s resistance to expensive environmental initiatives reflects his roots in Bay Street, Toronto’s financial center, and a view held among right-leaning Liberals that deficits are out of control.

“The idea of greening the economy just by spending money on every project you have in front of you is not really serious,” said a fifth source sympathetic to Morneau’s position.

Possible budget measures range from investments to help provinces reduce their carbon footprint, boosting research into clean technology and encouraging the construction of efficient buildings.

“Morneau has been saying: ‘We need to get a grip’. And that isn’t always popular,” said one of the three sources familiar with the matter.

The offices of Morneau and the three ministers did not respond to requests for comment.

Canada’s budget deficit is forecast to hit C$343.2 billion ($253.4 billion), the largest shortfall since World War Two, this fiscal year. Total coronavirus support is nearly 14% of gross domestic product.

“He was not very keen on a huge deficit; that’s not what he wanted as his legacy,” said a sixth source familiar with Morneau’s thinking.

Problems between a finance minister and colleagues with ambitious and expensive proposals are not unusual. “Every single department in government that spends money ends up butting heads with Finance,” said the fifth source.

But Morneau is feeling increasingly isolated at the cabinet table, with no close allies among his colleagues, according to the source.

Adding to Morneau’s challenges, several cabinet members were upset when he revealed that he had forgotten to repay C$41,366 in travel expenses covered for him by a charity at the heart of an ethics probe, one of the three sources said. Both Morneau and Trudeau are facing ethics inquiries related to the charity.

Reporting by David Ljunggren and Julie Gordon; Writing by David Ljunggren; Editing by Lisa Shumaker