Canada's Trudeau defends finance minister amid ethics questions

By Andrea Hopkins

OTTAWA (Reuters) - Canadian Prime Minister Justin Trudeau defended his finance minister on Wednesday amid criticism that Bill Morneau did not place his assets in a blind trust, moving to dampen a growing controversy that threatens to overshadow the government's agenda.

Questions about Morneau's potential conflict of interest follow weeks of backlash over the finance minister's attempt to reform small business taxes and have become a major stumbling block for Trudeau's two-year-old Liberal government.

Morneau, the multimillionaire former chief executive officer of human resources management firm Morneau Shepell Inc, asked on Tuesday to meet with the federal ethics watchdog to discuss his decision not to put his assets into a blind trust, as Trudeau himself has done.

"The conflict of interest and ethics commissioner gave clear advice to the minister of finance, which he followed, and which he will continue to follow," Trudeau said in parliament, declining to answer questions about when he knew Morneau had not used a blind trust.

Morneau has said he sought the advice of Ethics Commissioner Mary Dawson to avoid conflicts of interest.

The troubled tax reform and focus on Morneau's personal wealth risk derailing the Liberal agenda just as the government heads into the second half of its four-year mandate facing newly elected opposition leaders.

While Morneau has been a relatively low-profile finance minister, he has been the face of the government's plan to boost infrastructure spending, a project expected to boost economic growth and widely supported by financial market players.

Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said financial markets would be largely unaffected if Morneau leaves his job, as long as he is replaced by somebody with the same views and fiscal plans.

"If you were to tell me that the criticism of him is really partly a veiled criticism of fiscal expansion strategy and that his demise could trigger a change in fiscal policy, it would be somewhat more important," Chandler said, adding markets are more worried about the possible demise of NAFTA and future rate hikes by the Bank of Canada than the tempest over Morneau.

Morneau is expected to provide a fall fiscal update soon, possibly as early as next week, forecasting a gradual reduction in the budget deficit from an estimated C$28.5 billion this year.

He denied rumours in September that he was unhappy in his post, saying he has "enjoyed this job from day one," but his rise from obscurity to the most scrutinized cabinet ministers has happened fast.

"The problem is that to the extent people don't know much about Bill Morneau, they are learning about him now, and it's kind of all the wrong things," said Ipsos Public Affairs pollster Darrell Bricker.

Bricker said the Liberal lead over the Conservatives has been trimmed to just 3 or 4 percentage points in recent weeks, a surprising tightening given Trudeau's personal popularity at home and abroad. The next federal election is in 2019.

A Morneau spokesman declined on Tuesday to say whether the minister holds any Morneau Shepell shares or what he did with his assets and holdings to guard against conflict of interest.

According to public disclosure documents available through the office of the Ethics Commissioner, Morneau is full or part owner of two holding companies as well as several real estate holding companies, and is party to a conflict of interest screen to ensure he abstains from decisions related to his company.

(Additional reporting by Fergal Smith in Toronto; Editing by Chris Reese)