Liberals foresee high unemployment, $343 billion deficit due to COVID-19

OTTAWA

Nearly two million Canadian workers could be or remain unemployed this year under forecasts released by the federal government in its long-awaited “fiscal snapshot.”

The document released Wednesday details how the Trudeau Liberals see the COVID-19 pandemic dragging down the domestic economy and sending the deficit to a historic $343.2 billion.

The economic and fiscal report from the government lays out the Liberals’ belief that there will be a slow return to a new normal, with unemployment high and economic growth low through to at least the end of 2021.

Even though the government believes the worst of the economic harm from the pandemic is behind the country, the document says a recovery can’t begin in earnest until an effective vaccine or treatment becomes widely available.

Things could, however, get worse under two scenarios from the Finance Department.

Should prolonged shutdowns stay in place, or restrictions not be fully rolled back, a return to normal activity for households and businesses will be uneven and slower than hoped for, leading to a more pronounced drop in economic output than is already expected.

And should the country be hit with a second wave of the novel coronavirus during the annual flu season, the ensuing lockdowns would cause what the Finance Department describes as a “deeper and longer-lasting negative impact on the economy.”

The Liberals have repeatedly promised to use the federal treasury as a financial shield between Canadians and irreparable harm, and the cost of that promise is now at $231.9 billion in direct spending and a deficit comparable only to those seen in the Second World War.

The federal debt is set to pass $1 trillion, by the Finance Department’s estimates.

Whatever the costs, they’re worth it, Prime Minister Justin Trudeau said in a news conference Wednesday morning, before the snapshot was released.

“As we measure the cost of helping Canadians, we shouldn’t forget that the cost of doing nothing would have been far more,” Trudeau said, insisting that this is not the time for belt-tightening or austerity.

The document tries to make that case, saying that the $80-billion Canada Emergency Response Benefit, which had paid out $53.5 billion in benefits as of late June, has covered Canadians’ estimated $44.6 billion in lost labour income through the first half of the year.

The $2,000-a-month benefit is estimated to have covered the monthly housing, food, phone and internet costs for the bottom and middle thirds of households, according to Finance Department calculations.

Historically low interest rates mean all the hundreds of billions in borrowed dollars come with “manageable” costs, Trudeau said, and the alternative would be for individuals and households to load up with debt themselves to cope with months of no or little work.

Perrin Beatty, president of the Canadian Chamber of Commerce, noted the deficit and the debt-to-GDP ratio of 49.1 per cent “will undermine Canada’s fiscal capacity for decades.”

“It is now time for Canada to transition from a subsidy-based crisis response toward restoring economic growth and getting Canadians safely back to work,” he said in a statement.

Finance Minister Bill Morneau hinted at just that.

His update notes a $37.3-billion boost to the federal wage-subsidy program, bringing its budget to $82.3 billion, to account for its extension until the fall. Morneau said details on an expansion to the program will come soon for businesses interested in the payroll help.

The Liberals expect more workers to move onto the wage subsidy and off the Canada Emergency Response Benefit as that $80-billion program winds down.

Those who fall through the COVID-19 financial safety net are expected to be caught by a revived employment insurance system, which has been largely dormant since the CERB replaced it in late March.

Government officials admit there will still need to be policy changes to the EI system to help some self-employed workers qualify, and to capture EI-eligible workers who, due to the pandemic, haven’t been able to work the necessary qualifying hours.

“It’s not easy. We’re in challenging times,” Finance Minister Bill Morneau told reporters. “We’re going to make sure we support people to get through these challenging times because we know that’s the right thing to do.”

For this calendar year, the government expects the unemployment rate to hit 9.8 per cent, dropping to 7.8 per cent next year based on forecasts by 13 private-sector economists.

Although that’s an improvement from the record-high unemployment rate of 13.7 per cent in May for a labour force of just over 19 million, it is still much worse than the record low of 5.5 per cent pre-pandemic.