Federal deficit to hit $250B in 2021
OTTAWA • The federal deficit is expected to reach $250 billion in 2021, the largest on record, as the Liberal government introduces massive new spending measures to combat the economic fallout from COVID-19.
An updated report on federal finances by the Parliamentary Budget Office estimates that the 2021 deficit will be roughly 12.7 per cent of Canadian GDP.
Parliamentary budget officer Yves Giroux’s report said the federal debt-togdp ratio is expected to rise to 48.4 per cent.
“To date, budgetary measures announced by the government are intended to be temporary. Once the budgetary measures expire and the economy recovers, the federal debt-to-gdp ratio should stabilize,” Giroux says in a statement.
“But if some of the measures are extended or made permanent, the federal debt ratio will keep rising.”
He also warned anew that extra spending may be required if the situation persists for longer than expected, or the economy is slow to recover when restrictions are lifted.
The economy is expected to shrink by as much as 20 per cent in the second quarter of 2020, and by 12 per cent over the entire year — the weakest output since 1961.
Gloomy projections about the federal fiscal position come after Ottawa announced $145 billion in spending measures aimed at stabilizing the broader economy. Global economic growth has plunged to depths not seen in decades, as governments impose strict economic restrictions aimed at slowing the spread of the novel coronavirus.
The report by the PBO also increased slightly the expected cost for the Canada Emergency Wage Subsidy (CEWS), up to $75.9 billion. An earlier projection by Finance Canada estimated the cost at $73 billion.
Businesses can now apply for the CEWS online, which will cover as much as 75 per cent of payroll costs for businesses over a threemonth period.
The projected cost for the Canada Emergency Response Benefit (CERB) was trimmed back slightly, from an initial government estimate of $40 billion down to $35.4 billion.
The CERB is an expanded employer insurance program that provides $2,000 per month to people who have lost their jobs due to COVID-19.
Prime Minister Justin Trudeau wouldn’t speculate Thursday on how the government would handle the massive deficit once the economy rebounds.
“There will be time after this is all done as we figure out how exactly this unfolds, where we will have to make next decisions on how that recovery looks,” he said at a news conference on Parliament Hill, “but right now our focus is on getting through this together as a country.”