Finance minister foresees historic debt, job losses
2 million Canadians may remain out of work as deficit hits $343.2 billion
OTTAWA — Nearly two million Canadian workers could remain unemployed this year, according to forecasts in the federal government’s 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 lays out the government’s expectation of a slow return to a new normal, with unemployment high and growth low through to at least the end of 2021.
Even though the assessment says 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 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 described as a “deeper and longer-lasting negative impact on the economy.”
The Liberals have repeatedly promised to spend what was needed to put a financial shield between Canadians and irreparable harm.
The cost of that promise is now $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 it’s not the time for austerity.
The document tries to make that case, saying 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 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 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.
Goldy Hyder, president of the Business Council of Canada, said the steep cost to the federal treasury, which has covered about $9 out of $10 in emergency governmental aid, underscored how vital it is to get the economy moving again.
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.” In a statement, he called for a move away from “a subsidybased crisis response” to efforts that get Canadians back to work.
The snapshot noted 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 will come soon for businesses interested in the payroll help.
The Canadian Federation of Independent Business called the update a missed chance to help businesses know if they qualify for the subsidy.
“Certainty is a cheap stimulus measure that can help many businesses,” president Dan Kelly said.
The Liberals expect more workers to move onto the wage subsidy and off the CERB as that 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 selfemployed workers qualify, and capture EI-eligible workers who, due to the pandemic, haven’t been able to work the necessary qualifying hours.
Morneau said the government plans to get the EI system up and running so people have confidence they’ll be able to provide for themselves and their families.
“It’s not easy. We’re in challenging times,” 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.
The document doesn’t contain the five-year forecast traditionally part of federal budgets owing to the uncertain path the pandemic will take and the state of the economy beyond that.
Speaking in the House of Commons, Conservative Leader Andrew Scheer said the Liberals failed to provide a plan to stimulate economic and job growth.
“Coming out of the pandemic, every single country on the plant will be desperately competing for the same opportunities and the same investments. So where is the prime minister’s plan to set us apart?”
Finance officials write that the pandemic may yet “cast a long-term shadow over economic developments” through higher household debt and persistent unemployment. The document said the government will announce new measures as needed to support the recovery.
“Given the uncertainty about the course of the pandemic in the months ahead, now is not the time for rash spending cuts and a turn to austerity,” said Sheila Block, a senior economist with the Canadian Centre for Policy Alternatives.
“Instead, there will be significant need as we move forward to maintain or even increase government investments to support the public health of our communities.”