Federal deficit could hit estimated $256B

Spending may go up further if government injects more stimulus

OTTAWA—The federal deficit could be on track to hit $256 billion this fiscal year due to the COVID-19 pandemic, Parliament’s budget watchdog says in a new estimate that doesn’t account for this week’s extension to a cornerstone benefit for workers.

Budget officer Yves Giroux’s report said the deficit estimate is the combination of a projected $169 billion in federal spending on emergency aid and a historic drop in economic output.

The overall deficit figure is only $3.8 billion higher than Giroux’s office previously predicted despite some major new government spending plans, which his report says is due to a better economic outlook for the second half of the year.

But the figures don’t include the extra cost for a promised extension of the Canada Emergency Response Benefit to provide eight more weeks of payments to recipients about to hit the current 16-week maximum, nor the possible cost to make some of the measures permanent.

Giroux also warned that spending could go up further if the government pumps more stimulus to promote economic recovery, beyond the $14 billion the Liberals have promised to provinces to help minimize the risks in reopening workplaces.

Possible changes and uncertainty about the course of the pandemic led Giroux to stress that the figures in his report are the outcome of one of many possible scenarios and not a certain forecast.

The report comes one day after Prime Minister Justin Trudeau promised to deliver a “snapshot” of federal finances on July 8 that will provide short-term spending estimates. Trudeau warned the document won’t provide a longerterm outlook because of uncertainty about where the economy will go in the coming months and years — all of which rests on the path of the pandemic.

The budget office estimates the economy could shrink by 6.8 per cent in 2020, the weakest showing since 1981 and double the record of 3.2 per cent shrinkage in 1982.

Previously, Giroux estimated the economy could shrink by 12 per cent in 2020.

The Liberals have been under pressure from opposition parties to release a fiscal update or a full 2020 budget. The government had originally planned to release a budget in late March, but shelved it when COVID-19 hit.

Since then, MPs have approved massive emergency spending on aid to Canadians who have lost their jobs or had their hours slashed, and financing to businesses shuttered due to public health restrictions.