Federal deficit hits $343 billion
Morneau projects budget deficit to hit $343.2 billion
OTTAWA — The federal government expects to post a $343-billion deficit in 2021 as COVID-19 spending continues to mount, outpacing earlier estimates and reinforcing the depths of Ottawa’s weakened fiscal position.
In his fiscal update on Wednesday, Finance Minister Bill Morneau indicated that total government spending would balloon to $612 billion by 2021, nearly double the $346 billion spent in 2019. The swollen deficit is largely a result of higher projected spending under Ottawa’s two key COVID-19 financial aid programs, the Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Response Benefit (CERB), which have been repeatedly extended and expanded in recent months.
The update on Wednesday underscores the fiscal bloodbath that Morneau finds himself in as he seeks to guide the Canadian economy out of its steepest decline in decades.
Opposition parties and industry groups have been pressuring the Liberal government to provide some indication as to when it will begin to rein in its spending programs, warning that indiscriminate spending could begin to weigh on an eventual economic recovery.
Finance Canada provided little insight into when it would begin unwinding the CERB program in particular, saying only that it would “make necessary changes to the program later this summer so people can have the help they need while supporting the recovery.”
Total federal debt as a percentage of GDP, often touted by the Liberal government as its key fiscal anchor, is expected to swell to 49 per cent in 2021, up from around 30 per cent today.
The CERB, which provides $2,000 per month to people who have lost their jobs due to COVID-19, was initially expected to cost around $25 billion. That projection on Wednesday was increased to $80.5 billion through 2020 and 2021, after the NDP and Liberals agreed to extend the benefit until October 4.
The CEWS, which effectively covers 75 per cent of employee wage costs for struggling businesses, is now expected to cost $82.3 billion, up from an initial estimate of $73 billion. CEWS has been largely undersubscribed in recent months, which industry groups say is due to a delayed rollout of the program, raising questions as to how the Liberals might adjust the program to incentivize more applicants.
Speaking to reporters on Wednesday, Morneau said an update to the CEWS program would be coming “in the very near term,” while acknowledging the government will need to strike a balance between supporting vulnerable workers and avoiding unnecessary damage to the federal balance sheet.
“We know there are some things we need to change” about the wage subsidy, he said.
Morneau declined to outline a long-term plan for unwinding or tweaking the two major programs, saying instead that he would be focussed generally on supporting.