Federal deficit expected to hit $343 billion this year

FISCAL SNAPSHOT SEES DEEPENING WELL OF RED INK

TEstimated federal deficit for 2020-21 via the fiscal snapshot $343B

Estimated total government spending in 2021 $612B

Estimated federal debt expected in 2021 $1.06T

he Liberal government believes rebuilding Canada’s COVID-19 crippled economy will be a slow, drawn out and uncertain challenge extending for years, even if the virus remains relatively contained.

The slow recovery projected in the government’s fiscal “snapshot” comes despite tens of billions of economic support measures the Liberals laid out this spring. The government now faces a stunning $343 billion deficit for this coming year, on top of a $34 billion deficit from the last fiscal year.

All that red ink comes as the government’s spending was boosted with COVID-19 programs like the wage subsidy, Canada Emergency Response Benefit and other economic supports adding up to $212 billion in spending.

The government has also backed billions more in loans to businesses and deferred collection on billions in taxes.

The increased deficit spending will put Canada’s debt over the $1 trillion mark for the first time. Low interest rates will, for now, leave the cost of that debt low, with the government actually paying less for debt servicing this year than it did last.

Finance Minister Bill Morneau said it was a necessary choice during an emergency and that leaving Canadians without the support would have been much worse.

“Through rapid and broad support, our government has been able to protect millions of jobs, provide emergency income support to families and keep businesses afloat.”

The deep drop in the economy will mean that even as the government shells out billions of dollars, billions less will be coming into government coffers. The Liberals expect to collect roughly $35 billion less this year in personal and corporate income taxes.

The government used its own numbers and an average of several private sector forecasters and though they offer a range, there is wide agreement unemployment will be higher and GDP lower even at the end of 2021 than they were before COVID-19 hit.

Nearly two million Canadian workers could remain unemployed this year, according to the government’s forecast.

The snapshot report suggests there will be some economic growth this summer and into fall, as more businesses reopen and life returns to some semblance of normal, but warns to expect ups and downs.

“Overall the recovery path is uncertain and fundamentally linked to the equally uncertain health outcomes,” reads the report.

It also warns to expect an uneven recovery. Retail, tourism and hospitality business were hit harder than others, and the government warns they could also come back at different speeds.

“There is a risk that certain sectors of the economy will face greater difficulties in the months ahead, as they contend with new health and safety regulations, changing consumer preferences and an uncertain global recovery.”

Unlike a full budget or fiscal update, the document the government presented Wednesday does not outline any new economic measures.

Conservative leader Andrew Scheer said the government’s economic update was stunning in the numbers, but also in what it lacked.

“The finance minister has just painted an extremely dire picture of Canada’s finances, but what we didn’t hear was any kind of plan to support the reopening of our economy,” he said. “The prime minister has absolutely no plan to help Canadians return to work.”

Scheer said there was no strategy to bring back jobs and investment and to give the economy a boost.

“Spending billions of dollars does not create economic growth and handing it out to Liberal insiders won’t restart our economy,” he said. “The reality is that it will take leadership, big ideas and a lot of hard work.”

Morneau said the government intends to focus on growth in the recovery, but first Canada has to navigate the current situation.

“The dynamic nature of the challenge is such that we are not going to make assumptions about what we can’t know today,” he said.

He said the government hasn’t outlined plans for a stimulus or other program to help grow the economy more quickly.

“We have not provisioned for the next phase it will be very dependent on our success of what we are doing right now.”

Morneau did rule out any tax increases as a way to pay for these rising debts and deficits. “We think raising taxes would be exactly the wrong response,” he said. “We should be trying to grow our economy.”