Rough road ahead

FEDERAL DEFICIT $343B AMID UNCERTAIN OUTLOOK

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 this is not the time for belttightening or 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 subsidy-based 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 in a release.

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 self-employed workers qualify, and to capture EI-eligible workers who, due to the pandemic, haven’t been able to work the necessary qualifying hours.

Not all workers are going to go back to their jobs. Some of those jobs may not be there for workers at the end of the day.

– Hassan Yussuff –

Canadian Labour Congress