A sea of red ink

In a crisis like the one we’re in, governments’ priority must be the here and now.

So despite plummeting tax revenues thanks to a steep decline in both business activity and employment, Ottawa and the provinces have had to sharply increase spending to help people and companies weather the COVID-19 storm.

Less money coming in and more going out can mean just one thing, of course: Larger government deficits. And given the scale of the virus’s impact — economies virtually flash-frozen under lockdown, millions dependent on emergency assistance — those deficits were going to be enormous.

We’re seeing that now.

In early July, Justin Trudeau’s Liberals finally put a (scary) number beside the projected federal deficit for 2020-21 — a record $343.2 billion. Last December, the forecast was a $28.1-billion deficit.

Here in Atlantic Canada, the fiscal news has also been grim.

In a fiscal update late last week, Newfoundland and Labrador’s Liberal government said it’s looking at a $2.1-billion deficit for 2020-21, up $1.35 billion from last year. Along with reduced tax revenues and higher pandemic spending, oil royalty revenues have also been hammered. A budget isn’t expected until September.

Prince Edward Island’s minority Progressive Conservative government, in its mid-June budget, put its projected 2020-21 deficit at a record $172.7 million. The year before, the deficit was $3.7 million. The P.E.I. forecast would have been worse if not for an expected $185 million in federal transfer payments.

In New Brunswick, the latest estimate from late June puts that province’s expected deficit at about $343 million. The minority Progressive Conservative government’s March 10 budget originally projected a surplus of $92.4 million.

Meanwhile, there’s no doubt the Nova Scotia’s Liberal government February projected 2020-21 budget surplus of $55 million is now ancient history. Back in May, Finance Minister Karen Casey acknowledged as much and promised a summer update that’s yet to happen. Private sector estimates predict a budget shortfall that could near $1 billion.

So it’s red ink, as far as the eye can see. And there’s not much to be done about that. At least, not yet.

For now, governments across Canada are just trying to carefully reopen their economies without triggering a resurgence of the virus that could force another lockdown.

Longer term, of course, those deficits will have to be tackled.

Even before the pandemic struck, Canada’s provinces reportedly had one of the highest rates of subnational government indebtedness in the world. The pandemic will only make that situation worse.

In contrast, the federal government — though also looking at massive short-term debt — was in a far better position financially.

Like it not, Ottawa’s fiscal heft is almost certainly going to be needed to help at least some provinces, including in this region, regain their fiscal footing.