Finance Minister’s Fiscal Snapshot Says Substantial Ottawa Support Will Stabilize Economy
OTTAWA: Canada’s deficit for 2020-21 is expected to balloon astronomically to $343.2 billion from the $34.4 billion deficit projected before the COVID-19 pandemic, according to a ‘fiscal snapshot’ presented by Finace Minister Bill Morneau on Wednesday in Parliament.
Morneau on Wednesday delivered the 168-page snapshot offering a short-term economic analysis on federal spending and projections linked to Otawa’s response to the pandemic.
Morneau said: “The COVID-19 pandemic has had a major impact on the social and economic well-being of Canadians in every part of the country. For many it has meant lost jobs, lost hours and lost wages. Our government has understood, from the moment this pandemic began, that it was our role to step in to support Canadians and stabilize the economy.
“Our investments have meant that Canadians and Canadian businesses, instead of drowning in debt and closing up shop, will be better positioned to get back at it. As economies gradually and safely reopen, we will continue to ensure that Canadians have access to the support they need.”
Here are some of the highlights:
• As businesses and many sectors of the economy closed or curtailed their activities as a result of the pandemic, the Canadian and global economies took a severe hit. In Canada, 5.5 million Canadians – 30 per cent of the workforce – either lost their jobs or saw their hours significantly scaled back over March and April.
• Private sector economists expect an annualized decline of over 40 per cent in Canada’s real GDP in the second quarter of this year. They expect the economy to contract by 6.8 per cent in 2020, its sharpest drop since the Great Depression, before rebounding by 5.5 per cent in 2021.
• There are now growing signs that the worst of the economic shock is behind the
Canadian economy, as the gradual reopening of the economy continues. The shape of Canada’s economic recovery is uncertain and highly dependent on public health.
• The decisive and substantial support provided through the government’s economic response plan helped prevent further costly damage to the Canadian economy by replacing the more than $40 billion lost in labour income, preventing the contraction in real GDP to reach over 10 percent in 2020 and the unemployment rate to rise by a further 2 percentage points.
• The temporary measures implemented through the government’s economic response plan will have a significant impact on the federal deficit. Coupled with the severe deterioration in the economic outlook, these result in a projected deficit of $343.2 billion in 2020-21.
• While this year’s deficit estimate is elevated, the government’s response is in line with the
fiscal response deployed by other comparator countries. Coming out of the crisis, Canada is expected to maintain its low debt advantage among G7 countries. The government’s commitment to maintaining this advantage will help ensure that future generations are not burdened with COVID-19 related debt.
Morneau also indicated that total government spending would balloon to $612 billion by 2021. The federal debt-to-GDP ratio is expected to rise from 31 percent in 2019-20 to 49 per cent in 2020-21.
Morneau said: “With comparatively low levels of debt, the Government of Canada has
the room to borrow and support the Canadian economy. In fact, even given Canada’s increased borrowing needs due to the COVID-19 response, public debt charges are expected to fall in 2020-21, as a result of historically low borrowing rates.”
“Our government has understood, from the moment this pandemic began, that it was our role to step in to support Canadians and stabilize the economy. “The COVID-19 Economic Response Plan is the most comprehensive and substantial peacetime investment in Canada’s history, representing more than $212 billion in direct support, and nearly 14% of gross domestic product (GDP) in total support.”
Ottawa’s evenues are expected to decline to $268.8 billion in 2020-21 from a projected $341 billion in 2019-20. The largest component of the revenue will be personal income tax, which is predicted to shrink to $146.3 billion next year from $170.9 billion in 2019-20 — a decline of 14.4 percent. The government expects corporate income taxes to decline by 22.3 percent, to $38.3 billion from $49.2 billion in 2019. The revenue from GST/HST is projected to decline 20.4 percent to $30.9 billion from $38.8 billion in 2019-20.
As of June 28, the Canada Emergency Response Benefit has provided over $53 billion in benefit payments to 8.16 million Canadians. That amount is expected to rise to $80 billion based on the eight-week extension and significant take-up of the program.
The Canada Emergency Student Benefit (CESB) has provided over $1.4 billion to over
600,000 applicants, which is expected to rise to $5.2 billion by the time it winds down.
The Canada Emergency Wage Subsidy, which covers 75 percent of employee wage costs for struggling businesses, is now expected to cost $82.3 billion, up from an initial estimate of $73 billion.
Morneau reiterated that “the government will continue to ensure Canadians are supported
through this crisis and stands ready to take additional actions to mitigate the impacts of the pandemic. “Canadians are resourceful. Canadians are resilient. Together, we will get through this and build a better, fairer, and stronger Canada,” Morneau said.
“There are growing signs that the worst of the economic shock is behind the Canadian and global economies,” the fiscal snapshot added.