Finance Minister Chrystia Freeland says federal aid programs won’t last forever, making the comments on the same day the Bank of Canada targeted 2022 for an economic recovery from COVID-19.
The road to recovery is dependent on the path of the pandemic, and the central bank warned the road will be bumpy over the next two years.
Some businesses may never reopen, while some unemployed workers won’t find a new job, leaving some parts of the economy and workforce behind as conditions, hopefully, improve.
In a speech Wednesday afternoon, Freeland defended the depth of that spending, which will send the deficit to a historic level.
But she said she isn’t among those who believe “that deficits don’t matter for a government.”
“Whether on Bay Street or Main Street, there are no blank cheques, and there are no free lunches,” she says in the text of her speech.
“Our fiscally expansive approach to fighting the coronavirus cannot and will not be infinite. It is limited and temporary.”
She said the federal government will impose spending limits upon itself, rather than waiting for “more brutal external restraints” from international market forces.
Freeland didn’t say what those spending guardrails will be, only that she’ll have more to say on it soon.
The central bank’s updated economic outlook released earlier Wednesday said government aid has played a key role in providing a financial lifeline to individuals and businesses.
Changes to employment insurance and new benefit programs will increase households’ disposable income, officials write, adding that the bank expects government aid to provide important support to the economy throughout the recovery.
The country has reversed about two-thirds of the economic decline seen in the first half of the year, the Bank of Canada said Wednesday, exceeding expectations.
Officials estimate the economy will still shrink by 5.7 per cent this year, but grow by 4.2 per cent next year, and 3.7 per cent in 2022, meaning gross domestic product won’t rebound to pre-pandemic levels for another two years.
The road to recovery will be uneven across sectors and choppy over time, governor Tiff Macklem said, and likely to cause long-lasting damage to some people’s job prospects.
“The effects of this have been very uneven. I think that underlines the importance of the income-support programs that the government has provided to protect the most vulnerable, and that has underpinned this recovery,” Macklem said.
As for how long the aid should last, Macklem said it was up to the government.
The bank held its overnight rate target at 0.25 per cent on Wednesday, which is where it will stay until the economy has recovered and inflation is back on target. The bank forecasts that annual inflation at 0.6 per cent this year, 1.0 per cent next year, and 1.7 per cent in 2022.
The bank also announced Wednesday that it intended to buy more longer-term bonds because those have a “more direct influence on the borrowing rates that are most important for households and businesses,” hoping to prod consumption.
James Laird, co-founder of Ratehub.ca, said the outlook suggests low interest rates until at least 2023, which is the earliest the bank anticipates the economy would be able to handle higher rates.
The projections for growth and inflation mark a return to the bank’s usual practice of giving a longer view for the economy in its quarterly monetary policy report.
The report said the six months of experience with containment measures and support programs, as well as more information on medical developments like vaccines, has given the bank a better foundation to make a base-case forecast.
Underpinning the bank’s outlook are two major assumptions: that widespread lockdowns won’t be utilized again and that a vaccine or effective treatment will be widely available by mid-2022.
The country has recouped about three-quarters of the three million jobs lost in March and April. Emergency federal aid has replaced lost wages for millions of workers, and provided loans and wage subsidies to struggling businesses.
The hardest-hit sectors, such as restaurants, travel and accommodations, continue to lag as the economy recuperates.
Workers in those sectors, as well and youth and low-wage workers, continue to face high levels of unemployment, the report says.
All may be hit hard again by any new rounds of restrictions, the report notes. Some areas of the country have already imposed such public health restrictions in the face of rising COVID-19 case counts.
“The breadth and intensity of reimposed containment measures, including impacts on schools and the availability of child care, could lead to setbacks,” the report says.
“Long breaks in employment have the potential for longer-term impacts on the income prospects of vulnerable groups.”
This report by The Canadian Press was first published Oct. 28, 2020
Macklem says bond-buying program about lowering rates – BNN
OTTAWA – Canada’s top central banker gave MPs a detailed defence of the Bank of Canada’s buying spree of government debt Thursday, saying it is aimed at lowering borrowing costs across the country.
The Bank of Canada has launched an unprecedented bond-buying program that effectively lowers borrowing costs for the federal government as its racks up a historic deficit.
It now holds just under one-third of federal debt, with the bank believing it can scale up those purchases before throwing a wrench into credit markets.
But the purchases have put Bank of Canada governor Tiff Macklem in a political hot seat, with Conservatives on Parliament Hill warning the central bank about appearing too cosy with the governing Liberals.
During an appearance at the House of Commons finance committee Thursday, Macklem said the bank isn’t financing the federal government, but is reducing the cost to borrow for households and businesses.
He said the central bank will stop buying government bonds once the recovery is well underway, which is likely to happen before inflation gets back to the Bank of Canada’s two per cent comfort zone.
“Our actions by lowering interest rates and by buying government bonds are lowering the cost of financing the government. In fact, they’re lowering the cost of borrowing for everybody,” Macklem said.
“We’re not financing the government.”
The bond-buying program is the central bank’s first foray into what’s known as quantitative easing, which is a way for central banks to pump more money into the economy.
The central bank started the program as it dropped its trendsetting policy rate to 0.25 per cent to drive down interest rates. The purchasing program was designed to drive down rates even more on things like mortgages.
What the bank has done is buy up government bonds to spur demand and time lower interest rates, particularly for borrowers using terms of between three and 10 years like homeowners, homebuyers and businesses.
The bank’s balance sheet has swelled since March and now holds about $344 billion in government debt, or roughly 30 per cent of federal debt, after purchasing about $163 billion in bonds.
Macklem said central banks generally can hold between 50 and 70 per cent of debt before it begins to impair credit markets.
The bank has taken its foot off the gas recently for its purchasing program as the market conditions have improved, allowing it to reduce its total minimum weekly purchases to $4 billion.
Conservative finance critic Pierre Poilievre argued the purchases were inflating financial assets, and enriching the mostly affluent people who own them to push up inflation.
“Inflationary costs are borne disproportionately by the poor and the disadvantaged,” Poilievre said. “So you’re effectively transferring an enormous sum of wealth to those who have financial assets, while diluting the wages of working-class people.”
Pressed by Conservatives on the committee for a date when the buying will come to end, Macklem said the uncertain path of the pandemic prevents him from being able to circle a day on the calendar.
COVID-19 cases will strain Ontario hospitals in December no matter what happens: model – CP24 Toronto's Breaking News
The number of COVID-19 cases in intensive care at Ontario hospitals will break the 200 bed threshold sometime in early December, severely hampering the healthcare system’s ability to follow through with all scheduled surgical procedures, new provincial modelling data suggests.
Even with slower case growth than what has been observed in recent weeks, Ontario government epidemiologists said Thursday the ICU bed occupancy due to COVID-19 will hit 200 somewhere in the first week of December, and could near 300 in the worst case scenario by the end of that month.
ICU bed occupancy of more than 150 in Ontario challenges the healthcare system’s ability to keep with scheduled surgeries and makes it difficult to complete additional surgeries already delayed once during the first wave of the pandemic.
At that level, hospitals are facing significant capacity challenges – they are facing significant threats to the sustainability of their health human resource workforce and they are making decisions to cancel, delay or postpone treatments that are necessary,” Dr. Adalsteinn Brown of the University of Toronto’s Dalla Lana School of Public Health told reporters on Thursday.
The modellers give three scenarios for new case growth going into December.
In one scenario, with one per cent average case growth, Ontario could see more than 2,000 cases per day by the end of December.
At three per cent average case growth, the province could see more than 4,000 cases per day by the end of next month.
At five per cent average case growth, Ontario could see 9,000 cases per day by the end of December.
Ontario’s case growth has been 0.45 per cent per day on average over the past two weeks.
The modellers say “key indicators” of the pandemic have been “flattening” in some regions, but progress is not consistent across the province.
“It’s best described as a fragile or precarious situation where we would like to see cases continue to flatten or decline before we can say that we are making strong progress,” Brown said.
The doctors who delivered the model said that while the situation remains “precarious,” it is no longer worsening.
Chief Medical Officer of Health Dr. David Williams said the situation is at the point where there is no discussion about placing new regions into lockdown.
“We’re not recommending any new ones go into lockdown at this stage,” he said.
Nav Canada warns air traffic controllers that job cuts are coming as pandemic crushes revenue – CBC.ca
Air traffic controllers are being warned that layoffs are coming as Nav Canada pursues a “full restructuring” in response to a revenue slump caused by the COVID-19 pandemic, CBC News has learned.
CBC News has obtained a confidential memo sent internally to air traffic controllers on Thursday. In it, Ben Girard, Nav Canada’s vice-president and chief of operations, told staff that the company has seen a $518 million drop in revenue compared to its budget.
He said he’s been pushing the federal government for help, but — unlike some other countries — Canada has not released an industry-specific bailout package yet.
“We anticipate that until air traffic returns to higher levels, which will not occur until the end of this fiscal year, we will continue to operate in a daily cash negative position and this will be made worse as funding from the [Canadian Emergency Wage Subsidy] program is ratcheted back,” Girard wrote.
Girard did not say in the memo how many air traffic controllers will lose their jobs or which locations will be affected. The memo said it’s looking to reduce the number of “IFR controllers.” These controllers are higher on the pay scale and work at area control centres in Gander, N.L., Moncton, N.B., Montreal, Winnipeg, Toronto, Edmonton and Vancouver.
The workers are responsible for controlling large amounts of airspace between airports using radar. Their job is to make sure planes keep proper distance from one another.
“I know this is very difficult news to hear. It is also very difficult news to deliver,” Girard wrote. “This is a decision that has been made at my level based on what needs to be done to ensure Nav Canada’s financial sustainability.”
Nav Canada manages millions of kilometres of airspace over Canada and used to provide air navigation services for more than three million flights a year. It’s funded through service fees paid by air carriers.
The Canadian Air Traffic Control Association said it is very concerned with the memo.
“It is the opinion of this union that safety is not being taken into consideration in making sound decisions,” president Doug Best and executive vice-president Scott Loder wrote in a letter to members.
“Safety is the number one priority for Nav Canada and it has somehow taken a backseat to cost containment as the number one and only priority.”
‘We’re facing years of a downturn in air traffic’
In November, Canadian air traffic was down 54 per cent compared with the same time period in 2019, according to the memo.
“Over the summer and fall months, the outlook for the aviation industry has deteriorated significantly and it has become increasingly clear that we’re facing years of a downturn in air traffic that is much larger and broader in scope than we all initially believed, and will be much deeper and longer than any downturn in the history of the industry,” Girard wrote.
Nav Canada says it is conducting studies of air traffic control towers in Whitehorse, Regina, Fort McMurray in Alberta, Prince George in B.C., and Sault Ste. Marie and Windsor in Ontario that “will result in workforce adjustments.” The company is also looking into closing a control tower in St. Jean, Que.
Government ‘pressed’ for help
The company has been focused on securing liquidity and tapped into the Canada Emergency Wage Subsidy (CEWS) to pay up to 75 per cent of employees’ wages, he wrote. Girard added that these payments are being reduced and will run through December, but Nav Canada isn’t sure if it can continue receiving that wage support.
“While an extension for the CEWS program through June 2021 was recently announced, NAV CANADA’s eligibility is uncertain,” he wrote.
Girard said the federal government has so far failed to come up with a bailout package for the airline sector, despite “significant lobbying.”
Last month, the Globe and Mail reported that the federal cabinet is working on a package for the airline sector that would include low-interest loans.
Since Sept. 22, Girard wrote, the company has cut more than 700 managers and employees — 14 per cent of its workforce. It also let go of 159 students earlier in the pandemic, he added, and in November cut even more, “leaving just a few in the system.”
Along with the cuts, seven air traffic control towers are being considered for a downgraded level of service, and another 25 sites that are already Flight Service Stations — which provide only advisory services — could face more cuts.
Nav Canada’s board of directors has cut its fees by 20 per cent, and executives and managers have dropped their salaries by up to 10 per cent, Girard wrote.
These cost reductions, as well as access to government support through the wage subsidy program, have saved the company $200 million since March 1, he added.
“However, that number still pales in comparison to the $518 million reduction in revenues as compared to budget,” Girard wrote.
“Despite these cost-containment efforts, we find ourselves in a situation where we expect our revenues to continue falling far short of our costs for several years, and we continue to require further cost-containment measures and indeed, a full restructuring of our business.
“In an environment where 30 per cent of costs are associated with ‘things’ and 70 per cent of costs are associated with ‘people,’ when all possible cuts with ‘things’ have been done, any further cuts will directly affect people.”
Girard added that he hopes the company can bring back some of the laid-off staff once the pandemic passes.
The Canadian Air Traffic Control Association said it will continue to challenge Nav Canada. The union hopes there will be “enough interest” in departure incentives for older controllers to offer them a package to retire.
“The views of Nav Canada at this point are violating the vision, mission and overarching objectives of this company,” Best and Loder said in their letter to members.
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