In a normal year, the federal government tables a budget in the spring and then an economic statement or fiscal update in the fall.
But this is not a normal year. The budget that was supposed to be presented in March was pushed back and then completely swamped by the first wave of COVID-19, the economic shutdown that resulted and the federal aid that soon followed.
Some opposition MPs and economists subsequently pushed for a fiscal update. The Liberal government contended, with some justification, that making long-term projections in a time of such incredible uncertainty would be — to use Prime Minister Justin Trudeau’s words — “an exercise in invention and imagination.”
What’s being released this afternoon is being described instead as a fiscal “snapshot” — a status report on where things stand after four months of the pandemic.
It should provide some insight into what the last four months have meant for the federal government’s balance sheet and Canada’s economy. Ideally, it also would offer some sense of what the future might look like — at least the near future.
The deficit is going to be alarming
Finance Minister Bill Morneau’s presentation is not expected to offer new policy announcements, but it could further quantify both the economic disruption and the government’s response to that shock. That undoubtedly will include the projection of a large deficit for the current fiscal year.
The exact number might be new, but it’s already clear that the deficit likely will be in excess of $250 billion.
Last fall, months before the first cases of COVID-19 were detected in China, Morneau projected that the deficit for 2020-2021 would be $28.1 billion. Since then, a lot has changed.
A health care worker does a test at a drive-thru COVID-19 assessment centre at the Etobicoke General Hospital in Toronto on Tuesday, April 21, 2020. (Nathan Denette/The Canadian Press)
This spring’s pause in economic activity and employment meant a drop in the revenue the government receives from taxes. Meanwhile, more money has been going out in the form of government support measures to help individuals and businesses get through the shutdown.
Since April, the Liberal government has provided bi-weekly updates on its relief spending to the finance committee of the House of Commons. The most recent tally, provided on June 25, showed $174.1 billion in direct support for individuals and businesses and $19.4 billion in federal funding for health and safety measures.
The office of the Parliamentary Budget Officer also has provided a regularly updated “scenario analysis” that projects the broad economic and fiscal implications. In its most recent analysis, released on June 18, the PBO projected a deficit of $256 billion for 2020-2021.
Sticker shock
As a percentage of Canada’s GDP, a deficit of that size would be the largest for the federal government since the Second World War.
There has been little to no debate about the need to spend the money on emergency relief; if anything, the Liberals have been under political pressure to spend more and faster. Recent analysis by Scotiabank found that failing to provide that relief would have led to much worse economic results and an only slightly lower level of federal debt.
But after any deficit-related sticker shock wears off, the next question will be how well the government is positioned to manage that accumulated debt.
Governments are not like households — a government can effectively carry debt in perpetuity — so their primary goal is to manage that debt rather than pay it off outright. Most of the fiscal analysis of government debt focuses on its size in comparison to the national economy.
The PBO estimated that the federal debt-to-GDP ratio will reach 44.4 per cent, while Scotiabank projects that the ratio will be closer to 48 per cent.
It’s bad — but it’s been worse
Either number would be a significant increase over what Morneau projected last fall, when the Liberals forecast a debt-to-GDP ratio of 31 per cent in 2020-2021, declining annually thereafter.
But something around 45 per cent also would still be well below Canada’s historic peak of 66.6 per cent back in 1995-1996. That debt ratio, coupled with high interest rates and nervous international markets, led Jean Chrétien’s government to make drastic cuts to balance the budget and get the national debt under better control.
If the federal debt-to-GDP does increase to 45 per cent, it will be back to where it was in 2001.
But the fiscal story of COVID-19 will be only partly about what has happened over the last four months. It also will be about what happens over the next few months — and then several years after that.
Where do we go from here?
It’s not clear how far into the future the Liberal government is willing to look, but there are a number of questions it could start trying to answer.
What are the potential pathways for economic recovery? How much longer might the temporary relief measures be needed? How much more new spending might be necessary? And how does Morneau see the recovery and the debt being managed?
“There will be significant unemployment across Canada for the duration of the recovery,” Rebekah Young, director of fiscal and provincial economics at Scotiabank, told CBC’s Power & Politics on Tuesday.
“The [employment insurance system] was not and is not sufficient to cover all Canadians that will be out of work, but the [Canadian Emergency Response Benefit] clearly is too expensive for that duration. So I think … we would like to see some signals that they have a plan for the next 18 months in terms of addressing his persistent shock that the economy will be facing.”
Hospitality workers, members of UNITE HERE Local 40, hold a car caravan protest in Vancouver June 3, 2020. They were calling on provincial and federal governments to ensure workers are hired back as the economy recovers from the pandemic. (Maggie MacPherson/CBC)
In an email, Young said she thinks Wednesday’s “snapshot” could set up a fall budget that lays out longer-term plans.
“In addition to an updated statement of transactions, the country needs a fiscal plan from the federal government,” said Kevin Page, the former parliamentary budget officer who is now president of the Institute of Fiscal Studies and Democracy at the University of Ottawa. “We need a fiscal plan to understand what role federal fiscal policy will play to support the recovery.”
A proper plan, Page said, would boost consumer confidence and investor confidence and mitigate the possibility of further downgrades to Canada’s credit rating.
Finance officials might be quick to note the unprecedented amount of uncertainty at the moment, but Page said a plan could be debated and adjusted.
“A ‘snapshot’ that is only backward-looking would be a major missed opportunity,” he said.
In the midst of managing a national response to a pandemic, it’s important to not get ahead of yourself — to focus on the crisis in the here and now.
But sooner or later, the federal government will need to confront the future.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
