Balance pandemic support and spend growth while making debt easier to manage

Budget watchers say it’s hard to unleash some COVID-19-compliant programs as the economy recovers

News analysis

The main driving force of the federal budget on April 19 (for the first time in more than two years) is the government’s financial support as the third wave of the pandemic intensifies. $ 70 billion to $ 100 billion It was assigned to exciting spending last fall.

In response to COVID-19, the Fed has launched a number of programs to assist businesses and Canadians intended to be temporary.Rewinding them may prove unpopular, and what’s at stake is how much of those programs will be permanent, he said. McDonald’s-Laurier Institute Philip Cross, a senior fellow who is a former Chief Economic Analyst at Statistics Canada.

“What I’m looking for in this budget is how much of this temporary increase in spending due to the pandemic will be used as leverage as an excuse to increase spending permanently,” Cross said of the Epoch Times. Told to. He says that in addition to being part of a three-year stimulus program, there is a risk that it will happen with some temporary measures.

“Frankly, I think some of the expansion of unemployment insurance coverage will be permanent,” said Cross.

The economic statement last fall did not provide details on how up to $ 100 billion would be spent, so it was not taken into account in the deficit and debt forecasts.

The Federal Reserve Be expected Use it for Childcare, Universal Pharma Care, And the green economy.

Canadian financial oversight agency, Parliamentary Budget Officer The (PBO) forecasts a deficit of $ 363.4 billion in 2020-21, or 16.5% of gross domestic product (GDP). This is already the highest since tracking of this indicator began in 1966-67. The estimate, released on March 31, only describes the measures announced in the economic statement last fall and does not take into account the spending of the three-year stimulus package.

The PBO warns that if new programs introduced into the budget require more borrowing and become permanent, there is a risk that national debt will no longer be sustainable.

Promising forecast

Where the country’s finances and economy go depends on the progress of the fight against the pandemic. The signs of late March looked good, given the amount of money Canada and the United States spent digging out craters.

PBO expects GDP to reach pre-pandemic levels later this year.

With the fall financial renewal, the Fed introduced the concept of a “financial guardrail” related to improving the labor market to guide when to begin rewinding pandemic response programs.

The PBO predicts that “almost all of the land lost in the labor market due to the pandemic will be covered by the first year of the designated stimulus package, 2021 to the end of 2010.” Said.

“This also suggests that the size and timing of $ 70 to $ 100 billion for stimulation may have been misaligned.”

But as the COVID-19 pandemic intensifies across Canada, labor market developments can be temporary, Mr. Cross said.

“As long as the pandemic is here, it should be priorities 1, 2, and 3, and all these other things would just have to wait,” Cross said.

The Canadian Conference Committee had some promising forecasts for the Canadian economy in its two-year economic outlook released on March 30, without considering additional federal stimuli.

Growth is expected to be 5.8% in 2021 and 4.0% in 2022.

Nearly 80% of unemployed jobs have already recovered due to the 2020 pandemic recession.

Canadians also increased their savings by an average of $ 5,100 last year, according to the Conference Board, and some of those savings will be spent this year and next year.

“A full recovery to pre-pandemic spending levels is expected to be achieved by early 2022,” the meeting committee said.

Also, given the huge spending of the US government, the Conference Board expects a sharp recovery in its economy, which will increase Canada’s exports.

Long-term prosperity

An important factor in building long-term prosperity is capital investment that increases the productivity of the country.

Canada’s chief economist, Trevin Stratton, said in a statement on March 24 that Canada’s economic output was about $ 66 billion below pre-pandemic levels.

Productivity is also a pre-pandemic sign, Stratton said. Our recovery plan should focus on unlocking business investments. “

so Financial Post EditorialJack Mints, President Fellow of the University of Calgary School of Public Policy, said the federal and state governments undermined growth through heavy taxation on entrepreneurs and skilled workers, as well as over-regulation and business costs. Said that.

“Canada isn’t very attractive to investors these days,” Mintz said. “The real challenge facing Canada is to address our terribly inadequate investment performance. Nothing else is more important to our long-term prosperity.”