Commentary
In response to the pandemic, the Canadian government has embarked on an unprecedented wave of spending. In Ottawa, the federal government is trying to make that wave permanent.
2020/21 federal spending gain It fell 73% to $644.2 billion before falling 21% to an estimated $508 billion in 2021/22. Total state government spending increased 9.2% to a projected $504.4 billion in 2020-21, and increased another 5.6% to $532.9 billion in 2021-22.
As a result, between 2019/20 and 2020/21, the federal deficit to GDP ratio (a measure of a jurisdiction’s ability to service its debt) went from -1.8% to -13.2%. Rural GDP ratio went from -0.8% to -1.9%. As a result, the federal government’s net debt-to-GDP ratio has risen from 33% in 2018/19 to nearly 50% in 2021/22, and the statewide ratio has risen from 29% to about 31%. .
At the state level, and to a lesser extent at the federal level, budget deficits appear to be positively correlated with the strength of the pandemic impact in terms of cases per capita per state. About half of the deficits that occurred during the COVID-19 pandemic were related to health transfers or income support to people and businesses, while the rest were due to non-pandemic-related spending and are permanent. and represents a long-term increase. of federal spending.
In other words, Ottawa is designed to provide substantial income support to individuals and businesses with emergency response benefits, while significantly and permanently increasing its own spending levels during a particularly noteworthy pandemic. did.
In the 2022 federal budget, total spending is projected to increase by about 27% for fiscal 2022-23, averaging 9% per year, compared to fiscal 2019-20 (even after post-pandemic spending declines). increase. This represents a larger long-term federal spending footprint, peacock wiseman Expenditure replacement hypothesis.
British economists Alan Peacock and Jack Wiseman find that British government spending increased dramatically during the world wars, but never fell to pre-war levels, instead settling into a new stagnation. They argued that when funding government spending, it is ultimately limited by tax revenues, constrained by what the public deems to be an acceptable level of taxation.
However, social crises such as war have narrowed the gap between the desired level of government spending and what the public considers an acceptable tax burden. But when the social crisis ended, new revenues remained, allowing governments to permanently fund higher levels of spending than before the crisis. Today, post-pandemic tax revenues have increased significantly in Canada, giving Ottawa the temptation to continue spending.
In summary, during COVID, both levels of government experienced an initial drop in income, followed by a recovery. The state initially recovered faster thanks to the relocation from Ottawa. Both tiers also saw increased spending associated with rising budget deficits and debt. Overall, however, Canadian provinces have had smaller fiscal deficits and ultimately improved debt-to-GDP ratios compared to the federal government, which used the pandemic as an opportunity to engineer long-term spending increases. I have experienced more modest effects.
Views expressed in this article are those of the author and do not necessarily reflect those of The Epoch Times.
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Livio Di Matteo is Professor of Economics at Lakehead University and Senior Fellow at the Fraser Institute.