Photo: Sean Kilpatrick, The canadian Press
The solution preferred by the government of Justin Trudeau had rather hoped that Ottawa will have less to spend for the economic recovery.
The federal deficit has reached a historical level, due to the many measures that help to tackle the pandemic. The former parliamentary budget officer, Kevin Page, agrees that the figure of 343 billion dollars is huge. But he believes that Ottawa has done well to spend so much to avoid the crisis hit Canadians harder because, otherwise, the consequences would have leaded to the country’s economy for years.
“The figure is incredibly high,” noted Mr. Page, who admits to still amazed. “This is 16 % of GDP. It is two times larger than all the deficits that I have seen in my life “, summarizes the Duty of the economist and former civil servant who served as the parliamentary budget officer in Ottawa from 2008 to 2013.
The minister of Finance, Bill Morneau, has revealed on Wednesday that the deficit will reach a record $ 343 billion this year and debt of 1200 billion dollars. In comparison, in its last update in December, Mr. Morneau had predicted a deficit of $ 28 billion for the year 2020-2021.
However, since the beginning of the pandemic, the government spent $ 230 billion in direct aid for individuals and businesses. This, according to Mr. Page, has enabled citizens to stay home, businesses to close their doors, and thus to master the first wave of the coronavirus, while avoiding that the families and employers to do bankruptcy. The government reported just on Friday that the number of insolvencies decreased by 8.2% between the months of April and may, and 50 % compared to the month of may 2019.
“It was a good strategy,” says Mr. Page. “The other possibility would have been to spend less, to have programs using different, but I have the impression that we would be faced with other issues : the risk of a significant increase in personal bankruptcies and commercial. “Such a scenario would have” implications in the medium and long term that would have lasted years “, or even a generation. The solution preferred by the government of Justin Trudeau had rather hoped that Ottawa will have less to spend for the economic recovery, in the opinion of Kevin Page.
The growth picks up
The economist also recalls that, following the recession of the early 1990s, the economy has recovered naturally with the growth and the ratio of debt-to-GDP ratio — an indicator to which the liberal government relies to argue that its finances are under control — had been able to reduce. “There is no reason to believe that with a bit of luck we might not find ourselves in the same situation,” he says. “Increasing the debt to prevent a depression, I find that it is money well spent overall. “
The other possibility would have been to spend less, to have programs using different, but I have the impression that we would be faced with other issues: the risk of a significant increase in personal bankruptcies and commercial
— Kevin Page
It is not impossible that the size of the deficit increases again this year, if the GDP continues to contract, or that the government should renew some of the measures of assistance due to a second wave of COVID-19, according to Mr Page. But he believes that it is more likely that the deficit is lower when the wage subsidy program — the most costly of the federal — is less popular than desired by the government.
And once the economy aurarepris its activities, Mr. Page, judge that the deficit risk of bringing it in part for himself, because the injection of $ 230 billion in direct aid from the federal will not be repeated in the annual budget and revenue decrease of $ 81 billion collected this year because of the crisis will correct with the economic recovery. “It will take time before the economy returns to the point where it was six months ago, he may need to wait until the end of 2021, but we’ll get there. And I predict that the deficit will come down. “
And the result ?
Although he endorses the tax strategy of the government, Kevin Page laments, as the opposition parties have done this week, that Ottawa has not yet shared his plan for economic recovery. “This is one of the weaknesses of the economic update,” says the founder and president of the Institute of public finance and democracy of the University of Ottawa.
“The assessors of bond rates, the businesses, the citizens, all want to know about the plan for the future. The government was obviously not ready to reveal it. But there is a cost attached to the fact of not having a plan “, note M. Page, pointing out that the credit rating of Canada has been lowered from ” AAA ” to “AA +” by Fitch Ratings two weeks ago.
The minister Morneau has promised on Wednesday that it will introduce a new automatic update economic or even a budget this fall. Mr. Page argues that it should be done earlier. Because Canada is not only facing an economic crisis, but also to a crisis in the price of oil. “Not having a plan, or at least of public strategy to manage a second wave of COVID-19, or a global recovery is very slow, it is a problem. “