A new report from the Parliamentary Budget Officer says Canada’s “barely” sustainable $328.5 billion deficit is set to decline significantly by 2022 — but economists warn that the analysis excludes billions of dollars in spending Ottawa has pledged this month.
Released Tuesday, the independent office’s economic and fiscal outlook gave an assessment for policy-makers to consider, including the new deficit projection for the 2020-2021 fiscal year which is lower than the government’s estimate of $343 billion.
Parliamentary Budget Officer Yves Giroux said that Ottawa’s financial situation is sustainable, “but barely.” And new spending or tax cuts could cause the situation to change, he said.
The PBO’s report included an estimated $225 billion in COVID-19 pandemic spending measures as well as initiatives announced by the government up to September 1. It doesn’t include new spending measures announced in the Liberal government’s throne speech such as universal pharmacare and national child care programs.
“Based on current policy, the record increase in spending in 2020-21 should be temporary,” states the report.
“We project the budgetary deficit to decrease to $73.8 billion (3.2 per cent of GDP) in 2021-22 and continue to decline thereafter.”
But the outlook hinges on the government’s plans going forward, assumes current emergency spending is temporary, and that interest rates will remain low.
In fact, the report could be outdated already, said Concordia University economist Moshe Lander. The COVID-19 crisis remains unpredictable and a second-wave has begun in places like Ontario and Quebec, he said.
“I think what we’re going to have to do is probably delay a lot of what they say six months to a year,” Lander said. “Because of the second wave that’s coming and the lockdowns that are going to be connected to it.”
And while it’s fine for Ottawa to spend money on emergency programs, as the government begins to wind them down there needs be a strategy to help workers transition from negatively impacted sectors, such as food services, to a new industry, Lander said.
“When you bring a dying patient into a hospital, you do whatever you need to save the patient from death,” he said. “Once you have a moment to reflect, once things stabilize, then you start figuring out, ‘All right, what’s the best course of treatment to get them back to full health?’”
The PBO report stated that for the first half of 2020, real GDP, the value of all goods and services produced in Canada, was 13.4 per cent below pre-pandemic levels. But by the third quarter of 2020, “we estimate that the rebound in real GDP will have recouped about two-thirds of the decline in economic activity,” the report said.
“We project that the level of real GDP will reach its precrisis level by early-2022,” said the report.
After 2021, the office projects federal government budget deficits to be about $40 billion larger each year, on average, compared to its economic outlook in November 2019.
The analysis rests on key assumptions about the pandemic and the office stated the outlook is “not a prediction of future economic and budgetary outcomes.”
The three assumptions the report based its findings on are that the country will maintain public health measures for the next 12 to 18 months as a vaccine is developed; that emergency spending measures will stop as planned through 2020-2021 and that new programs aren’t introduced; and finally, that the Bank of Canada keeps interest rates low.