Deputy Prime Minister Chrystia Freeland is set to share more details on the government’s spending plans as officials continue pouring money into the coronavirus crisis, still with no clear end in sight.
Freeland will give a federal fiscal update on Monday afternoon in the House of Commons, marking her first formal fiscal presentation since taking over the finance post from Bill Morneau in August.
“This is not only an unprecedented time, we have shifted finance ministers and this is her first major official piece of work,” said Armine Yalnizyan, an economist and fellow with the progressive Atkinson Foundation.
“Her big speech gave us a little bit of a calling card that she is going to be approaching this in three chapters: contain the contagion, set the foundation for recovery, deal with the deficit. We’re not anywhere near to contain the contagion part.”
“I expect to see that the deficit number will be far bigger than the last update we have,” she continued.
“I expect it will be north of $400 billion. Then the question is, how does she project where we’re going?”
In that speech, Freeland suggested the government views the need to keep spending while economic restrictions remain in place as being tied to what it has already identified as a pressing concern earlier in the year: national unity.
“If you were to play the penny-pinching devil’s advocate, you might argue that these economic restrictions need not, necessarily, weigh on the federal purse. The pandemic burden could, some might contend, be borne mostly by the individuals directly affected.,” she said in October.
“But that notion dissolves upon contact with real life – just as a general’s battle plans do, on contact with the enemy … People and businesses would simply refuse to comply, tearing our social fabric apart – as we have seen happen in other parts of the world, with deadly consequences.”
The coronavirus pandemic has ravaged the world for nearly a year since the virus was first identified on Dec. 31, 2019, and the World Health Organization declared it a pandemic in March 2020.
That was the same month Canada went into lockdown, barring foreign nationals from arriving and partially sealing the border with the United States, though essential transit continues via land crossings.
Canadians are also technically allowed — but highly discouraged from — making non-essential trips south of the border via air.
Since that March shutdown, the federal government has rolled out near-unprecedented levels of spending in wage subsidies and unemployment support, as well as subsidies for businesses to pay their rent amid shutdowns and partially non-repayable loan programs for businesses.
Those programs combined with tax deferrals and a steep drop in economic activity have resulted in a federal deficit projected to hit between $330 billion and $343 billion, based on projections from the Parliamentary Budget Officer and the fiscal update in the summer.
Where it could go next is anybody’s guess.
In a note to investors sent out over the weekend, CIBC chief economist Avery Shenfield said the picture remains hazy for those trying to predict what the government will do next.
“Much as we’d like to give you our forecast for the bottom line, we can’t. While we could take a stab at updating the last revenue projections, nobody outside the government can credibly claim to know how the spending numbers have changed,” he wrote.
Shenfield said the available data so far suggests roughly $100 billion in economic activity has vanished amid the pandemic. But that money should come “flooding back” into federal coffers once a vaccine is available and distributed, and restrictions on Canadians can relax.
The key metric he plans to watch for is how much of the spending commitments are temporary.
“What we’ll be focusing on in Monday’s spending numbers is how much of it can be attributed to temporary pandemic relief for households and businesses that will also expire when COVID disappears,” he wrote.
“As long as such spending accounts for the vast majority of the climb over the prior fiscal year, we’re in good shape.”
Freeland and Prime Minister Justin Trudeau have over recent months stressed they believe historically low interest rates mean the government can and should keep taking on debt in order to keep the money flowing to Canadian families and businesses.
Conservative Leader Erin O’Toole said on Sunday he will be watching for some indication from the government as to whether that’s still their position, and called the focus on low interest rates “reckless.”
“In a few years, interest rates will change,” he said.
“I want to see if she remains of that same view, that she can spend without regard to public finances as long as interest rates remain low.”
The Bank of Canada has said it expects interest rates will stay at historic lows until roughly 2023.
In an economic forecast last month, the central bank said it does not expect Canadian economic activity to return to where it was before the pandemic until the start of 2022.
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