Liberals eye ‘lost generation’ risk with sweeping COVID-19 recovery plan

The federal Liberals are betting big that ambitious new spending programs like childcare and a potential economic reopening as early as July will be enough to prevent deep scarring on what many economists have feared could become another Lost Generation.

And while federal officials have so far been reluctant to talk timelines for any COVID-19 endgame, Budget 2021 teases a trail of breadcrumbs that offer what could perhaps be described as a glimmer of hope that officials believe the end could truly be in sight.

“There is economic scarring as part of this recovery and I think there’s a recognition that the scarring has to be dealt with,” said Sahir Khan, executive vice president of the University of Ottawa’s Institute of Fiscal Studies and Democracy.

READ MORE: Liberals focus on child care, E-commerce for growth after COVID-19 in new budget

Budget 2021 lays out $101 billion of new spending over three years as what officials bill as a “bridge” between the continued pressing grip of the pandemic surging across much of the country as well as a vision for the next three to five years of coping with the aftermath.

While it’s not quite the long term, “transformational” plan that Prime Minister Justin Trudeau had said during the fall throne speech would be coming, Khan said it marks “chapter one” of the move towards recovery and a “down payment” towards addressing the pandemic’s scars.

“It’s transformational in a couple of dimensions, but probably not in every way that was discussed,” Khan said.

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The pandemic’s disproportionate impact on women and low-wage workers, including students and new graduates, have sparked fears that without significant support, an entire generation might never recover and could struggle to make up for lost economic potential.

Finance Minister Chrystia Freeland addressed those concerns in the budget directly.

“We will not allow young Canadians to become a lost generation,” she said. “They need our support to launch their adult lives and careers in post-COVID Canada – and they will get it.”

The visions for those supports centre around the anticipation that the economy could begin to reopen around June or July 2021, and also around a plan for promised affordable childcare.

The budget lays out $50 billion in new spending in this fiscal year with childcare laid out as a hallmark proposal. Budget 2021 vows to cut childcare costs by 50 per cent by the end of 2022 and put a full program in place nationwide for $10 per day within the next five years.

READ MORE: Research indicates women in the workforce hit hard by COVID-19

It also includes a promise to set a $15 per hour minimum wage for roughly 25,000 federally regulated workers, a long-promised increase to Old Age Security, extensions to the federal wage subsidy and rental subsidy, as well as a new subsidy program to cover some of the costs of hiring new workers — or hiring old ones back — between July and November 2021.

One senior government official described the goal as shifting the focus from protecting jobs to creating new ones, and eyeing the need to begin winding down some supports.

The caveat to that, of course, is the assumption that vaccine rollout will go as planned and that every Canadian who wants a vaccine will be able to get both doses by the end of September.

Will Budget 2021 send Canadians to the polls?

As the pandemic has stretched into its second year, there has been debate among political parties about whether the government is incurring too much debt — and whether it is incurring too little by not moving forward with other large spending programs.

In particular, a universal basic income, a wealth tax and a universal pharmacare program have been favourites of the NDP, which is likely to play kingmaker when the budget comes to a confidence vote in the coming weeks.

None of those bore fruit in the budget.

READ MORE: Budget 2021: What’s missing as feds say no to new GST hike, universal basic income

But there are signs the Liberals are eyeing NDP support along with support from youth and female voters in the event of an election with a suite of measures targeting women’s health research and sexual rights, student debt deferral, a tax on vacant foreign-owned property, and funding for race-based statistical data — a vital missing piece in assessing the full impact of COVID-19 on racialized and lower income Canadians.

“This budget is a smart, responsible, ambitious plan for jobs and growth,” said Freeland in a press conference on Monday. “It is designed precisely to heal specific wounds of the COVID recession and to permanently strengthen Canada’s economic muscles.”

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The budget also proposes new taxes on both tobacco and vaping products — estimated to bring in billions in new revenue — along with a “luxury tax” of between 10 to 20 per cent on cars and private aircraft over $100,000, and boats over $250,000 estimated to bring in more than half a billion in new tax revenue.

The luxury taxes would kick in on Jan. 1, 2022, while the tobacco tax would kick in as of Tuesday. Vaping products taxes would come in sometime next year pending consultations.

At the same time, the promised return to a fiscal guardrail is hazy even as the planned winddown of some pandemic spending suggests the deficit is on track to start shrinking.

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The 2020-21 deficit capped out at $354.2 billion, according to the budget. That’s below the forecasted $382 billion, largely due to lower uptake on pandemic support programs as the economy rebounded slightly towards the end of the year.

The coming fiscal year will see the deficit shrink to $154.7 billion — still significantly larger than the roughly $20 billion deficit in 2019, but also a significant drop from the high-water mark of pandemic spending seen over the past year.

While the budget recommits the government to lowering the deficit as a proportion to GDP — often referred to as the debt-to-GDP ratio — the budget does not set out specific targets for yearly reductions as did previous pre-pandemic budgets.

The government frequently did not hit those targets.

READ MORE: Childcare, flex work are key for women to recover from pandemic career hits: report

The deficit is projected to drop further to $60 billion in the next fiscal year and then to roughly $31 billion by the spring of 2026, putting it back on track with the levels in the years just before the pandemic.

Throughout, the debt-to-GDP ratio is forecast to remain at roughly 50 per cent.

While there has been broad public support in polling for the government’s pandemic spending, Khan said the metrics for whether Canadians will remain on board with the recovery plan likely comes down to one thing: results.

“I think what we need to think about now is the quality of the spend. And I think Canadians will still care about whether they’re getting results out of the spending,” he said.

“That’s really the barometer by which this budget ultimately will get judged, and it won’t be a quick one. I think this government’s going to think about the performance metrics that it’s hoping to get, the results it’s trying to get out of the spending and make sure those are front and center,” Khan continued.

“Otherwise that optimism and the gratefulness that Canadians feel for the spending and for the support will dissipate quickly.”

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