Canada Predicts Historic Deficit Due to Pandemic Spending

Finance Minister Bill Morneau.
			By David Opinko	
		BREAKING Canada’s deficit projected to hit $343-billion				Jul 08 2020

Finance Minister Bill Morneau. By David Opinko BREAKING Canada’s deficit projected to hit $343-billion Jul 08 2020

"Some will criticize us on the cost of action". At that time the deficit was forecast to be at about $28.1 billion in fiscal 2020-21. It is a testament of the shock that COVID-19 had on our economy.

"It's not easy. We're in challenging times", Finance Minister Bill Morneau told reporters. Total debt servicing costs are expected to be $19.5 billion in 2021, down from $23.3 billion in 2019.

The announcement defied the worst of expectations, with the Office of the Parliamentary Budget Officer projecting a $188.22 billion deficit in the upcoming fiscal year and opposition parties bracing for a $220 billion hit.

This will push Canada's debt to an estimated $1.2 trillion. In the pre-pandemic December economic update, Canada's debt-to-GDP ratio was at 30.9 percent and was projected to remain on track to reduce incrementally over the next few years.

While the announced deficit was larger than anticipated - most economists expected a deficit of just over $250 billion - the government of Liberal Prime Minister Justin Trudeau is justifying the budget shortfall as the lesser of two evils.

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The deficit, which is expected to rise to almost 16 percent relative to the Canadian economy, comes after a $170.28 billion government spending spree in response to the novel coronavirus pandemic.

Michael White, portfolio manager and head of multi-asset strategy, Picton Mahoney Asset Management says the snapshot is tacit acknowledgement that Canadian consumer debt is an issue.

"We made a decision to take on that debt to prevent Canadians from having to do it", he told a news conference.

"Holistically it is an admirable goal, but again, leaves the medium/long-term solutions open for debate". "Representing almost 14 per cent of Canada's gross domestic product (GDP), the Plan includes more than $230 billion in measures to protect the health and safety of Canadians and provide direct support to Canadians, businesses and other employers, and up to $85 billion in tax and customs duty payment deferrals to meet liquidity needs of businesses and Canadian families". As well as up to $85 billion in tax and customs duty payment deferrals to meet liquidity needs of businesses and families. That status is facilitated by historically low interest rates, with public debt charges actually declining as borrowing costs fell.

Speaking in the House of Commons, Conservative Leader Andrew Scheer said the Liberals failed to provide a plan to stimulate economic and job growth.

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The Canadian Federation of Independent Business (CFIB) called the snapshot a missed opportunity to provide certainty for small business owners.

Almost two-million Canadians remain unemployed during the COVID-19 pandemic.

He said programs like CERB nonetheless need to be "retooled toward recovery" as provincial governments continue to gradually reopen the economy.

The next update on how COVID-19 is affecting Canadian workers comes Friday morning, when Statistics Canada reports jobs numbers for June.

But the coronavirus shutdown triggered the country's biggest economic downturn since the Great Depression, says a press release from the finance minister.

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