Four months ago, there was frustration in economic-policy circles that Ottawa’s $70-billion-to-$100-billion recovery stimulus pledge was a big figure without a plan. That we would have to sit nervously until a spring budget for the government to get started with lifting the economy out of the deep pit of the pandemic.
Now, less than three weeks until that spring budget, it’s a good thing the government waited. The more pressing question is whether the country needs this stimulus at all.
Maybe we need to replace the notion of a massive-but-temporary economic rescue with something smaller, much more focused – and, perhaps, a more permanent fix to the economic cracks exposed by the pandemic.
On Wednesday, the Office of the Parliamentary Budget Officer (PBO) – the government’s fiscal watchdog – released a new economic outlook in advance of the April 19 budget. The PBO said the economy is much healthier than previously anticipated, and headed for a much faster recovery than was envisioned last fall. It projected that “almost all of the ground lost in the labour market due to the pandemic will be made up by the end of 2021-22” – referring to the budget year ending one year from now.
These projections don’t even take into account the huge stimulus promised by Finance Minister Chrystia Freeland in the fall economic statement in late November – a three-year commitment that doesn’t begin until the 2021-22 budget year. The government has targeted $20-billion to $30-billion of that stimulus in 2021-22 alone, and even more in 2022-23 – by which time the economy is expected to have already fully recovered.
The budget was supposed to be the big reveal of the specific plans behind the stimulus commitment. But the economy is quickly outgrowing the need for such a strategy.
“The size and timing of the $70-to-$100-billion for stimulus may be miscalibrated,” the PBO argued.
In the fall economic statement, the government promised to use “fiscal guardrails” – tied specifically to statistical employment indicators – to dictate when it should remove stimulus spending. The outlook for those indicators makes it pretty clear that the stimulus pledge is overdoing it, to say the least.
One could certainly argue that elements of the economy still need targeted help – say, lagging business investment, for example, or specific relief to help shut-down segments such as tourism get back on their feet. One might even view the third wave of the pandemic as reason enough for the government to keep its foot on the spending accelerator.
But the economy’s demonstrable resilience through the second wave earlier this year – evident in Statistics Canada’s surprisingly strong gross-domestic-product report Wednesday – suggests that the impetus for a large and broad stimulus blitz has passed.
Still, Ottawa was clear in the fall economic statement that there was more to its definition of a full recovery than merely a return to prepandemic unemployment or GDP levels. It expressed specific concern about segments of the population disproportionately hurt by the pandemic, and pledged that its stimulus plan would have a special focus on ensuring that those groups aren’t left behind.
Even with the faster recovery that the PBO and most private-sector economists now envision, there is a case for programs to target these areas of deeper damage.
The key segment of these workers is women. The fall statement used the term “she-cession” to emphasize the unusually heavy burden borne by the country’s female population, as school and daycare closings forced a disproportionate number of women to abandon paid work to meet child-care needs. The government specifically identified child care as a priority to be addressed in a full and inclusive recovery.
“Canada cannot be competitive until all Canadian women have access to the affordable child care we need to support our participation in the work force,” it said.
There’s little doubt that the underrepresentation of women in the labour force – a pre-existing issue that was exacerbated by the pandemic – poses a serious limitation on the country’s economic potential as the government looks to lay the groundwork for a better postpandemic future. The most recent employment statistics show that among “prime-age” Canadians from 24 to 54 – the most productive segment of workers – the share of women participating in the labour force is 7.5 percentage points below that of males.
If we’re going to stimulate the kind of stronger economic growth that can lift government revenues sufficiently to rein in the enormous deficits imposed by the COVID-19 crisis, improving labour-force growth is a critical element. A serious national child-care program is the obvious solution to unlocking a large source of untapped labour – not to mention addressing a major source of economic inequality.
But if Ottawa were to laser focus its stimulus plan on a national child-care plan, it would require some rethinking of its approach to stimulus. The promised package, as big as it is, was expressly intended to be a temporary tap that Ottawa would turn off when the recovery was in place. A national child-care program would not work as a temporary measure.
Nevertheless, it’s increasingly clear that the very expensive but short-term fix that Ottawa envisioned in the fall would be a poor investment. The evidence suggests that longer-term commitments – such as a serious affordable child-care plan – would be money better spent than a three-year stimulus spree that the economy no longer needs.
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