When the COVID-19 pandemic is finally over – and that day is not far off – questions about Canada’s failures will remain. There will be questions about the lack of preparation. There will be questions about the thousands of preventable long-term care deaths in the spring, and the failure to ramp up testing and contact tracing in the summer. There will be questions about whether physical-distancing measures were lifted too soon, or reimposed too late, or applied haphazardly on some blameless businesses.
Canada got a lot wrong over the past nine months, and depending on what happens in the months ahead, there could be more unpleasant questions to come: Did Ottawa do enough to get to the head of the vaccine line? Will it successfully organize the coming inoculation campaign?
But the one area where Canada mostly got it right is fiscal policy.
When it comes to federal spending, budgeting and the deficit and debt, the future promises lots of questions – questions that Finance Minister Chrystia Freeland’s Monday fiscal update did not fully answer, and in fairness could not fully answer. But leaving the future aside for a moment, Ottawa’s fiscal response to the pandemic has so far been one of the few places where a look in the rear-view mirror shouldn’t leave Canadians wincing with regret.
When COVID-19 arrived and the economy was induced into a coma, Ottawa turned the federal treasury into the country’s economic life support. That’s what it had to do. With much of the private sector temporarily shut down, and millions of people temporarily without a paycheque, Ottawa stepped into the breach. It put tens of billions of dollars of public money into the hands of income-deficient Canadians.
That’s part of the reason why the economy bounced back much faster than expected. Between February and April, Canada lost three million jobs, but as of October, it had regained 2.4 million. Federal rescue funds allowed jobless Canadians to keep spending, and to keep others employed, even in the depths of a shutdown.
Ottawa created what is arguably the world’s most generous pandemic support program, which is why the IMF recently predicted that the combined federal-provincial deficit will hit 19.9 per cent of gross domestic product this year – the biggest in the developed world. It’s why a study by the Organization for Economic Co-operation and Development showed that, even as the Canadian economy contracted by a tenth in the spring, household incomes rose 11 per cent.
So yes, the Trudeau government may have gone overboard with some spending – politicians love to hand out money – but on the whole, it did what had to be done.
As for what comes next, Ms. Freeland’s fiscal update was somewhere between a budget and a set of options, possibilities and fill-in-the-blanks. There are reasons for that.
The first is that, after a summer of stargazing about how the pandemic was an amazing “opportunity” for pet-project spending, the Liberals have come back to Earth. The Finance Minister’s sort-of budget treats the present troubles as Job No. 1, as it should. The second reason is that, while the pandemic will be beaten in the long run, the path and timeline to victory are uncertain.
Depending on the pandemic’s course, Ms. Freeland’s update says the federal budget deficit will be somewhere between $381.6-billion and nearly $400-billion this year. But that will fall sharply – how sharply being pandemic-dependent – so the deficit in two years could be barely more than $50-billion, and the debt-to-GDP ratio could be stable and declining.
That’s if the pandemic is subdued relatively quickly. If it isn’t, government revenues will be lower than expected for a couple of years, and the need to spend will be higher.
That’s why the immediate priority has to be subduing COVID-19. Every dollar spent reducing the number of cases, and thereby increasing the degree to which the economy can reopen, will deliver big, instant returns. This investment will pay for itself.
Ottawa also has to make sure, as it pivots from this year’s megasized spending to the fiscal update’s planned more modest $70- to $100-billion in “stimulus” spending over the next three years, that it focuses on things to make the Canadian economy more productive, rather than, as it did this year, simply trying to put more money into the hands of consumers.
Keep your Opinions sharp and informed. Get the Opinion newsletter. Sign up today.