The bill for the federal government’s response to the economic crisis caused by the COVID-19 pandemic is in, and it’s a whopper.
Thanks to a drop in revenues of $71-billion, combined with $228-billion in emergency spending plus other changes to the fiscal forecast, Ottawa will run a $343-billion deficit this year. That in turn will push the federal debt past the $1-trillion mark for the first time.
The impact could be felt for a long time. Rating agencies could look at the numbers and lower Ottawa’s credit score, which could raise the cost of servicing the debt. Borrowing and spending so much money in the first stages of the pandemic could also limit the government’s room to manoeuvre if the recovery is slower than expected.
No one, and especially not the Liberal government, should pretend this historic splurge is without long-term consequence or risk. Plus, the government’s “snapshot” of its finances, released Wednesday, is based on an optimistic view of the near future.
But any large bill that comes through the mail slot needs to be measured against what it paid for, what was gained by spending the money and the ability of the recipient to pay it. On those counts, the spending still makes sense.
What it paid for: The vast majority of the increased spending has gone toward programs to support individual Canadians and small businesses during the pandemic lockdown.
That includes the Canadian Emergency Response Benefit (CERB), which has put $500 a week into the pockets of laid-off Canadians who may not qualify for Employment Insurance. CERB has been extended to continue for a total of 24 weeks, at a cost of $80-billion.
It also includes the Canada Emergency Wage Subsidy, an $82-billion program to cover 75 per cent of the wages of employees in companies whose revenues dropped by at least 15 per cent in March, or by 30 per cent in April, May or June.
Money has also been spent on a CERB-like program for students, and deferrals on some tax and loan payments.
Ottawa has pumped an additional $20-billion into health care and public-health measures as part of its emergency response. That includes investments in testing and contact tracing to help keep the novel coronavirus at bay as the economy reopens.
What was gained: Time, mostly. Canada needed to stop the spread of the coronavirus before it turned into the sort of disaster seen in other countries. And, to do so, life had to come to a stop.
By providing the millions who have been laid off with a minimal income, and by helping companies keep employees on the payroll, Ottawa gave the provinces the room to shut down schools and universities, and to empty out public spaces such as sports arenas, restaurants and shopping malls.
The effort has worked. The pandemic is largely under control in Canada, and the provinces are beginning to reopen at their own pace. But they never could have done it without the federal government’s ability to borrow money, and to provide financial support to Canadians and businesses, during this trying time.
Paying the bill: As this page has said from the start, Ottawa is good for the money. Debt has never been cheaper – especially in the form of government bonds that carry an interest rate of about 1 per cent or less. On Wednesday, Finance Minister Bill Morneau said Ottawa’s debt-servicing costs will drop this year, even though the debt itself has increased.
As well, Canada went into the crisis with a relatively low debt-to-GDP ratio. That ratio has risen dramatically, but in the coming years it is unlikely to return to the levels of the 1990s, when it once reached 66.8 per cent. We are not heading into uncharted territory.
In any event, the calculation was never whether Ottawa could afford to take the measures it did, but whether it could afford not to. A lack of action would have led to many more people being laid off, a steeper drop in GDP, a longer recovery and additional suffering by ordinary Canadians.
The trick now is not to waste that money. Having gotten the pandemic under control, it would be a monumental error to allow a hurried recovery to cause a second community-wide outbreak of COVID-19.
As has always been the case, any economic recovery in the next 12 months will depend more on smart public-health measures than on financial bailouts.