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Minister of Finance Chrystia Freeland takes part in a news conference before tabling the government’s economic and fiscal update in Ottawa on Dec. 14, 2021.BLAIR GABLE/Reuters

The federal government posted a $1.4-billion deficit in November – down from $15.4-billion 12 months earlier – continuing a trend that shows this fiscal year’s federal deficit will not be as large as during the first year of the COVID-19 pandemic.

The monthly fiscal monitor report from the Finance Department shows that over the first eight months of the current fiscal year, which began April 1, the federal deficit stood at $73.7-billion. In contrast, the cumulative federal deficit over the same eight-month period one year earlier was $232-billion.

“As expected, the government’s 2021-22 financial results show a marked improvement compared to the peak of the COVID-19 crisis reached in early 2020-21, and the unprecedented level of temporary COVID-19 response measures at the time,” the department said.

“That said, they continue to reflect challenging economic conditions, including the impact of continuing restrictions, and the remaining temporary COVID-19 Economic Response Plan supports in 2021-22.”

The final four months of the fiscal year will reflect the take-up of various federal support programs for businesses and workers that were offered in response to shutdowns related to the Omicron variant.

Finance Minister Chrystia Freeland’s December fall economic and fiscal update projected the deficit for the current fiscal year would be $144.5-billion, down from $327.7-billion the previous year. The government projected the deficit to fall further, to $58.4-billion, in 2022-23 and decline gradually each year until reaching $13.1-billion in 2026-27, the outer year of the projections.

Those bottom-line projections are likely to change, however, when Ms. Freeland delivers a 2022 budget, likely in March or April, given that the update did not account for many spending promises made by the Liberal Party in last year’s federal election campaign.

There are also questions as to whether the degree of stimulus spending announced in the 2021 budget is still warranted.

That budget set aside $70-billion to $100-billion for stimulus spending, a plan that was first announced in Ms. Freeland’s 2020 fall economic statement. The 2020 statement said “fiscal guardrails” would help establish “when the stimulus will be wound down.” Listed examples of guardrails included the employment rate, total hours worked and the level of unemployment.

In a report earlier this month, Parliamentary Budget Officer Yves Giroux said that a review of those indicators would suggest that the argument for stimulus has weakened.

“The government’s previously identified fiscal guardrails and their benchmarking would suggest that ‘stimulus’ spending should be wound down by the end of the 2021-22 fiscal year,” the PBO said in a Jan. 19 report.

“Thus, it appears that the policy rationale for additional spending over 2021-22 to 2023-24 that was initially set aside as stimulus spending has changed.”

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