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A woman wears a face mask as she walks along Sainte-Catherine street in Montreal, on May 24, 2020.

Graham Hughes/The Canadian Press

When the Parliamentary Budget Officer reports in June on Canada’s fiscal and economic prospects, we will almost certainly learn that this year’s federal deficit has surpassed the already-staggering $252-billion projected in April. Despite optimistic talk, COVID-19 has so badly wrecked the Canadian economy, the most important questions we face now are how much our governments will spend to limit the damage and where they will find the money.​

The biggest problem is physical distancing. Since March, people have been told they should remain two metres apart in public. You just can’t have much of an economy with that rule in place.

With physical distancing, how are airlines supposed to make a profit? How can you work in an office tower when only two people are allowed at a time in each elevator? Because of physical distancing and other restrictions, the tourism industry mostly doesn’t exist. A year ago, it accounted for 2 per cent of Canada’s GDP and 4 per cent of jobs. Most restaurants and bars can’t open profitably. The sports and entertainment industries are crippled.

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According to data released Tuesday by the Canadian Federation of Independent Business, 38 per cent of small businesses are now fully open, while 58 per cent remain closed. Although governments are slowly relaxing restrictions, fear of COVID-19 is keeping many consumers at home.

“It’s one thing for government to say you’re allowed to open,” CFIB president Dan Kelly said. “It’s another thing for consumers to actually come back to the table.”

A quarter of the CFIB’s members say they may never open again.

“I fully expect there will be a hollowing-out of Main Street like we’ve never seen before,” Mr. Kelly predicts.

Economic growth may appear robust later this year, but that will only be because “the starting point is so low,” says Stephen Brown, who heads the Canada desk at Capital Economics, an economic-research firm. Much of the Canadian economy has simply evaporated. Capital Economics does not expect GDP to return to 2019 levels until at 2022. A vaccine could accelerate recovery, but many scientists believe a safe and effective vaccine could take years to perfect.

Federal emergency relief programs assumed that the economy would bounce back quickly from the pandemic. Many of the wage-and-business-subsidy programs are set to expire in the coming months. CERB, the Canada Emergency Response Benefit, will only help those who have lost their jobs because of the pandemic until the beginning of October. The Canada Emergency Wage Subsidy, which pays employers not to lay off their workers, expires Aug. 29.

Although some people will be back to work by then, many others will not. The demands on the federal government will be relentless: from cash-strapped municipalities and provinces; from entire sectors of the economy that face extinction; from businesses and workers on the brink.

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The Fraser Institute, a conservative think tank, pointed out in a release Tuesday that federal government spending, per capita, is 50 per cent higher today than during the recession in 2009.

Jason Clemens, the institute’s executive vice-president, acknowledged the need for government intervention during this crisis. But tamping down that intervention and encouraging entrepreneurial innovation, while avoiding tax hikes, must be a priority going forward, he believes.

“Yes, we’re in a very poignant, painful recession,” he said in an interview. But “we need a foundation to emerge from this recession and get back on track, and it’s just not clear to me that the federal government is concerned about that second part.”

Progressive analysts will insist on the need for heavy intervention, and even see in the crisis an opportunity for new social programs. On Monday, for example, Prime Minister Justin Trudeau promised to seek agreement with the provinces for paid sick leave for all workers. David Parkinson and I have written about the prospects for a universal basic income. But those new programs will have to be paid for, and the last thing that struggling businesses need are new taxes.

It took years for Western economies to fully recover from the economic shock of 2008-09. This shock is far worse. How much worse? No one can be sure. “We are truly entering unknowable times," Stephen Poloz, outgoing Governor of the Bank of Canada, said in a speech Monday in Edmonton.

We are entering the Dark Twenties. No one knows when or how it will end.

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