Now that Ottawa has given us a peek at its pandemic finances, we see two things more clearly than ever. One is that the federal government had to do the expensive programs that led to a massive deficit. The second is that it can’t keep doing them for a long time.
It was possible to guess both before Finance Minister Bill Morneau stood up in the House of Commons Wednesday afternoon to deliver a fiscal update.
But the stark figures in his statement highlighted the speed at which the reckoning is hurtling toward us.
Six months of pandemic spending have driven an annual deficit to a level never before seen in peacetime. That tells us just how urgent it is to get to the reopening – and how crucial it is to get it right.
Mr. Morneau’s speech didn’t tell us much about how Ottawa expects to do that. But the numbers projected for government programs gave us some hints: They suggest the government plans to wrap up the main emergency support, the Canada Emergency Response Benefit (CERB), and try to push people to more generously subsidized payrolls, probably in September.
In this fiscal statement, both the bad news and good news demonstrated how hard the transition will be.
First the bad news. The $343-billion deficit forecast for 2020-21 is bigger than expected – 10 times last year’s. Canada’s debt, which had been stable at roughly 30 per cent of GDP, jumped to 49 per cent in one year. It is not a disaster, but it cannot be repeated for long.
The shrinking economy caused government revenues to drop sharply. But the bigger impact came from COVID-19 relief, mostly two major spending programs: the CERB and the Canada Emergency Wage Subsidy.
The good news is that all that money did something massively important: It blunted the impact of an economic disaster. It replaced the lost incomes of more than five million people and prevented the failures of an unknowable number of businesses, putting the brakes on a downward spiral. Ottawa did most of that, backstopping the provinces and territories.
There can be a lot of complaints about details. The government should have announced its 75-per-cent wage subsidy three weeks sooner, but that wasn’t quite so obvious in the first fog of crisis. Ottawa generally got the big emergency things roughly right, and its big spending shielded Canadians from deeper economic disaster.
Prime Minister Justin Trudeau said some criticized the government for going too far with pandemic support, but in truth there wasn’t too much of that. Spending money on pandemic relief is popular.
The problem is the government’s own numbers make it clear that it can’t go on too long. A second pandemic wave would have a deeply worrying impact. But the still-to-come recovery plan for the fall is obviously urgent. And it is not likely to be as popular.
One big chunk of this year’s deficit is $73.1-billion for CERB benefits, but that sum only covers till the end of August, suggesting it will be wound down in September.
Instead, there is a lot of money planned for the wage subsidy. Only $18-billion has been spent on that program so far, and in June Finance department officials estimated it would cost $45-billion. Now, Finance is setting aside $82.3-billion. That’s a sign the subsidy will be widened – to encourage companies to use it more and to keep using it as their revenues start to rebound – and extended for a longer period. That’s the centrepiece of the transition plan.
But those who lose the CERB and don’t get hired back are presumably expected to go on old-school Employment Insurance. That won’t be so popular.
None of those details have been announced yet. Many things about the reopening haven’t.
There’s still no pandemic child-care plan. And there is a patchwork of plans for reopening elementary schools with physical distancing, so a lot of parents – disproportionately women – won’t be able to work.
Mr. Morneau noted that expanded child care is one of the things Ottawa is negotiating as part of a $14-billion package of federal aid, along with things such as transit. And it’s true that those things are mostly in provincial jurisdictions – and complicated, to boot. But now we know how costly it will be if we don’t get the reopening right.
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