John Ivison: No painless way out for Liberals from the worst economic blow in history

It has been indicated that there is no painless way out for liberals from the worst economic blow in history and that the “illustrative scenarios” presented by the PBO reveal the combination of the COVID pandemic and the oil price shock that has put Canada on track to accumulate a deficit of $ 252.1 billion this year, or 12.7 percent of the country’s economic output.

Likewise, it is understood that if the perspectives are correct, tax revenues will fall by $ 60 billion, while program spending will increase by $ 168 billion,  a total of a quarter of GDP, compared to the previous year. Thus, to put those numbers in context, it could be established that these are the worst in the history of Canada.

And it is that even in the depths of the Great Depression, real GDP did not fall by 12 percent in a single year. The deficit would also be greater than in any year during the Depression, as a percentage of the economy.

It’s not all bad news

It should be noted that the good news is that the debt can be renewed. Economic historian Livio Di Matteo of Lakehead University notes that Britain was still paying off Napoleonic-era debt well into the 20th century. The interest rates on the new debt are also at record lows and, in theory, much of the $ 146 billion in emergency spending is temporary.

The PBO sees the federal debt-to-GDP ratio rise to 48.4 percent this year, but that is not close to the peak of 66.6 percent in 1995–1996, when 38 cents of every dollar of tax was used to pay interest. The national debt.

The comparison with the post-war period is not pretty. And we are currently seeing an increase in trade protectionism. To complicate matters, we have an aging population, a collapse in resource prices, and a record family debt.

There will certainly be more demands to provide aid to specific industries that are not yet covered by government aid programs. The Canadian Federation of Agriculture has already been seen looking for $ 2.6 billion this week, as the closure of processing plants and other disruptions to the supply chain threaten food security. Furthermore, the PBO noted that additional fiscal measures may also include stimulus spending to ensure the economy reaches “take-off speed.”

Source: John Ivison | National Post