COVID-19: Federal deficit projected to reach $184B as economic response rolled out

The 2021 federal deficit is expected to reach $ 184 billion, or 8.5 percent of GDP, as Ottawa introduces new and expensive spending measures to combat the economic consequences of COVID-19.

The latest deficit projection, released by the Parliamentary Budget Officer on Thursday, is more than triple the previous deficit record set by former Prime Minister Stephen Harper, who ran a $ 56 billion gap in 2009 to fend off the recession. economic.

The updated forecast comes after Ottawa revealed plans for a $ 73 billion wage subsidy program for Canadian companies, an initiative that continued to face criticism Thursday for its delay in deployment. The growing budget deficit will push the federal debt-to-GDP ratio above 40 percent, according to the PBO, the highest in 20 years.

Fear and confusion

Before the spread of the pandemic, Canada’s net debt to GDP ratio was around 30 percent, and liberals had repeatedly stated that they would continue to reduce that figure, as a way of demonstrating their fiscal prudence. Despite this, in his 2019 fiscal update, Finance Minister Bill Morneau registered a deficit in 2020 that was $ 7 billion higher than expected, which in turn pushed the national debt index a little higher.

Likewise, companies have expressed confusion about whether they are eligible for the subsidy, due to a requirement that they must demonstrate that they have lost a certain amount of income in the past year. In addition, an online portal through which companies can apply is expected to take three to six weeks to complete, meaning that thousands of companies are likely to be forced to lay off staff before the program is operational.

Notably, the wage subsidy was touted as a necessary measure by business groups and economists, who have argued that the Canadian economy is likely to see a faster rebound if more Canadians continue to be employed, rather than being rehired after social distancing controls are lifted. In addition, the wage subsidy will cover up to 75 percent of companies’ payroll but requires companies to pay the remaining 25 percent.

Source: Jesse Snyder | National Post