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| Justin Trudeau. Photographer: David Kawai/Bloomberg |
That cushioned the blow of the pandemic, but raises some hard questions about what Canada got for all that spending. The economy shrank 5.4% last year, Statistics Canada said Tuesday, the sharpest annual decline in the post-World War II era and the third straight year in which it underperformed the U. That’s despite Canadians receiving C$20 in government transfers for every dollar of income lost, according to government data. Treated to larger handouts, Canadians mostly hoarded them, potentially opening Trudeau’s government to criticism it has wasted money on programs that spread cash quickly but inefficiently. In Canada, the concern is more acute, though, because the money the government borrowed to finance stimulus programs contributed to one of the biggest increases in debt among advanced economies last year.
The government’s key early move wasn’t a one-time $2,000 check but a C$2,000 monthly payment to those who’d lost jobs or income because of the virus. Trudeau also offered money to students with poor summer job prospects, and to pensioners, indigenous people, artists and others.
Fiscal Capacity
Government transfers to households increased by C$119 billion in 2020 from a year earlier, versus a decline of just C$6 billion in regular income. There’s still the prospect that some of the excess savings will flow back into the economy sooner than anticipated, fueling an even strong recovery in 2021. Fourth-quarter growth was stronger than anticipated, adding to optimism about a rebound fueled in part by climbing prices for oil, the country’s top export, though official data revealed some underlying problems as well. Trudeau has defended the size of the deficits by saying they relieved pressure on families carrying some of the highest household debt levels in the world.
«The federal government’s capacity to deliver future services has deteriorated spectacularly,» he said in an interview. That includes the ability to address any future economic setbacks or finance longer-term challenges like aging infrastructure and climate change.
Spending Expectations
Trudeau’s governing Liberals are already showing relatively more restraint in setting expectations for spending. Even as emergency programs have been extended, there appears to be little appetite for an additional stimulus package that comes anywhere near the Biden administration’s $1.9 trillion plan in the U. The jump in the savings rate, which was a still-elevated 12.7% in the fourth quarter, clearly preoccupies Freeland, who has argued it will eventually be spent once confidence improves. To emphasize the point, she’s rebranded the government’s efforts last year as a «preloaded stimulus». That theory has its doubters, starting with the Bank of Canada, which has previously said it isn’t counting on the built-up savings to be unleashed quickly.
Canadians may instead hang onto the money or use it to pay down their own sizable debts, the bank says.
Vaccine Woes
Yet Trudeau remains vulnerable. There have been concerns from insiders in the finance department that his government has used little economic analysis to direct pandemic spending. He could wind down emergency programs faster if Canada had enough vaccines, but that campaign has been slow. Vaccines are Trudeau’s biggest political problem right now, and it’s the major reason why his approval rating dropped to 45% in a recent Angus Reid Institute poll, near the lowest since the pandemic began.
Source: Theophilos Argitis | Bloomberg
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