Liberals' fiscal snapshot predicts $343 billion deficit as Morneau offers little intention to curb spending

OTTAWA — The federal government expects to post a $343-billion deficit in 2021 as COVID-19 spending continues to mount, outpacing earlier estimates and reinforcing the depths of Ottawa’s weakened fiscal position.

In his fiscal update on Wednesday, Finance Minister Bill Morneau indicated that total government spending would balloon to $612 billion by 2021, nearly double the $346 billion spent in 2019. The swollen deficit is largely a result of higher projected spending under Ottawa’s two key COVID-19 financial aid programs, the Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Response Benefit (CERB), which have been repeatedly extended and expanded in recent months.

The update on Wednesday underscores the fiscal bloodbath that Morneau finds himself in as he seeks to guide the Canadian economy out of its steepest decline in decades.

Opposition parties and industry groups have been pressuring the Liberal government to provide some indication as to when it will begin to rein in its spending programs, warning that indiscriminate spending could begin to weigh on an eventual economic recovery.

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Finance Canada provided little insight into when it would begin unwinding the CERB program in particular, saying only that it would “make necessary changes to the program later this summer so people can have the help they need while supporting the recovery.”

Total federal debt as a percentage of GDP, often touted by the Liberal government as its key fiscal anchor, is expected to swell to 49 per cent in 2021, up from around 30 per cent today.

The CERB, which provides $2,000 per month to people who have lost their jobs due to COVID-19, was initially expected to cost around $25 billion. That projection on Wednesday was increased to $80.5 billion through 2020 and 2021, after the NDP and Liberals agreed to extend the benefit until October 4.

The CEWS, which effectively covers 75 per cent of employee wage costs for struggling businesses, is now expected to cost $82.3 billion, up from an initial estimate of $73 billion. CEWS has been largely undersubscribed in recent months, which industry groups say is due to a delayed rollout of the program, raising questions as to how the Liberals might adjust the program to incentivize more applicants.

Speaking to reporters on Wednesday, Morneau said an update to the CEWS program would be coming “in the very near term,” while acknowledging the government will need to strike a balance between supporting vulnerable workers and avoiding unnecessary damage to the federal balance sheet.

“We know there are some things we need to change” about the wage subsidy, he said.

Morneau declined to outline a long-term plan for unwinding or tweaking the two major programs, saying instead that he would be focussed generally on supporting economic recovery.

“Right now is really the time to be thinking about people and jobs,” he said.

The $343-billion deficit is six times higher than the $56-billion shortfall posted by the Harper government during the 2009 economic recession, which had been the largest on record in Canada.

However, even as program spending balloons, the cost of servicing Canada’s debt is actually expected to fall in 2021 due to near record-low interest rates. Total debt servicing costs are expected to be $19.5 billion in 2021, down from $23.3 billion in 2019.

Canada’s total debt is now expected to reach $1.06 trillion in 2021, up from $685 billion last year. Those mounting debts come as total revenues generated by Ottawa through income taxes fall off a cliff, plummeting from $223 billion in 2019 to $195 billion in 2021.

Despite the grim fiscal outlook, the update said the “recession likely reached its lowest point in late April,” and suggested recovery is underway.

“There are growing signs that the worst of the economic shock is behind the Canadian and global economies,” the document said.

National Post

-By the numbers-

Estimated federal deficit for 2020-21: *$343.2 billion*

Direct federal aid to individuals and businesses as a result of COVID-19: *$212 billion*

Number of Canadians who were laid off or had their hours cut as a result of COVID-19 between February and April: * 5.5 million*

Number of Canadians who applied for the Canada Emergency Response Benefit: *8.16 million*

Amount government paid out in Canada Emergency Response Benefit as of June 28: *$53.53 billion*

Number of students who applied for Canada Emergency Student Benefit: *601,356*

Amount government paid out in Canada Emergency Student Benefit as of July 2: *$1.42 billion*

Number of Canadians whose jobs were supported by the Canada Emergency Wage Subsidy: *3 million*

Expected unemployment rate by the end of 2020: *9.8 per cent*

Expected unemployment rate in 2021: *7.8 per cent*

*29* : Number of times the government uses the word “unprecedented” in its fiscal snapshot documents

— The Canadian Press