Ottawa runs $120B deficit in just three months as Canadian economy craters

Ottawa runs $120B deficit in just three months as Canadian economy craters

National Post


OTTAWA — The federal government ran a $120-billion deficit between April and June, as Prime Minister Justin Trudeau continued to extend financial aid to people and businesses during the COVID-19 pandemic.

The staggering deficit comes as Statistics Canada posted new economic numbers on Friday, which showed the Canadian economy shrinking by a record-high 38 per cent over the same three-month period.

The new economic and fiscal data underscores the immense challenge facing the Trudeau Liberals during the pandemic, who are facing calls to both reorient Canada’s fiscal position while also ensuring struggling families and businesses get the supports they need.

According to new data released by Finance Canada on Friday, Ottawa ran a $33-billion deficit in the month of June alone — far more than the $28 billion deficit it was projected to post for the entire 2020-21 fiscal year. It ran a combined $120 billion deficit over the entire quarter, compared to a deficit of just $85 million in the same period last year.

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Even as spending increased sharply over the quarter, the cost of public debt decreased nearly 30 per cent, from $6.9 billion to $4.9 billion. The lower debt charges are a result of record-low interest rates, which were slashed by central banks around the world at the onset of the pandemic.

The spending profile over the past three months was highly divergent from historical trends. Governments typically run surpluses, or at most minuscule deficits, in the first 11 months of the year, while any last-minute deficit spending comes in the final month — a phenomenon known in some circles as March Madness. But emergency pandemic spending since March has completely uprooted that norm.

The Canada Emergency Response Benefit (CERB), accounted for the single-largest expenditure over the quarter, at $41.6 billion. The next largest was the Canada Emergency Wage Subsidy (CEWS) at $22 billion and a small business loan program that cost nearly $7 billion over the quarter.

Total program spending from April to June was $172 billion.

Revenues also plummeted by 37 per cent, down by $32 billion to $52 billion over the quarter.

Meanwhile, Stats Canada data on Friday showed the single-largest economic dive in Canadian history, falling by nearly 40 per cent in the three months ended in June.

Business investment fell 16.2 per cent, which Statistics Canada says is a result of plant closures, low oil prices and heightened economic uncertainty. Employee compensation fell by 8.9 per cent, the steepest drop ever recorded, as workers were laid off, furloughed, or had their hours slashed.

The Trudeau government seems poised to continue its spending binge, after the prime minister suggested his government would return to Parliament in September with “ambitious” spending plans that are expected to significantly expand the social safety net.

“This is our moment to change the future for the better,” Trudeau told reporters last week. “We can’t afford to miss it because this window of opportunity won’t be open for long.”

The Liberal government is expected to post a $343 billion deficit in 2021, not including another $37 billion in spending announced last week, which will introduce three new benefits programs for workers, and relax employment insurance rules to allow more Canadians to apply for financial aid.

With files from Canadian Press

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