On July 8th, Finance Canada released an Economic and Fiscal Snapshot providing information on the state of the Canadian economy and the Government of Canada’s fiscal response to support Canadians and businesses during the COVID-19 pandemic. Never has the country witnessed such a large revision to a federal economic forecast. Unlike federal budgets or economic updates, which typically offer five-year forecasts, the government’s snapshot offered guidance for the current 2020-21 fiscal year.
The snapshot confirmed the road ahead toward economic recovery will be challenging and will unlikely grow in pace or trajectory until a vaccine or effective treatment for COVID-19 is found and an economic strategy is put forward by the federal government.
The growth slowed by public health measures to combat the COVID-19 pandemic, coupled by corresponding energy-sector weakness, dealt a severe blow to economic activity and government revenue.
Within the span of two months (March and April 2020), 5.5 million Canadians either lost their job or saw their hours significantly scaled back – both a troubling and stark indicator of lost Canadian economic activity. 3 million Canadian workers have had their wages and jobs supported through the Canadian Emergency Wage Subsidy – a measure the Canadian Chamber helped catalyze this year. Further, Finance Canada, estimates the wage subsidy will cost $82.3 billion in 2020-21.
Based on private sector forecasts, Finance Canada is anticipating real GDP (gross domestic product) to decline by 6.8 percent in 2020, but to rebound by 5.5 percent in 2021. Such a decline in economic activity has caused 688,000 small business to seek and receive interest free loans via the Canada Emergency Business Account at a projected $27 billion cost for 2020-21.
The sudden and unprecedented shock to economic activity will reduce total government revenues by $71 billion for 2020-21 over the government’s previous estimate.
Reduced government revenue and regular spending announcements over the past months will increase the federal deficit to $343-billion for the current 2020-21 fiscal year; a increase greater than 12-fold over the government’s previous projection. Canada has not witnessed this magnitude of deficit spending since the Second World War.
Significantly greater deficit spending has pushed Canada’s net federal debt past the trillion-dollar mark for the first time in Canadian history. Canada’s net federal debt presently stands at $1.06 trillion and will likely reach $1.2 by the end of the fiscal year.
A rising deficit and reduced economic activity have increased the federal net debt-to-GDP ratio to 49.1 percent from 30.1 percent projected in December 2019. Even though the federal net debt is rising to historic levels, the total cost for servicing this public debt is $4 billion less than previously projected because of historically low borrowing costs.
In total, the COVID-19 pandemic has triggered $403 billion in emergency federal support to date for Canadians and businesses. This includes direct funding, increased access to liquidity and payment deferrals on tax, customs and fees. Finance Canada also estimates the total cost of supports for the 2020-21 fiscal year will be $469 billion.
Without doubt the emergency measures introduced were necessary to assist both Canadians and the business community during the COVID-19 pandemic however they have come at a great cost. The total bill, which still is not known, must be monitored closely and transparently moving forward. With diminishing fiscal capacity, the country must begin retooling its economic fundamentals.
On behalf of the business community, the Canadian Chamber of Commerce will be working closely with our government to ensure that Canada has a clear plan to restore private sector growth.
Moving forward, all levels of governments must continue to work together and focus on growth with the same energy and commitment they directed towards lockdowns and emergency subsidies.
– Faye Lyons, Vice President of Government Relations & Advocacy