We are never as well served as by ourselves, the saying goes. Governments have found a new application in their economic aid programs during the pandemic.
A little less than three weeks after his Quebec counterpart, Eric Girard, it was the turn on Tuesday of the Canadian Minister of Finance, Chrystia Freeland, to present an economic and budgetary update. In both cases, governments boasted that they had not hesitated to deploy the necessary financial means to get through the crisis, even if they translated into billions of dollars in new spending. “We did this because it was the right thing to do,” said the Liberal minister. We also did it because we knew it was an investment in our economy that would pay off, [notamment parce que] maintaining the solvency of Canadian families and businesses would help our economy rebound. “
Although the very special nature of the economic crisis engendered by COVID-19 played a large part, both in the magnitude of the initial shock, but also in that of the rebound that followed immediately after the easing containment measures, it seems clear that energetic action by governments has also had a positive effect, the Organization for Economic Co-operation and Development (OECD) reminded earlier this month in its annual report on revenue statistics.
The most serious global recession since the Great Depression of 1929, the pandemic caused a plunge of 3.5% of the world economy and 4.8% of the economy of OECD countries in 2020, while the declines were respectively only 0.5% and 3.4% in 2009 during the last financial crisis. However, this toll is expected to reverse in the longer term, with a net loss of global production of 3% with COVID by 2024 against 10% with the financial crisis. The fact that the public authorities deployed the equivalent of 13.8 trillion US dollars in economic support measures in 2020 against “only” 820 billion for the G20 countries in 2009 undoubtedly played a role.
Return to public coffers
This extraordinary economic boost has not only helped the recovery in the long term, it also appears to have served state revenues by stemming “job destruction and business closures,” reports the OECD. On average, the tax revenues of its member countries only fell by 2.1% in 2020, compared to the drop of 5.3% during the last financial crisis in 2009.
The difference between the two recessions is particularly striking on the personal income tax side, whose revenues fell 5% from 2008 to 2009, while they increased (sic) by 1.4% from 2019. to 2020. This is partly due to the fact that the shock was shorter this time, explains the OECD, and that job losses were also greater in 2009, in particular because in 2020 one worker in five were granted job retention assistance. The fact that job losses were concentrated among workers at the bottom of the pay scale also helped reduce the shortfall for governments.
Subsidies to businesses and restrictions on their creditors also reduced the number of bankruptcies and probably also helped limit losses on income taxes to 12% from 2019 to 2020, compared to an average of almost 19% in 2008. in 2009. In fact, it is only the taxes on gasoline which yielded less this time (–5.4%) than during the Great Recession in 2009 (+ 1.6%), because that health regulations have prevented people from using their cars.
Not free
Obviously, this tremendous deployment of financial resources by governments during the crisis, which ended up benefiting them indirectly, was not free and worsened the deterioration of public accounts which was already to be expected with the recession. In 2020, the OECD countries thus increased their borrowing by 60%, bringing it to 18,000 billion, or nearly 29% of their gross domestic product (GDP).
Chrystia Freeland on Tuesday reiterated her government’s commitment to reduce deficits (C $ 328 billion last year) as well as the debt burden as a proportion of GDP (from 31% in 2019 to 48% this year) starting next year. “In October, we went from necessary, but expensive, expanded support programs to more targeted and less expensive measures, as promised. Our government will continue to be a responsible fiscal steward. “