(Ottawa) The strength of the recovery in the Canadian economy not only allows the historic deficits of the federal government to be revised downwards since the start of the COVID-19 pandemic, but also points to a possible return to a balanced budget in a horizon of five years, according to the projections unveiled Tuesday by the Minister of Finance, Chrystia Freeland.
After recording a record deficit of $ 327.7 billion in 2020-2021 – 27 billion less than what was forecast in the budget tabled in April – the shortfall is expected to stand at 144.5 billion during the current fiscal year, which ends March 31, $ 10 billion less than anticipated eight months ago.
The deficit is expected to reach $ 58.4 billion in 2022-2023, $ 43.9 billion in 2023-2024 and $ 29 billion in 2024-2025. It should then continue to decline in 2025-2026 and rise to $ 22.7 billion, and border on $ 13 billion in 2026-2027. Such a deficit could turn into a balanced budget if economic growth were stronger than expected and the federal government adhered to its fiscal framework with discipline.
During this period, the accumulated debt will have more than doubled, going from $ 721 billion before the pandemic to $ 1358.9 billion in 2026-2027. This financial burden will have significant consequences: debt charges will double in the space of seven years, jumping from 20.4 billion in 2020-2021 to 40.9 billion dollars in 2026-2027. But according to the calculations of the Department of Finance, the federal debt as a proportion of the size of the Canadian economy (gross domestic product) will be manageable, at 44%.
Minister Freeland was forced to present her economic update in a virtual fashion to the House of Commons after two of her close aides tested positive for COVID-19.
Mme Freeland was particularly pleased to see that Canada had recovered 106% of the jobs lost at the height of the pandemic. A significantly more impressive result than in the United States, where only 83% of the jobs lost have been recovered so far.
“Canada has largely recovered from the economic damage inflicted on it by COVID-19 and is poised to experience vigorous growth in the coming months,” the Minister said in her speech.
Although red ink is still flowing in Ottawa, the minister maintained that the government manages public finances in a responsible manner.
We know that Canadians work hard for a living and expect us to be careful with their money. We have a duty to do the right thing, for today and for tomorrow.
Finance Minister Chrystia Freeland
“We remain determined to respect the budgetary anchors that we defined in this spring’s budget, to have the federal debt-to-GDP ratio reduced over the medium term and to reduce the deficits linked to COVID-19. . […] Our government will continue to be a responsible financial manager, ”she added.
Since taking office in 2015, Justin Trudeau’s Liberals have never presented a balanced budget. During its first mandate, the Liberal government promised modest deficits of around $ 10 billion a year to make strategic investments and restore budgetary balance during the last year of this mandate. Instead, deficits have hovered around $ 20 billion a year and the promise of a return to a balanced budget has been thrown away.
The COVID-19 pandemic subsequently forced the federal government to open the floodgates in an unprecedented way to support families, workers and businesses while essentially shutting down the economy to avoid the worst.
In the economic update, Minister Freeland also announced $ 4.5 billion to counter the effects of the new, more transmissible Omicron variant, and is setting aside $ 5 billion to finance the reconstruction of the regions of Colombia. -British devastated by recent flooding. Mme Freeland is also setting aside $ 20 billion for compensation for Indigenous children, as a court ruling stipulates, and $ 20 billion over five years to improve children’s services in Indigenous communities across the country.
According to Robert Asselin, first vice-president of the Business Council of Canada and former advisor to former finance minister Bill Morneau, the projections contained in Mr.me Freeland doesn’t hold water.
He pointed out that she omitted from her calculations the roughly $ 78 billion that the various Liberal promises were to cost during the last election campaign. It also does not take into account a possible increase in health transfers from the provinces. Finally, it does not take into account the significant costs associated with the energy transition either.
“This government still has a spending problem,” said Mr. Asselin, who was also an advisor to Justin Trudeau before he became prime minister. “He’s still spending way too much. The electoral promises, the costs of the energy transition and the pandemic, all this means that the deficits will not decrease as quickly and that they will be much larger than what is expected, ”he analyzed.
“In my opinion, the long-term projections do not hold water, despite the good news in terms of revenues,” he said, noting in passing that there is indeed a significant structural deficit in Ottawa.
During a briefing, a senior official argued that the return to balanced budgets per se was not a government objective. He argued that the level of debt as a proportion of GDP was the main financial anchor. “What matters is the composition of the spending that is made and whether it contributes to improving the foundations of the Canadian economy,” said the senior official, who cannot be identified.