With the head-thumping announcement that the federal deficit is predicted to be $343 billion in 2020-21, Canadians are wondering what lies ahead in our economic recovery, writes Jack Mintz in the Financial Post. Below is an excerpt of the article, which can be read in full here.
By Jack Mintz, July 15, 2020
With the head-thumping announcement that the federal deficit is predicted to be $343 billion in 2020-21, Canadians are wondering what lies ahead. As a friend wrote recently, the Liberals seem to be pursuing “let’s make Canada broke again!” — referring to our 1994 public debt crisis.
Right now, the federal government looks almost rudderless. Will it spend vastly more? Where will economic growth come from? Are tax increases on the way and, if so, how big? Or are we going to inflate our way out of debt?
Finance Minister Bill Morneau has not provided answers yet about how economic recovery will be shaped. So maybe it’s time to help him develop a plan!
Let’s first recognize that, with so much uncertainty ahead, we don’t know the final deficit figure for this year. With 953,000 jobs created in June, maybe it won’t be nearly as bad as predicted. We also have low interest rates that should keep our borrowing costs down for years.
On the other hand, we don’t know how the pandemic or the economy will evolve for the balance of this 2020-21 fiscal year, never mind afterwards. Billions of dollars in deferred utility, mortgage, rent and tax payments come due this fall and some of it won’t be repaid. If people are not back at work, demands for more temporary spending will grow. Most economists do not expect the economy to return to pre-COVID days until sometime after 2021. Deficits likely won’t disappear for years.