UPDATE: 2:23 p.m. — Canada’s coronavirus deficit soaring to $343B as feds warn of ‘permanent change’ to economy
The federal Liberals laid out how they see the COVID-19 pandemic affecting government finances for the fiscal year on Wednesday, including an estimated deficit and a projected path for the economy.
Finance Minister Bill Morneau released what the government has styled a fiscal and economic snapshot.
The Liberals have regularly updated MPs about total spending on emergency aid, which by last count amounted to over $174 billion, but have yet to put a figure on the deficit for the fiscal year.
The parliamentary budget office has suggested the deficit could be as deep as $252 billion.
Other private sector estimates suggest $300 billion wouldn’t be out of the realm of possibility.
Whatever the costs, they’re worth it, Prime Minister Justin Trudeau said in a news conference Wednesday morning, before the snapshot was released.
“As we measure the cost of helping Canadians, we shouldn’t forget that the cost of doing nothing would have been far more,” Trudeau said, insisting that this is not the time for belt-tightening or austerity.
Historically low interest rates mean all the borrowing comes with “manageable” costs, he said, and the alternative would be for individuals and households to load up with debt themselves to cope with months of no or little work.
Opposition parties have said they expect Morneau to provide a road map for reshaping emergency aid measures that are set to expire in the fall and keeping spending and deficits under control.
In his own morning news conference, Conservative Leader Andrew Scheer said the Liberals mishandled the COVID-19 pandemic by being slow to close borders and by instituting too-rigid emergency aid programs.
Canada can’t afford for the Liberals to mishandle the economy as well, he said, by keeping benefits in place that remove incentives to go back to work while the novel coronavirus remains a risk.
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“Liberals put all their faith in government, Conservatives put our faith in people,” Scheer said.
He said the Liberals should take up a Conservative proposal to offer a “back to work bonus” and send more money to the federal auditor general so her office can study the government’s spending more closely.
Fuelling the deficit is an unprecedented drop in economic output and employment that will cut revenues the government expected to receive this year.
Morneau’s document is also to provide the government’s view for the economy over the coming months.
The finance minister has said the document won’t have a five-year forecast traditionally part of federal budgets owing to the uncertain path the pandemic will take.
The Bank of Canada has said it believes the economy has avoided a worst-case scenario due to COVID-19 but is still in for a rough ride this year.
Last month, the central bank updated its GDP forecast, foreseeing a decline between 10 and 20 per cent in the second quarter compared with the fourth quarter of 2019. That is an improvement from the 15-to-30-per-cent drop in the quarter highlighted in the bank’s worst-case scenario in April.
Next week, the Bank of Canada is to again update its forecasts when it releases a monetary policy report along with a scheduled rate announcement.
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