Canada’s budgetary deficit could be “manageable” without a dramatic increase in taxes, the country’s Parliamentary Budget Officer says.
“My sense is that it’s possible to deal with the deep deficit that the government will be incurring in the current fiscal year, but as long as it’s for one year,” he said.
“So it’s affordable without necessarily having to increase taxes if all the programs that have been set up and all the big exceptional expenditures are indeed temporary.”
Last month the federal government released an “economic snapshot” which said the flood of spending in response to the COVID-19 pandemic would see the country’s deficit increase to $343 billion this year.
The federal government has spent billions on a number of programs including the Canada Emergency Response Benefit (CERB) and the Canada Emergency Wage Subsidy (CEWS) to assist Canadians who lost their jobs or were laid-off as a result of the pandemic.
But Giroux said if the programs are extended, or if Canada sees another year with a “big, big deficit” it would be “much more problematic.”
“We would probably need to do something as a country to restore something that’s more fiscally sustainable over the long term, which means cutting expenditures or raising taxes or a combination of both,” he said.
What’s more, Giroux said if Canada were to see a second wave of the virus, the deficit would be less manageable.
In the 168-page fiscal snapshot, Finance Minister Bill Morneau did not indicate how or when the federal government planned to rein in the spending, but he insisted that the country remains well-positioned to handle the weight of that deficit because of historically low interest rates.
Canada’s overall debt, on the other hand, is projected to hit $1.2 trillion in 2020-2021, according to the fiscal snapshot.
Giroux said while the fiscal snapshot provided insight into how much money the government has spent and intends to spend this fiscal year, it doesn’t indicate what the government plans to do next.
“Do they plan on stimulating the economy or do they plan on returning to more normal days government-wise, meaning a more normal level of deficit or even balanced budgets?” Giroux said. “So the government has given absolutely no indication as to its plans going forward.”
He said that’s why a real federal budget is so important.
“Usually budgets usually have a five-year horizon,” he said. “And right now, the government’s horizon ends in March 2021, so we don’t know.
However, the federal government has maintained that due to the unprecedented and unpredictable nature of the pandemic, releasing a full budget would not be possible.
Giroux said that means as of right now there is “absolutely no indication whatsoever” of what the government plans to do come April 1.
“A big deficit again or something that’s more reasonable? Finances back on track? We just don’t know,” he said.”
— With files from Global News’ Amanda Connolly and Beatrice BritneffView link »