The Canadian economic recovery from the coronavirus pandemic will likely not begin until “deep into 2021” but how the government plans to gauge when it is time to turn on — and off — the taps with a “major” recovery program remains hazy.
Deputy Prime Minister and Finance Minister Chrystia Freeland on Monday unveiled the hotly anticipated fall economic statement, which pegged the current deficit projections at $382 billion this fiscal year and confirmed the government plans to issue a formal budget next year.
The combination of extensive spending on social programs, an economy stifled by pandemic restrictions and plans for roughly $100 billion in recovery stimulus over the next three fiscal years means the federal deficit likely won’t return to pre-pandemic levels until at least 2026.
At the same time, new spending pledges such as a top-up of $1,200 for families receiving the Canada Child Benefit and an emphasis on supporting vulnerable Canadians sharpen the lens on what a recovery plan could look like.
“Our recovery must be feminist and intersectional,” the fiscal update emphasizes.
The coronavirus pandemic has killed more than 12,000 Canadians since the first cases emerged in this country in March, with more than 373,048 infections reported to date.
The highly infectious virus and the potential for rapid, crippling spread led to a national lockdown earlier in the year, followed by rolling and shifting levels of restrictions in provinces and munici
palities in the months since.
With businesses forced into revolving lockdowns, consumers restricting their shopping and spending activities, and millions facing unemployment or the risk of losing their jobs, the pandemic has ravaged the Canadian and global economies.
In response, the federal government rolled out unprecedented levels of spending on a broad range of benefit programs and subsidies, with new measures including new credit availabilities for sectors impacted particularly badly by the pandemic included in the fiscal update.
But overall, the economic statement is clear: the federal taps will keep pouring out money for years to come, even as the funds shift from crisis mode to an eye on the longer term.
Even as the money continues to flow though, one economist said the fiscal update does hint at an acknowledgement of the need to provide more clarity on how long this extraordinary spending will last.
“I think this is the beginning of starting to put constraints on the system,” said Sahir Khan, executive vice-president of the Institute of Fiscal Studies and Democracy at the University of Ottawa.
“I think the next phase though is going to look at the quality of that spending … can they make course corrections and can they spend better?”
Khan noted the recovery plan proposed in the update puts Canada in the upper edge of comparable countries and how allies are responding to the economic ravages of the crisis.
While he called the fiscal update “compelling,” he noted it is still short on important specifics.
“We don’t have a lot of details” he added.
“I think the strong suspicion is those details are going to show up in the budget.”
Freeland said in a speech in the House of Commons that there remains “a lot of hard slogging ahead.”
“There is now light at the end of the tunnel. After winter, comes spring. The seeds we have sown, and will continue to plant in the weeks and months ahead – to protect Canadians’ health and save our jobs and businesses – will help us come roaring back from the coronavirus recession,” Freeland said.
“When the virus is under control and our economy is ready for new growth, we will deploy an ambitious stimulus package to jumpstart our recovery.”
That recovery plan, the details of which remain a work in progress, proposes spending between $70 billion and $100 billion over three years on what Freeland billed as “carefully judged, targeted and meaningful investments to create jobs and boost growth.”
Building up Canada’s domestic bio-manufacturing and green technology sectors will be key parts of that plan, as will more immediate boosts to job training programs, though officials say many of the plans can’t be safely rolled out until the virus is under control.
No clear fiscal anchors or guardrails will be locked in until the coronavirus recovery is complete, but the metrics for that remain unclear.
Freeland said on Monday the focus will be on measuring employment, unemployment, and work hours, but would not answer when asked whether the targets for turning off the taps would be a full return to pre-pandemic levels on those benchmarks, or something else.
“As we build our growth plan and as we deploy it, the measure we’re going to be looking at to see if we got the job done is really around jobs,” she said in a press conference with reporters.
”We’re going to roll those out when we roll out more details of our growth plan.”
The total value on those investments is being pegged at between three and four per cent of GDP, a big jump from the stimulus plan in response to the 2008 financial crisis that valued around 2.5 per cent of GDP — roughly $47 billion over two years.
“This recession is worse than 2008,” the fiscal update stresses.
“It stands to reason we will need to invest more, not less.”
None of that $100 billion is baked into current deficit projections yet, with officials stressing the size of the program could still change depending on how bad the second wave gets.
Finance officials outlined two possible scenarios in the fiscal update that could tamp down economic recovery and require more spending: extended restrictions and escalated restrictions.
Both would stretch out the time before the start of an economic recovery and require more spending to make up for the potentially sharper hits on regional economies and individuals that would follow longer or tighter lockdowns.
Both also remain possible scenarios as cases continue to spike across the country.
Conservative Leader Erin O’Toole said the government has failed to outline a clear enough plan for how to get Canadians back to normal and that people are frustrated.
“Canadians are hurting,” he said. “Canadians want their lives back and this fall economic statement shows they cannot rely on this federal government to get their lives back.”
But Freeland warned the country’s most difficult days still lie ahead in the looming winter.
“Hospitalizations are on the rise and the virus continues to take a terrible toll, particularly on our elders,” she said.
“If we do the right things – if we hunker down and heed public health advice for these last remaining months, we will also be doing the right thing for our economy. And we will bring closer the day when every Canadian can get back to normal life.”