Canada’s government deficit will reach $343B for the first time since Second World War

According to Finance Minister Bill Morneau, the federal government’s deficit will reach $343 billion this year. It’s an extremely large number, mostly caused by COVID-19 related support programs that have led federal spending to a mark we’ve seen earlier only during the Second World War.

The new fiscal snapshot provides a short-term economic analysis and data on what the government has already spent to support the economy. Meanwhile, it doesn’t give much information concerning long-term plans.

“Some people will criticize us because of the cost of our actions,” – Morneau noted. “However, we knew that the price of inaction would be much higher”.

As you know, the government has launched massive supportive programs recently, including CERB aimed at helping the ill and unemployed, and CEWS aimed at helping businesses with paying their employees.

Here are some of the main highlights from the snapshot:

• In 2020-21, the deficit will go up from previously expected $34.4 billion to $343.2 billion.
• Net federal debt will reach $1.2 trillion.
• Federal debt-to-GDP ratio may go up from 31% to 49%.
• Total amount of direct federal support for Canadians and businesses is $212 billion.
• COVID-19 economic slowdown has cost the federal treasury an extra $81.3 billion.
• GDP will decline by about 6.8% this year, marking the worst number since the Great Depression.
• Economy will show a 5.5% increase next year.

In addition to it, in May, seniors received one-time Old Age Security bonuses, and families with the Canada Child Benefit were paid extra $2 billion.

However, the government believes that by the end of the 2020-21 fiscal year in March, it will have spent almost $469 billion more than planned in December 2019.

According to one official, the government will soon provide more information on a potential extension to the wage subsidy, which should end in August 2020.

“We know there are certain things that we need to change in order to get people back to work,” -Morneau noted. “We’ll provide more details very soon”.

The government expects personal income taxes to go down by about 30%, while corporate taxes may fall by 11%.

The size of the economy is projected to decrease by 6.8% this year and then to rise by almost 5.5% next year.

During Q2, the unemployment rate was up to almost 14%, but the government predicts about 7% by the end of the next year.

According to Morneau, the government hopes for a successful restart of the economy that will improve the fiscal forecasts. So far, he can’t say when the government may get back to a balanced budget.

“We’re dealing with a dynamic challenge, so we’ll not make assumptions about the future,” – Morneau added.