PLANNING FOR A FALL BUDGET


The government has been under pressure for some time to provide an economic and fiscal update.  Everyone was aware of the huge increase in spending that had been incurred to assist Canadians during the Covid-19 pandemic and the impact it would have on the deficit for this fiscal year. The Parliamentary Budget Office (PBO) had been releasing forecast updates of the deficit for 2020-21 on a regular basis.

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No Need to Panic About the Deficit - Yet

 

The economy is in a downfall.  Federal and provincial governments have shut down the economy to contain a deadly virus.  Businesses have closed, jobs have been lost and unemployment has soared.

This year, real GDP could fall by 10 to 15%, or even more, which is larger than the decline in output during the Great Depression. Although some social isolation restrictions are being lifted, at this time, given all the uncertainty, no one really knows how large the decline in output will actually be.

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BE DECIVESS MR. MORNEAU


Early this week the Prime Minister announced that new policy measures to address the COVID-19 virus would be released on Wednesday. Expectations were high that he would respond with a substantial package of policy initiatives to support Canadians and the economy.

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THE GLOBAL VIRUS RECESSION

 

In 2008, the global economy was shocked into a recession by a meltdown in global financial markets. G-20 leaders reacted quickly to the deteriorating economic situation with a coordinated fiscal policy response. The International Monetary Fund encouraged those countries that had the fiscal flexibility to implement fiscal measures amounting to 2 per cent of the their economies. The resulting fiscal stimulus went a long way to mitigate the impacts of the global recession.

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A LARGE DEFICIT IS INEVITBLE BUT VERY MANAGEABL


Right now, federal, provincial, and municipal governments, the private sector, and all Canadians are implementing a counter-cyclical policy aimed at “shutting down the economy” in order to halt the COVID-19 virus. Successful implementation of this policy is critical to eventually restarting the economy. This is true of fiscal costs will be temporary and manageable. They are not something to worry about now.

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Fiscal Monitor for April 2019 – November 2019


The federal government posted a deficit of $2.7 billion in November 2019, compared to a deficit of $2.2 billion November 2018. All of this deterioration in the monthly deficit was attributable to the timing of payments, most notably transfers to provinces and territories for the Labour Market Development Agreements program and to the Gas Tax Fund and Home Care and Mental Health programs. This implies lower year-over-year expenses in future months.  

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