Canada predicts historic deficit due to pandemic spending

Justin Trudeau

U.S. President Donald and Canadian Prime Minister Justin Trudeau

The federal debt is expected to increase by almost 57 percent from $566.6 billion to $890 billion next year.

Trudeau notes that the national number of COVID-19 cases, hospitalizations, and deaths is continuing to decline, but says there are still hotspots in some parts of the country, including in long-term care facilities and agricultural work settings.

Things could, however, get worse under two alternative scenarios the Finance Department lays out.

Prime Minister Justin Trudeau said in May he would extend CEWS through August; the government later promised to lower a threshold that forced applicants to prove that their revenues had fallen 30 per cent compared with the previous year.

"If the federal government hadn't taken on significant debt in order to send money to Canadians, to support businesses and households, what would Canadians have done?"

$212-billion in direct federal aid has been given to individuals and businesses as a result of the pandemic. Yields rose across the curve, especially on longer-dated debt.

Adding to the deficit is a $37.3 billion boost to the federal wage subsidy program, signalling an expansion and incoming changes to the benefit.

More details to come.

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"We were able to control the virus better than many of our allies, particularly including our neighbor", Trudeau told a briefing, saying this would help efforts to restart the economy. The discrepancy reflects lower tax revenue, an eight-week extension of CERB and the wage subsidy increase. It is a testament of the shock that COVID-19 had on our economy.

Finance Minister Bill Morneau said without government action families would have been buried in debt.

Canada - with a population one-tenth the size of the United States - has so far recorded 8,711 deaths and 106,167 positive cases and Trudeau said the situation was stabilising, although some hot spots remained.

For this calendar year, the government expects the unemployment rate to hit 9.8 per cent, dropping to 7.8 per cent next year based on forecasts by 13 private-sector economists. For many, it has meant lost jobs, lost hours and lost wages.

"Right now is really the time to be thinking about people and jobs", he said.

Andrew Scheer, Leader of Canada's Conservatives and of the Official Opposition, states, "Today was an opportunity to reverse course and put Canadians first". And we are the only G7 country without a recovery plan. "We know the Liberal government won't do it unless we fight and push them to do so".

He said programs like CERB nonetheless need to be "retooled toward recovery" as provincial governments continue to gradually reopen the economy.

"This is not and has not been a time of tightening of belts or for austerity".

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