The parliamentary budget officer has released a new report that suggests this year’s federal deficit could hit $256 billion due to the COVID-19 pandemic.
The deficit, posted on Thursday, is the combination of an estimated total of $169 billion in federal spending on emergency aid and a historic drop in economic output.
The budget office estimates the economy could shrink by 6.8 per cent in 2020, the weakest showing since 1981 and double the record of 3.2 per cent shrinkage in 1982.
The overall deficit figure is only $3.8 billion higher than budget officer Yves Giroux’s previous predictions, which his report says is due to a better economic outlook in the second half of the year that offsets some new spending.
Previously, Giroux estimated the economy could shrink by 12 per cent in 2020.
Giroux stresses that the figures are the outcome of one of many possible scenarios and not a certain forecast.
The report comes one day after Prime Minister Justin Trudeau promised to deliver a “snapshot” of federal finances on July 8 that will provide short-term spending estimates.
“This will give Canadians a picture of where our economy is right now, how our response compares to that of other countries and what we can expect for the months to come,” said Trudeau during a press conference on June 17 in regards to the upcoming fiscal snapshot.
Trudeau warned the document won’t provide a longer-term outlook because of what the government says is the uncertainty about where the economy will go in the coming months and years – all of which rests on the path of the pandemic.
“An economic and fiscal update would be unrealistic right now because it automatically includes projections for one year, three years, five years ahead of time, which we couldn’t make any responsible predictions about,” added the Prime Minister
The Liberals have been under pressure from opposition parties to release a fiscal update or a budget that was shelved due to the pandemic. The government had originally planned to release a budget in late March.
Since then, MPs have approved emergency spending to provide aid to Canadians who have lost their jobs or had their hours slashed, and financing to businesses shuttered due to public health restrictions.
Trudeau has consistently called the pandemic “unprecedented” and has suggested that, when taken together, all the steps implemented during COVID-19 are “the largest economic measures in our lifetime.”
Giroux is also releasing updated cost estimates for two signature programs the Liberals rolled out – the Canada Emergency Response Benefit (CERB) and the Canada Emergency Wage Subsidy (CEWS).
The budget office now estimates the $2,000 monthly payments from the CERB will cost the government $61.1 billion, but pull in $7.7 billion when recipients are taxed on the income next year.
Trudeau announced an eight-week extension of the benefits earlier this week – adding to the original 16-week timeframe.
When the Finance Department increased the cost of the CERB, it also lowered the cost for the wage subsidy program from $73 billion to $45 billion based on the take-up rate among businesses.
Giroux’s office estimates the CEWS to cost the treasury $55.6 billion.
With files to Canadian Press.
Graham Cox
