Could have been worse

Prior to Finance Minister Chrystia Freeland's Fall Economic Update today, there had been widespread speculation that she might announce a budget deficit for the current fiscal year (ending March 2021) of more than C$ 400 billion. In the event, the figure actually tabled was "only" $381 billion. The increase from the $343 billion projected back in July reflects the severity of the second wave of COVID, and of course there remains the possibility that the final figure could be even higher, depending mainly on how long current lockdowns and restrictions last.

The Government has been trailing the idea of a "Great Reset" for the economy in a post-pandemic world, and today's statement provides a "down payment" on the cost of that, which doubles as a post-pandemic shot of stimulus to get the economy back on track. The stimulus will amount to $70-100 billion over three years, with a focus on developing "a greener, more inclusive, more innovative and competitive economy". The new spending will start once a vaccine has been deployed and life begins to return to normal. Note that Prime Minister Trudeau suggested yesterday that he expects most Canadians will be vaccinated by September 2021, so the new spending will presumably kick in around that time.  

The Government warned some weeks ago that the Fall Update would not include any form of so-called "fiscal anchor", such as a target for the debt/GDP ratio. Somewhat surprisingly, however, Freeland did provide a longer-term fiscal projection, covering the same five-year term offered under more normal circumstances. This shows the deficit falling by more than two-thirds in FY 2021/22, to $121 billion, and continuing to move steadily downwards to $24.9 billion by 2025/26.  In current circumstances, these projections must of course be treated with even more caution than usual.  However, they do appear to show that leaks attributed to Ottawa insiders in recent weeks, suggesting that Freeland's fiscal plans were "terrifying", might have been exaggerated.

We wait to see how the Opposition parties will respond. The NDP will no doubt be happy to see a commitment to child care and "green" spending. The Tories will probably focus almost exclusively on the short-term deficit projections, while aiming a few blows at the whole idea of a "Great Reset".  The Government will likely see its fiscal plans as an issue of confidence, so one or two cliffhanger votes in Parliament may be in prospect.