Canada to roll out big spending in Covid-19 pandemic recovery budget

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OTTAWA – Canada is expected to channel funds into childcare, wage subsidies and other pandemic recovery as the government presents its new budget on Monday (April 19) ahead of possible snap elections.

The 2021 budget is the first full fiscal plan from Prime Minister Justin Trudeau’s administration since the start of the Covid-19 pandemic and is expected to outline Canada’s recovery as virus infections surge.

Finance Minister Chrystia Freeland has promised that Ottawa “will to do whatever it takes” to fight the spread of the coronavirus and support the economy as it emerges from a recession.

“We have a plan for jobs and robust growth,” she told Parliament last month.

Canada entered the pandemic in a strong fiscal position relative to other Group of Seven nations after decades of belt-tightening, she said, allowing it to dole out hundreds of billions of dollars in Covid-19 emergency aid.

Critics have warned against piling on too much debt, after Ottawa’s budget deficit exploded over the past year to an estimated C$382 billion (S$407 billion), according to an update issued last November.

Spending on healthcare, as well as on support for households, firms and vulnerable groups through cash transfers, already soared to record levels, amounting to almost 15 per cent of gross domestic product (GDP).

Now, the government is keen to remake the economy with a further cash outlay.

Ms Freeland has signalled that she would earmark funds for a national childcare programme to help women – who have suffered significant pandemic job losses – to get back to work.

Funding is also expected to be set aside for a “green new deal”, pinning Canada’s recovery on renewable energy investments.

The Canadian media has reported that the government intends to set aside funds to extend wage and rent subsidies until autumn.

At a recent Liberal Party convention, delegates endorsed a universal basic income. According to the parliamentary budget officer, instituting such a programme could almost halve Canada’s poverty rate within one year.

In pre-budget consultations with opposition leaders, Mr Trudeau “highlighted the importance of continuing to support vulnerable people and address inequalities”.

According to his office, he said “fighting climate change remains a focus of the government as it works to create jobs and ensure a recovery that benefits everyone”.

The leftist New Democrats have said they would vote with the minority Liberal government through the pandemic. But Mr Trudeau – leading in the polls – might be tempted to call an early election in the hope of regaining a majority in Parliament.

‘Keep our powder dry’

It has been only 18 months since the last ballot and Mr Trudeau has said he wants to wait until the Covid-19 threat subsides before seeking a new mandate. So far, just over 23 per cent of the population have received at least one vaccine dose, according to the site Covid-19 Tracker Canada.

A new wave of infections led by variants, however, has forced some regions to reimpose restrictions until April.

The government’s last budget was presented in March 2019, when it projected a C$19.8 billion deficit for 2019-2020. It did not present one last year, Mr Trudeau said, because of uncertainties of the pandemic.

The parliamentary budget officer in March predicted that the deficit – not including any new spending in the budget – would reach C$121.1 billion in fiscal year 2021-2022.

Prime Minister Justin Trudeau has said he wants to wait till the Covid-19 threat subsides before seeking a new mandate. PHOTO: REUTERS 

Meanwhile, the federal debt-to-GDP ratio is expected to rise this year to 49.8 per cent of GDP and then gradually decline to 45.8 per cent in 2025-2026, from a pre-pandemic average of 31 per cent, said the parliamentary budget officer.

Budget watchers say a stimulus is not needed now, as the economy heats up.

“I would counsel that we don’t want to overdo this,” Bank of Canada chief executive Dave McKay was quoted as saying in local newspapers. “Why not keep our powder dry and see how we recover?”

The International Monetary Fund recently updated Canada’s growth forecast to 4.4 per cent, after contracting 5.4 per cent in 2020.

The latest jobs data also showed gains – notably in sectors most affected by public health restrictions, such as retail – that brought employment just shy of pre-Covid-19 levels.

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