Trudeau’s Deficit Set to Smash Through Hundred-Billion Barrier
Trudeau’s Deficit Set to Smash Through Hundred-Billion Barrier
(Bloomberg) -- Prime Minister Justin Trudeau’s spending this week is just the start of a multiphase effort to stave off a recession that is expected to drive Canada’s budget deficit past C$100 billion ($69.5 billion) this year.
Trudeau’s finance minister, Bill Morneau, acknowledged Thursday the government anticipates it will need to take more steps to help businesses and individuals cope with fallout from the coronavirus pandemic, building on the C$27 billion stimulus package announced Wednesday. This could include aid to struggling businesses in the airline and oil industries and other sectors, he said.
“There is going to be a second phase, and a third phase and potentially a fourth phase where we are dealing with new information and new challenges,” Morneau said in a television interview with BNN Bloomberg, reiterating the “whatever it takes” mantra that’s become ubiquitous among global policy makers. “We are not only dealing with what we have today, we are preparing ourselves for next steps.”
When it’s all done, the effort will produce one of the largest one-year swings in deficit financing in more than half a century. Bank of Nova Scotia is predicting Trudeau will probably need to double his government’s stimulus package in order to stabilize the economy.
Before the crisis hit, the government was projecting a budget gap of C$28 billion. Add in lower tax revenue, automatic stabilizers such as payments to the unemployed, and new programs to deal with the crisis, and the full-year deficit could be close to C$110 billion, or nearly 5% of Canada’s economy.
That compares with a projected deficit of C$27 billion last year, or 1.2% of gross domestic product. Canada hasn’t had such a large annual increase in red ink as a share of GDP since at least the 1982 recession.
The deficit will be “easily more than C$100 billion without making too many more assumptions,” Rebekah Young, director of fiscal economic research at Scotiabank, said by phone from Toronto, adding the additional spending is “warranted” given the economic fallout from crisis. “The risk is going too small instead of too big.”
The previous record in absolute terms was the the C$56 billion deficit run by former Prime Minister Stephen Harper in 2009, which was 3.6% of output at the time. The last time Canada’s federal deficit hit 5% of the economy was in the early 1990s.
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