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Federal deficit could skyrocket to $252B for 2020-21 because of COVID-19, largest on record: PBO

Last Updated Apr 30, 2020 at 12:47 pm PDT

FILE - Parliament Hill in Ottawa is pictured on October 29, 2013. THE CANADIAN PRESS/Sean Kilpatrick
Summary

PBO says 2020-2021 federal budget deficit could be the largest on record due to COVID-19, oil price shocks

Based on the current situation and measures announced, PBO says federal budget deficit could hit $252-billion in 2020-21

So far, $146-billion in spending has been announced by the federal government to help Canadians

OTTAWA (NEWS 1130) – It’s a grim outlook when it comes to just what emergency measures brought in to help Canadians weather the COVID-19 crisis could cost taxpayers.

The Parliamentary Budget Officer has released his latest analysis of the fallout from the coronavirus pandemic and oil price shocks. In it, the PBO says, based upon the updated economic scenario and announced federal measures, the budget deficit would increase to almost $25-billion in the current fiscal year and then skyrocket to $252-billion in 2020-2021.

“Relative to the size of the Canadian economy, the deficit would be 1.1 per cent of GDP in 2019-20 and 12.7 per cent of GDP in 2020-21,” Yves Giroux’s analysis reads. “As a share of the economy, the budget deficit in 2020-21 would be the largest budgetary deficit on record.”

So far, $146-billion in spending has been announced by the federal government to help Canadians stay afloat during the pandemic. More fiscal measures may be required to support the economy in the coming months, the analysis adds.

“Moreover, after support measures are provided, fiscal stimulus measures may be required to ensure that the economy reaches lift‑off speed, especially if consumer and business behaviour does not quickly revert back to ‘normal’ conditions,” the PBO analysis adds.

As the health crisis continues, Giroux says Canada’s economy could see further deficits and job losses.

The PBO stresses the scenario analysis “is not a forecast of the most likely outcome,” but is rather an “illustrative scenario of one possible outcome.” He notes that prior to the pandemic and oil price shocks, the federal “government’s balance sheet was healthy.”

He adds, “Given the temporary nature of budgetary measures, credit market access at historically low rates, and looking to historical experience, indicate that the Government could undertake additional borrowing if required.”

However, Giroux says the debt ratio could keep rising if some of the emergency measures are extended or made permanent.

According to the analysis, once the economy recovers, the debt-to-GDP ratio should stabilize.