Canada can borrow its way out of $250-billion deficit: economist

VANCOUVER (NEWS 1130) — Canada can borrow its way out of the $250 billion deficit created largely by COVID-19 support spending, according to a federal government economic adviser.

And doing so has rarely been so cheap, explains UBC economist Kevin Milligan.

The federal government can currently issue 30-year bonds, locked in at 1.2 per cent, he said.

That means, for every $100 billion of extra spending, it costs the government $1.2 billion to finance it.

“With borrowing so cheap, we will borrow,” he said. “And the important thing, to make this sustainable, is to phase out the emergency measures when the health crisis abates.”

Milligan said Canada’s low debt-to-GDP ratio means the country is in a strong fiscal position to handle the deficit.

However, if such a large deficit was needed long-term, he added, that would cause serious problems.

Earlier Thursday, the Parliamentary Budget Officer 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, then rise to $252 billion in 2020-2021.

Prime Minister Justin Trudeau was asked about the deficit during his daily address Thursday about the military helicopter that crashed off Greece during a training exercise the day before, killing six members of the Armed Forces.

“Right now, we are focused on supporting families through this crisis. We need Canadians to stay home. We need Canadians to take measures that will protect themselves, their loved ones, and our health-care systems,” he said.

“That’s why we have made sure that we’re sending help to the millions of Canadians across the country who need that help, whether it’s through the Canada Emergency Response Benefit or the Canada Emergency Wage Subsidy or other measures. We will continue to support Canadians to get through this in the best possible way so that our economy can come roaring back afterwards. Our focus is on what we need to do now to get through this. I have tremendous confidence in Canadians’ ability to keep going and to come back stronger than ever afterwards.”

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