Budget 2021: An ambitious plan to bring record deficit down

OTTAWA – From a record deficit to childcare as a centrepiece, Budget 2021 is a document chock full of spending proposals to help Canadians get back to work and get the economy on track for recovery.

However, an expert says this year’s proposed budget is a spending and redistribution agenda as opposed to one focused on growth.

While the federal deficit is lower than was initially expected, Ian Lee, associate professor of management at Carleton University’s Sprott School of Business, says when we’re talking about billions of dollars, the difference between $354 billion and $382 billion is marginal.

“I’m sure they were very careful, they wanted to come in a little bit lower than what was forecast in the fall statement, and they did, give them credit, but it’s still a gargantuan number. In roughly three years, they will have doubled the debt-to-GDP ratio of the federal government to the Canadian economy,” he said.

What surprised him, Lee notes, is how “frank” the first dozens of pages are of the more than 700-page budget document, which details various programs and spending plans.

However, even with the massive size of the budget presented, there are some notable items missing.

“For example they ducked on universal pharmacare, they said, ‘well, we’ll look at it.’ They could have rolled that out. There was no mention that I could find of a guaranteed basic income, which is rightfully expensive, by everybody’s estimate; PBO, professors who’ve studied it. Depending on how generous it is, it can go from a $100 billion a year to $200-300 billion. It wasn’t in there,” he explained.

“In that sense, there was no reset. There was a lot about incremental fine tuning on green agenda … to give her (Finance Minister Chrystia Freeland) credit, a lot of it was extending the CERB and all of the various income support programs for another six months or 12 months. Well, as people return to work, as the pandemic recedes, as the vaccination rolls out and more and more people are vaccinated and we approach or achieve herd immunity … a lot of this support will disappear because people will return to work and no longer need the support,” he added.

Budget forecasts deficit to drop by more than half in 2021-22

The federal Liberals forecast the record deficit to drop to $154.7 billion in 2021-22, and then gradually to $30.7 billion in 2025-26.

That, Lee notes, is an ambitious timeline.

“I hope she (Freeland) is right. I really do,” he told CityNews.

DEFICIT: the deficit for the last fiscal year (2 years) is $354-billion, which is less than the $381-billion projected in the Fall Economic Statement.
Next year: 154-B
2022/23: 59-B
By 2025/26 it will be reduced to $30-Billion #cdnpoli

— Cormac Mac Sweeney (@cmaconthehill) April 19, 2021

However, Lee says it remains to be seen just how effective the government is at reducing its debt so quickly.

“Right now, governments have a notorious difficulty, generally, historically, in any western country, at reducing deficits. They find it very difficult to say no. And you know as the deficits reduce, there’s going to be great temptation for people to say, ‘hey look, the deficit’s going down very quickly, that means now we can slide in universal pharmacare, now we can slide in the basic income. Yet to be seen. But I think there will be support for the green initiatives, I think there will be support for the childcare, although people will be criticizing the universal nature of it as opposed to making it targeted to people who need help.”

Lee says bringing the deficit down as quickly as the government projects, will depend on two main points.

The first is how quickly Canadians can be vaccinated against COVID-19, in turn getting more people back to work and reopening economies.

The second, he says, is if the government actually raises the revenue forecast in the budget.

However, Lee points out in the myriad of tax increases proposed in Budget 2021, a number of them will impact middle-class earners.