Finance Minister Bill Morneau has delivered an update on federal spending and economic projections linked to the government’s response to the COVID-19 pandemic.
Morneau has said today’s statement is more a “fiscal snapshot” than the traditional economic and fiscal statement that comes between budgets.
Morneau was forced to put off his spring budget in March after the devastating economic effects of the pandemic became clearer.
Here are some of the highlights:
The deficit for 2020-21 is expected to rise to $343.2 billion from the $34.4 billion deficit projected before the pandemic.
A big chunk of that additional deficit can be attributed to the $212 billion in direct support measures the federal government is providing to individuals and businesses.
The snapshot says that, aside from the pandemic program spending, the economic slowdown is estimated to have added another $81.3 billion to the deficit in 2020-21.
The Canadian economy is projected to shrink by 6.8 per cent this year before bouncing back by 5.5 per cent next year, making this crisis the worst economic contraction since the Great Depression. The economy is expected to decline in 2020-21 more than twice as much as it did in 2009-10 in response to the global financial crisis.
The decline in GDP is expected to take place in the second quarter of this fiscal year, according to private sector projections of a 40.6 per cent decline in GDP.
Due to the the financial supports provided by the federal government, the federal debt-to-GDP ratio is expected to rise from 31 per cent in 2019-20 to 49 per cent in 2020-21.
The federal government says it’s getting a better deal on that debt through very low interest rates. “As a consequence of these developments, the government will save over $4 billion in public debt charges in 2020-21 compared to the forecast presented in the 2019 Economic and Fiscal Update in December 2019,” the snapshot said.
The federal government’s revenues are expected to decline to $268.8 billion in 2020-21 from a projected $341 billion in 2019-20.
The largest component of the federal government’s revenue stream is personal income tax, which is predicted to shrink to $146.3 billion next year from $170.9 billion in 2019-20 — a decline of 14.4 per cent.
Corporate income taxes are expected to decline by 22.3 per cent, to $38.3 billion from $49.2 billion last year. The revenue from the GST is projected to decline 20.4 per cent to $30.9 billion from $38.8 billion in 2019-20.
Between February and April, 5.5 million Canadians either lost their jobs or saw their work hours significantly reduced. Those losses pushed the unemployment rate to 13.7 per cent in May — the highest rise on record — from a pre-crisis low of 5.5 per cent in January.
Finance Minister Bill Morneau said that without government pandemic programs, the GDP would have contracted by more than 10 per cent and unemployment would have risen by another 2 per cent.
Canada Emergency Business Account (CEBA)
As of July 3, 688,000 applicants have been approved for roughly $27.41 billion in CEBA loans — $7 billion of which is forgivable if the loan is paid back before December 31, 2022. The cost of the program is expected to rise to $13.7 billion by the time it ends.
Canada Emergency Wage Subsidy (CEWS)
The total estimated impact of the Canada emergency wage subsidy will be $82.3 billion. That is an increase from the $45 billion estimate provided by the government last month and reflects the proposed extension and broadening of eligibility for the program.
The federal government says that as of June 29, 538,080 CEWS applications were approved. During the first claim period, from March 15 to April 11, more than 2.8 million employees benefited from the support, with an average payment of $2,061.
Between April 12 and May 9, more than 2.7 million employees received the subsidy, with an average monthly top-up of $2,359. In the third claim period, which ran from May 10 to June 6, almost 2 million employees received the support supported, with an average monthly sum of $2,331 per employee.
Canada Emergency Response Benefit (CERB)
As of June 28, the CERB has provided over $53 billion in benefit payments to 8.16 million Canadians. That amount is expected to rise to $80 billion based on the eight-week extension and significant take-up of the program.
Canada Emergency Student Benefit (CESB)
To date, it has provided over $1.4 billion to over 600,000 applicants, which is expected to rise to $5.2 billion by the time it winds down.