Finance Minister Chrystia Freeland delivered an emphatic defence today of the use of fiscal stimulus and deficit spending to sustain the Canadian economy through what she called the “coronavirus recession” — and promised to rein it in only after widespread vaccination brings the virus under control.
“We have a moral imperative, but also a hard economic imperative … to fight the coronavirus with all our might, and to provide our people and our businesses with a bridge to get through to the other side,” Freeland said in virtual remarks to the Toronto Global Forum.
“We will need to provide meaningful investment to build our way out of the coronavirus recession, and to ensure our economy comes roaring back stronger than before.”
The finance minister was the keynote speaker for the final day of the three-day event, which brought together politicians, business leaders and academics from around the world to exchange views on global economic issues.
Freeland’s remarks amount to the latest signal that the Liberal government plans to continue spending on support programs for businesses and individuals even in the face of deficit levels not seen since the Second World War.
Freeland argued that Canada has the fiscal capacity to afford continued pandemic spending because its debt-to-GDP ratio remains lower than it was in the 1990s — when the country faced a debt crisis — and because of historically low interest rates.
Her speech took place on the same day the Bank of Canada released a new report predicting the country’s economy won’t fully recover what was lost to the pandemic until 2022.
The bank’s monetary policy report estimates the economy will shrink by 5.7 per cent this year, but grow by 4.2 per cent next year and 3.7 per cent in 2022.
Prime Minister Justin Trudeau said this week that government officials are working on a “robust” budget update outlining the state of federal finances after months of spending on pandemic-related support programs.
The last detailed update came in the form of a fiscal snapshot tabled by then-Finance Minister Bill Morneau in July. It estimated the federal government’s budget deficit would hit $343.2 billion this year — but it was delivered before the Liberals made a series of costly changes to benefit programs that are sure to drive that number up.
In last month’s speech from the throne, the government promised to extend emergency supports for Canadians and struggling businesses hit by the COVID-19 crisis into next summer.
Trudeau said Monday the promised update won’t cite a specific fiscal anchor to keep spending from spiralling out of control.
In a recent report, the office of Parliamentary Budget Officer Yves Giroux estimated that the size of the debt compared to the size of the domestic economy — which had been the Liberals’ preferred fiscal anchor — could be around 48 per cent this year and next.
The debt this year is expected to push past $1.2 trillion.