The federal deficit could soar to $252 billion this year from massive COVID-19-related relief spending and economic damage caused by the global pandemic, according to a new report from Canada’s parliamentary budget officer (PBO).
Budget watchdog Yves Giroux’s report released Thursday covers a plausible scenario in which Canada’s real GDP will decline by 2.5 per cent in the first quarter, followed by a whopping 20 per cent in the second quarter.
Canada’s economy is predicted to recover in the second half of the year assuming epidemic control measures begin to be gradually relaxed.
But overall, 2020 will see Canada’s GDP shrink by 12 per cent, by far the worst on record in the last 60 years. If that is realized, the next weakest year would be 1982, when Canada’s GDP slipped 3.2 per cent.
The pandemic and oil price shocks would ultimately shrink nominal GDP — the best indicator of the federal tax base — by $395 billion, relative to a scenario where both events did not occur. The erosion would contribute to federal revenues dropping by nearly $60 billion in 2020-21 compared to the previous fiscal year.
The $252 billion deficit in 2020-21 would total 12.7 per cent of Canada’s GDP this year and would be the largest federal deficit on record. The federal debt-to-GDP ratio will rise above 48.4 per cent.
Asked about the projected deficit on Thursday, Prime Minister Justin Trudeau said the focus right now is on getting through the pandemic. “We will continue to support Canadians to get through this in the best possible way so that our economy could come roaring back afterwards,” he said. “Our focus is on what we need to do now to get through this.”
Trudeau later said in French his government was not thinking about raising taxes. “We have great trust in the economic recovery and the ability of Canadians to resume economic activity,” he said. “We shouldn’t have to take any exceptional measures.”