L Ian MacDonald

July 8, 2020

Government programs and events are famously  known by space-saving acronyms such as CERB for the Canadian Emergency Response Benefit payments to more than 8 million Canadians, or CEBA for Canadian Emergency Business Account loans to small businesses. Or, more permanently, EI for employment insurance.

There’s no abbreviation for a fiscal update — certainly not FU, for obvious reasons.

And that’s not what the government was calling it on Wednesday in what it dubbed a “fiscal snapshot” of the economy, the first fiscal report card since December of 2019. Since then, the COVID-19 pandemic upended the regular budget cycle.

There was Finance Minister Bill Morneau on his feet in the West Block House chamber, reciting the numbers of what could be called the Pandemic Deficit.

It’s $343 billion, or one-seventh of a GDP of about $2.4 trillion.

That’s about $310 billion more than the previously projected deficit of about $30 billion in most pre-pandemic projections, including the government’s own five-year forecast.

Well, that was then, this is now.

The current deficit is an increase of about 1,000 percent over previous projections. Full stop. And a net federal debt of $1.2 trillion, for a debt-to-GDP ratio of about 49 percent, up from 31 per cent.

And then there are the comparatives with the United States, where trillions of dollars are being added to the deficit, and where 30 million people have lost their jobs, more than half again as many as the entire Canadian workforce of 20 million people.

And until America is back, Canada won’t be, either. So those trans-border fiscal and job numbers are more important than ever.

The deficit forecast is up from $256 billion projected only last month by the Parliamentary Budget Officer. But the PBO predictions didn’t take account of the CERB payments of $500 per week being extended by another eight weeks, to 24 weeks, and an additional $50 billion announced by Morneau for the Canadian Emergency Work Subsidy (CEWS), where Ottawa hopes many Canadians will transition from the CERB to subsidized jobs.

The good news?

Amid all this deficit and debt, the cost of borrowing is actually going down.

The current deficit is up by 1,000 percent, the debt-to-GDP number is now half rather than less than a third of output, but the cost of debt service on Ottawa’s books is, as Morneau said “actually $4.8 billion lower than last fall.”

Money is cheap. The Bank of Canada’s rate of 0.25 percent means money for the government is almost free. The bank rate also sets the bar for the commercials banks, from prime rates to mortgage rates.

As shocking as the deficit and debt numbers are, they’ve kind of reached the point where the response of most Canadians is “Whatever it takes.” Whatever it takes to us get through this, we’ll deal with the costs later. Certainly, Justin Trudeau’s high approval ratings, and the Liberals bounce back to major majority territory in the polls, would indicate as much.

The prime minister was sitting out of the shot to Morneau’s left during his statement, but Trudeau was presumably relieved that the fiscal snapshot gave him an excuse to decline Donald Trump’s invitation to the White House with Mexican President Manuel Lopez Obrador to mark the coming into effect last week of NAFTA 2.0, the updated North American Free Trade Agreement.

For one thing, the Canadian reporters wouldn’t have been asking Trudeau about trade. The first question would have been along the lines of: “Prime Minister, you’ve spoken about systemic racism in Canada, do you think it’s a problem in the United States?”

And then: “Prime Minister, when is Canada going to re—open its border with the United States?”

Answer, not anytime soon. Not with the second wave of new cases sweeping the U.S., led by Florida, a state heavily frequented by Canadians.

Not with the U.S. at 3 million people testing positive for COVID-19, with 132,000 deaths, with a new forecast of as many as 200,000 by the fall. Which would be as many Americans as died in World War I, Korea and Viet Nam combined.

And then, just as they were gathering to celebrate a new trade agreement, Trump was making noises about resuming tariffs of 25 percent against Canadian steel and 10 percent on aluminum. One Pittsburgh-based aluminum company alone, Alcoa, employs 3,300 people at plants in Quebec. Trump needs the battleground states of Michigan and Ohio to win the November elections, and they are the heart of an auto industry where cars cross the border six times during assembly. It’s not called the North American auto industry for nothing.

Why, under these circumstances, would Trudeau have gone anywhere near the White House on Wednesday? Instead, his office put out the following innocuous statement: “While there were recent discussions about the participation of Canada, the Prime Minister will be in Ottawa this week for scheduled Cabinet meetings and the long-planned sitting of Parliament.”

Long planned? That was three weeks ago. But then, as the famous saying goes—a week is a long time in politics, and a year is an eternity.

L. Ian MacDonald is Editor and Publisher of Policy Magazine.