The parliamentary budget officer (PBO) says the federal deficit likely will exceed what he projected at the end of April as the federal government continues to spend billions of dollars on COVID-19 support programs with no clear end in sight.
Speaking before the Commons finance committee Tuesday, Yves Giroux said the $252 billion figure he cited only a few weeks ago is a low-ball estimate of just how much the programs will cost the federal treasury this fiscal year.
He said Finance Minister Bill Morneau should provide a fiscal update soon to give Canadians a better sense of how much Ottawa is spending on the pandemic.
The $252 billion figure was based on the data the PBO had as of April 24. Since then, said Giroux, new aid programs have been announced for commercial rent support, the agricultural sector, students and seniors — things he called “very expensive measures.”
“I think $252 billion is on the very optimistic side, as things stand now,” Giroux said.
“In all likelihood the deficit will be higher than $252 billion. If I had to bet on that number, I’d say it’s more likely to be worse than that than better than that.”
A trillion-dollar debt?
As a result, the federal debt will rise to more than $900 billion — or roughly $24,000 for every man, woman and child in Canada.
Giroux said it’s “not unthinkable” that the federal debt could reach $1 trillion, and it’s both “possible and realistic” that the debt could hit 13 figures by this time next year.
In fact, depending on how long the pandemic lasts, it’s possible that pandemic programs could cost more than what the entire federal government spent last year on everything — which was roughly $337.8 billion for the 2018-19 fiscal year.
Meanwhile, the debt-to-GDP ratio — a fiscal benchmark the Liberal government cites often to justify borrowing — is also likely to increase from the 48.4 per cent projected on April 30, Giroux said. Before the pandemic, the government projected a ratio closer to 30 per cent.
While that figure is high, Giroux said it’s still well below the 66 per cent debt-to-GDP ratio the country reached in the 1990s — when the Wall Street Journal branded Canada “an honourary member of the Third World.”
The cost of financing this massive increase in government spending, and the resulting debt, will be relatively low, Giroux said. He said interest rates have hit rock bottom — the Bank of Canada’s benchmark interest rate is now at 0.25 per cent — and the cost of servicing the debt will be manageable.
Debt is still (relatively) cheap
“We anticipate that debt charges will not go up, which is surprising and counterintuitive,” Giroux said. “Interest rates are so much lower than what we anticipated them to be just two or three months ago. It doesn’t cost that much to finance that growing debt.
“Is the government in a worrisome position right now? The answer is no.”
He said the debt load could become “unbearable” in the event of a sizeable spike in interest rates and added the prospect of such an increase is “concerning.”
The Liberal members of the committee asked Giroux what the cost to Canadians would have been if the government hadn’t stepped in to flow funds to Canadians through programs like the Canadian Emergency Response Benefit (CERB) and the wage subsidy.
Giroux said that, without government support, Canadians would have suffered considerable economic pain because of the pandemic.
“We would have seen widespread — and I mean widespread — bankruptcies at the individual and corporate level,” he said. “There would be lots of defaults on mortgages, repossession of homes and cars, credit card debts that would go unserviced.
“The cost of doing nothing would be high.”