Public Debt in Canada

Canada - Public Debt

Minister of finance presents loose budget for fiscal year 2021–2022 in April

On 19 April, Deputy Prime Minister and Minister of Finance Chrystia Freeland delivered the government’s budget for FY 2021–2022, which began on 1 April. Public spending is seen falling from the previous fiscal year’s record levels, while revenues are expected to rise notably. Overall, the budget deficit is projected to shrink in FY 2021–2022. However, the fiscal stance will remain supportive, as the government decided to maintain still-ample spending in the short term to counter the economic blow dealt by the pandemic. The parliamentary approval of the budget in late April—thanks to the support of the left-leaning New Democratic Party—reduces the likelihood of snap elections in the immediate future, although they are still a possibility later in the year.

Spending for this fiscal year is forecast at CAD 498 billion (around USD 405 billion or 25% of 2020 GDP), down from last year’s revised figure of CAD 635 billion. Revenue is seen at CAD 355 billion (FY 2020–2021 revised figure: CAD 296 billion). Looking at individual stimulus measures, the CAD 30 billion in spending over five years for a national childcare program is one of the big-ticket items. The program aims to make having children more affordable for middle-class Canadians and could provide a significant boost to the number of women in the workforce over the longer term. Meanwhile, the budget promises additional investment in cleaner energy and infrastructure in order to reduce greenhouse gas emissions to 36% below their 2005 levels by 2030. The budget deficit is expected to narrow to 6.4% of GDP from 16.1% of GDP in the previous fiscal year.

Commenting on the government’s national childcare program, James Marple, a senior economist at TD Economics, noted:

“If successfully implemented, the program could go a long way to raising the participation of women in the labor force. Quebec offers a useful example. Since the program was introduced, the labor force participation of women went from below the rest of the country to well above. The gap between core working-age male and female participation in Quebec is roughly half of that within the rest of the country. If labor market outcomes can be replicated, it would mean an additional 250 thousand women in the workforce, lifting the economy’s potential. The benefits would also accrue through the potential for children to gain access to quality early learning.”

Commenting on the overall tone of the 2021–2022 budget, economists at Desjardins Group commented:

“True to its approach since the start of the pandemic, the federal government is not skimping on support measures […]. The federal government’s calculation is that the negative impact on Canada’s economy of not doing enough outweighs the cost of most measures. And, if ever signs of economic overheating were to emerge, which would increase inflationary risks, the federal government could decide to take a step back and not spend all of the amounts provided for in Budget 2021.”

Our panelists see a fiscal deficit of 10.9% in 2021 and 4.8% in 2022.