Budget 2021: Full Coverage

Follow CPAC's full coverage as Finance Minister Chrystia Freeland delivered the Liberal government's first federal budget in more than two years

The Trudeau government did not table a budget in 2020, citing the pandemic, even though other G-7 countries and provincial governments did.

That makes this the government’s first full fiscal plan since the 2019 election, as Canada emerges from the country's worst economic shock in modern times.


IS "WHATEVER IT TAKES" TOO MUCH FOR THE ECONOMY TO HANDLE?

Prime Minister Justin Trudeau has pledged “whatever it takes” to “build back better” in a post-pandemic world.

According to his September speech at a virtual United Nations conference, COVID-19 has presented an opportunity for a reset – a chance to “accelerate our pre-pandemic efforts to reimagine economic systems that actually address global challenges like extreme poverty, inequality and climate change.”

And so while the government has vowed a return to prudent fiscal policy, last fall’s economic statement proposed up to $100 billion on a three-year recovery package “when the virus is under control and our economy is ready to absorb” stimulus.

The government plans to “prioritize investments that act fast and help unleash some of the additional savings that have accumulated in Canadians’ bank accounts and on businesses’ balance sheets.”

That includes measures to promote green growth and a more inclusive economy, according to Trudeau.

And, the government has argued that low interest rates and more long-term 10- and 30-year bonds make the borrowing sustainable.

But how much stimulus does the Canadian economy need, given pent-up consumer demand, a major increase in personal savings, and concern about inflation and interest rates?

Even with the economic contraction, Canadian household saving has skyrocketed from 1.4% to 15% thanks to federal benefits and a lack of discretionary spending – a $200-billion increase in 2020 according to the Conference Board of Canada.

Middle- and high-income households benefitted more than lower-income Canadians, but overall there are billions of dollars available to flood the economy as re-opening unfolds.

The government pledged that “fiscal guardrails” would guide the wind down of stimulus spending, with Canada resuming a “prudent and responsible fiscal path, based on a long-term fiscal anchor we will outline when the economy is more stable.”

Those guardrails were to include labour market indicators such as the employment rate and total hours worked.

But the parliamentary budget officer warned last month that the $100-billion plan might not be necessary with the economy already on the rebound:

Almost all of the ground lost in the labour market due to the pandemic will be made up by the end of 2021-22, the first year in which the earmarked stimulus would be implemented. This would again suggest that the size and timing of the $70-to-$100 billion for stimulus may be miscalibrated.

Likewise, the International Monetary Fund concluded that $100 billion in new spending would need more justification given the risk to Canada’s fiscal health.

Other economists and market watchers believe $100 billion won’t tackle the country’s productivity challenges and worry about how a higher inflation and higher interest rates will compound a ballooning federal debt in the years to come.

And while some economic sectors are rebounding, others are likely to remain decimated until vaccination has produced herd immunity and restrictions have disappeared. So there are calls for more targeted, time-limited stimulus to flow to key sectors.

Other critics -- including the Official Opposition -- contend the Liberal government wants to increase the national debt, not out of necessity, but as a political opportunity to reshape the Canadian economy.

Conservatives have pledged a “Canada First” strategy to build more self-sufficiency and return manufacturing jobs to hard-hit regions, with help for ailing sectors and incentives for small business creation. Opposition Leader Erin O’Toole has also touted a pandemic recovery plan that pledges a responsible winding down of emergency spending and targeted stimulus measures.

The NDP wants a doubling of the federal gas tax fund to spur local recovery, a national child care plan, implementation of pharma care, and a rebuild of Canada’s social safety net. All to be paid for with higher taxes on the wealthiest and those who have profited most during the pandemic.

The Bloc Québécois, meanwhile, wants a focus on Quebec’s natural resource development and the province’s renewable energy sector -- and a major increase in federal health transfers.


POST-PANDEMIC PRIORITIES

Trudeau and Freeland have signalled that the 2021 budget will focus on help for women, who have faced higher unemployment during the pandemic, recover from the COVID-19 “she-cession.”

Child care funding is expected to figure large in Freeland’s document – the finance minister recently told the Liberal convention that COVID-19 offered a “window of political opportunity and maybe an epiphany” on early learning, child care availability, and the ability of women to join the workforce.

As for climate change, the Trudeau government has announced some $36 billion in new initiatives since last autumn as part of a push for "green" growth, according to a recent study. But U.S. President Joe Biden has promised as much as $2 trillion for infrastructure investments over the next decade that tackle climate change and the green economy. And European Union members have agreed that 37% of all new economic recovery investment will support climate action. So how will the budget position Canada by comparison?

And what about skyrocketing housing prices and worries about a burst bubble? The most recent pandemic boom has pushed up the average home price by 32% over the past year, to a record $716,828.

Good news for sellers, but not for younger Canadians and first-time home buyers.

The federal government has intervened in the housing market over the past decade, requiring higher down payments and a mortgage “stress test” to limit borrowing.


DEFICITS, DEBT, AND A FISCAL ANCHOR

Observers — and the opposition parties — will also be looking closely at the Finance department’s deficit projection, debt forecast, economic benchmarks, the accounting of COVID-19 spending to date, and the government's overall fiscal framework.

COVID-19 triggered a wave of federal spending without precedent since the Second World War – from emergency support measures and tax deferrals to vaccines and provincial transfers for everything from protective equipment and testing to child care and safe school re-openings.

Canada incurred the largest deficit among major economies in 2020 at almost 20% of gross domestic product, according to the International Monetary Fund.

And the latest estimates put the federal deficit somewhere between $360 billion and $400 billion, with the federal debt at $1.1 trillion. The fall economic statement projected a $382-billion deficit for 2021-21. The parliamentary budget officer’s latest projection: $363.4 billion for 2020-21 and $121.1 billion this fiscal year.

(The PBO projects the portion of federal spending related to COVID-19 to drop by 86% in the 2021-22 fiscal year, mainly because of a plunge in relief measures for individuals, estimated at $122 billion in the previous year. But the analysis does not include other spending measures to be announced in the coming budget.)

For decades, a balanced budget represented the federal government’s fiscal anchor – the specific, transparent marker put in place to restrain the ability of governments to spend without end.

The Trudeau Liberals campaigned in 2015 on a pledge to balance the budget after four years. That didn’t happen, and the government shifted to debt-to-GDP ratio as its fiscal anchor.

The pre-pandemic federal debt-to-GDP ratio stood at about 30%. That number could hit 60% by the end of 2023, according to estimates.

And so Trudeau’s mandate letter to Chrystia Freeland included instructions to re-establish prudent targets and present a new fiscal anchor.


BUDGET TIMING AND ELECTION SPECULATION

When Freeland delivers the budget speech she will also move the traditional motion that the House of Commons "approve in general the budgetary policy of the government."

Four days of debate will follow, with a traditional Official Opposition (Conservative) amendment and third-place party (BQ) sub-amendment.

The motion is a matter of confidence, meaning this budget could serve as the springboard to an election campaign after 18 months of Liberal minority government -- and with the party well ahead in recent national polls.

However,  NDP Leader Jagmeet Singh has said his party plans to avoid defeating the government amidst the third wave of COVID-19.

From 2018, a look at the post-budget process in Parliament:

-Andrew Thomson