The end of the Canadian government’s 2020\/21 fiscal year will mark a grim milestone: one full year since COVID-19 took a steep toll on Canada’s population and economy. As we look forward to Minister Freeland’s first official budget document, here are the things we’re watching.<\/p>\n
Monday’s update will likely fall short of a full fiscal plan, focusing on the next two years rather than the typical five. Given uncertainty around virus spread, we’re likely to see a range of economic scenarios. We do not expect a commitment to a fiscal anchor, as both the Prime Minister and Minister Freeland have signaled, though the government is likely to reiterate the strength of its balance sheet despite the significant cost of supporting the economy. Since Canada remains in the throes of a second virus wave, we expect the update to add red ink to the government’s bottom line. <\/p>\n
The outlook is somewhat less dire than when the government released a fiscal snapshot in July. The unemployment rate at 8.9% is down materially from May’s 13.7% high but well above February’s 5.6%. The economy recovered ground through the third quarter, trimming our view of the annual GDP decline to 5.6%, smaller than the average summer forecast of -6.8%. <\/p>\n
This improvement suggests Minister Freeland’s revenue projections are likely to be somewhat stronger than in the July fiscal snapshot. Additional spending since then will have the opposite impact.<\/p>\n
We expect the government to show a 2020\/21 deficit of close to $370 billion, an overshoot of the $343 billion expected in July. We already see some stimulus bleeding into next year, with current announcements bringing the deficit to at least $90 billion in 2021\/22. Extension of existing supports (CRB, CEWS) are likely and could add $40 billion through the end of 2021, even before new spending announcements. We expect sizeable but more manageable deficits around $35 billion per year thereafter, if COVID-19 spending winds down. <\/p>\n