The Morning Brief – 07.09.20

By Bruce Carson


Economy—It was indeed a Snapshot, little forward Guidance

We now Know the Numbers, but what are the Next Steps?

With the Political Consensus which existed at the beginning of the Pandemic becoming increasingly fragile—will it break apart in the coming weeks or perhaps months?

The Numbers in the Snapshot

Kevin Page, former Parliamentary Budget Officer, now head of the Institute of Fiscal Studies and Democracy when interviewed after the Snapshot was released said the “numbers exceed expectations” are a little bit shocking and he has “never seen a one year adjustment like this.” It would seem reasonable to add that most of us haven’t either, but shutting down Canada’s economy in order to quash a pandemic is new as well.

Page is the right as the numbers were higher by an order of magnitude than Canadians had been conditioned to expect.

The deficit for 2020-21 was to be around $30 billion. It is now projected to be $343.2 billion but even that number is a work in progress in it may grow depending on the supports the government decides to leave in place or new ones that might be added.

It should be noted that the sticker shock on the amount of the deficit may come as a result of $50 billion being added to the money available for the wage subsidy program and $10 billion added to the Employment Insurance fund, presumably to accommodate changes the government is contemplating making to EI as CERB is, at some point, phased out.

The debt has broken through the trillion dollar mark and is forecast to come in at $1.2 trillion.

The government’s fiscal anchor, the debt to GDP ratio, has gone from around 30% to 49.1% for fiscal 2020-21. It was consistently pointed out by the government yesterday that this ratio was higher in the 1990s when it was over 60% as if that made the new anchor number easier to swallow.

The economy is expected to contract by 6.8% this year by rebound by almost 6% next year.

With regard to job losses, it was noted that approximately 5.5 million Canadians lost their jobs due to the pandemic and there are forecasts of high unemployment into next year. The job numbers for June will be released tomorrow.

Another jaw dropping number was that revenue has fallen by $106 billion, which should not be surprising given the shuttering of the virtually the whole of Canada’s economy, except for those limited parts deemed essential.

Consistent with the above numbers is the forecast that the second quarter of 2020 will see a drop of 40% in GDP.

Political Reaction

Finance Minister Morneau stated that the shape of the recovery was uncertain and if there is a resurgence of COVID-19, the government will do more. He congratulated himself on acting in response to the pandemic with “speed, scale and simplicity.” Canadians have been protected from the worst economic ravages of the virus.

He spoke of the fact that with low interest rates it actually cost $4 billion less this year to borrow more than last year and 30% of federal debt is held by the Bank of Canada.

In an interview with Vassy Kapelos last evening he spoke about Canada being in the restart phase and when moving to the recovery phase matters such as childcare, PPEs, paid sick leave, and supports for the most vulnerable including Canadians with disabilities are to be in place.

This relates directly to the $14 billion that the prime minister has been discussing with premiers for a few weeks now.

The issue of raising taxes in a couple of years to pay for all of this was thoroughly canvassed with Morneau and he committed to not raising them now saying “we think raising taxes is exactly the wrong response.”

Conservative leader Andrew Scheer made the point that the government went into the crisis with a $30 billion deficit. Scheer wants to see the CERB program changed so it becomes more flexible and encourages Canadians to get back to work. Support programs need to be phased out or lapsed. The office of the Auditor General needs to be fully funded.

Most of all Scheer wants to see a path set out by the government back to sound fiscal management that will stimulate growth. Canada needs to attract investment and to do that we need a plan for the future to get back on track. Scheer added you “can’t borrow your way to prosperity.”

NDP leader Jagmeet Singh stressed increasing revenues so that support programs could remain in place. He wants a wealth tax on both individuals and corporations. Tax loopholes are to be closed and tax havens closed so that the burden of paying for the recovery moves to the wealthiest taxpayers.

He also wants to see changes to the wage subsidy program to make it more flexible and help provided for Canadians with disabilities.


Kevin Page’s view of yesterday’s Snapshot was that it was useful as it set out where federal finances stand at this point. But what we really “need to see is a forward plan for this year and next.” We need to know what a future plan will look like.

He added that pressure should be kept on the government to produce a plan in the fall which would include stimulus measures including infrastructure.

He said we need “to start looking at a recovery plan.”

The reaction of the Canadian Chamber of Commerce was similar to that advanced by Page. The Chamber stated “What businesses, investors, analysts and Canadians alike wanted to hear was how we will move away from the short-term measures that are quickly draining the federal treasury to helping families and businesses once again become self-sufficient.”

The need for a plan now, which sets out a path to opening the economy and recovery, seems to be where the divide occurs and where political lines may be drawn in the future.

For the Trudeau Liberals it is too early for such a plan with still so much uncertainty. As Morneau said yesterday the next phase will be very dependent on our success with what we are doing right now. The response to that would be the economy won’t begin to grow at the rate needed without a plan for the future.

When the House of Commons meets again on July 22, it will have the benefit of having received the Bank of Canada’s Monetary Policy Report which will be presented on July 15. It is to provide scenarios for the economy at least for the near term. This presumably would bolster the argument for pressing the government for a recovery plan.

John Ivison writing in the National Post last evening was right when he referred to yesterday’s effort as “a snapshot that has no focus.” A coherent recovery plan would provide that focus. But such a recovery plan must still include support for the most vulnerable and those who through no fault of their own, are without jobs.

To Come

  • FMM by teleconference
July 10
  • Job numbers for June to be released
July 15
  • Monthly survey of manufacturing to be released
  • Bank of Canada deals with interest rates and releases its Monetary Policy Report
July 21
  • Retail trade numbers for May to be released
July 22
  • CPI numbers for June to be released
  • House of Commons resumes for the day

The Morning Brief returns next Wednesday, July 15 as the Bank of Canada tables its Monetary Policy Report.

– BC