On Wednesday, July 8, Finance Minister Bill Morneau released the federal government’s Economic and Fiscal Update, offering a review of Canada’s ongoing COVID-19 response, a short-term outlook for 2020-2021 and insight into a debt management plan, as Canada enters the “new normal” post COVID-19.
Since the Prime Minister’s initial announcement in May signaling a fiscal update, the significance of this update has been downplayed and has not been sold as a budget or a vehicle for new spending. The update focuses on the economic health of the country during COVID-19, and serves mostly as a litany of previously announced programs designed to support families, individuals and businesses throughout the pandemic.
The main focus of the update is an overview of Canada’s deficit projections as a result of COVID-19 spending – a whopping $343.2 billion, which is 96% of the federal government’s total 2019 Budget. The new deficit is 10 times the size of the 2019 deficit, making it the second largest since World War II. Other key metrics of the country’s fiscal health articulated in the update include:
- A total federal debt that is expected to exceed $1 trillion;
- A $71.1 billion decline in tax revenue;
- An overall expenditure increase of $230 billion; and
- A debt-to-GDP ratio of almost 50%.
The update provides little in the way of a long-term plan for economic recovery, and instead focuses on debt financing by taking advantage of the country’s historically low interest rates.
$50 billion in new COVID-19 spending
The only new investment highlighted in the update is an extra $50 billion for the Canada Emergency Wage Subsidy (CEWS). The CEWS has been one of the government’s key response measures, and today’s update reiterates the commitment to extend the program by an additional 12 weeks to August 29. Extending the CEWS and concluding the CERB is a strong signal from the government that they want to encourage as many Canadians as possible to go back to work.
Billions in health care spending
While no new spending in health care was announced as part of today’s snapshot, the government did lay out a summary of investments it has made since the beginning of the COVID-19 pandemic to support the health care sector at large. This includes:
- An early investment of $275 million in March to fund COVID-19 research and development;
- $500 million for provinces and territories to support testing, acquisition of equipment and to enhance surveillance and monitoring;
- $240.5 million to develop, expand and launch virtual care and mental health tools;
- $2 billion to support diagnostic testing and to purchase ventilators and personal protective equipment;
- $1.4 billion to support COVID-19 medical research and vaccine development;
- $792 million of this funding will be provided through the Strategic Innovation Fund.
- $3 billion towards a Wage Top-Up for Essential Workers; and
- The launching of the COVID-19 Immunity Task Force co-led by Catherine Hankins and David Naylor.
- The Chief Public Health Office, Chief Science Officer to the Prime Minister and Deputy Minister of Health Canada are all members of the task force.
With nothing particularly new announced by Minister Morneau aside from an increase to the wage subsidy, the document presented today shared sobering news many Canadians have been eager to learn — just how much has been spent since the beginning of the pandemic. There does not seem to be any indication that the government will scale back any of its spending as long as it determines individuals and businesses are still in need. With no budget tabled this fiscal year, today’s snapshot is likely the most that Canadians will see of the government’s fiscal plan until either the fall or spring, when many speculate a budget could be tabled.
Our team at Santis had a number of immediate reactions based on today’s fiscal snapshot:
Today’s snapshot was never billed as a budget, or a mini budget. We, like many, are in awe of the significant spending that the government has undertook since the beginning of the pandemic, but we are not surprised; we got what they said they’d give us — a fiscal snapshot.
Having said that, it’s disappointing to not have an idea of how the federal government will engage in the next phase of work needed to significantly support and bolster our health care system to prepare for — as the Finance Minister clearly stated — multiple waves of COVID-19. Provincial and territorial balance sheets are worse than that of the federal government. Provinces are navigating a health care delivery system that is exhausted, but also needs significant investment to not just catch up, but to be prepared for the next wave. This includes necessary investments in home care, long-term care, hospitals and overwhelmingly public health who need to be able to conduct community surveillance and contract tracing in a robust and effective manner. Without the latter, Canada could face outbreaks similar to what is being seen in the United States.
COVID-19 has also highlighted the politics of federal, provincial and territorial (FPT) politics. The federal government will do all it can to highlight to Canadians that they are the government that stepped into the fray in a significant way during COVID-19, illustrating that 90% of emergency support came from the federal government. The federal Liberals must navigate the politics of a minority government, as well as publicly manage FPT relations in a more challenging environment. Up until this point, publicly at least, the opposition parties, provinces and territories were all keen to get along. This will likely change as the Conservatives are set to elect a new leader and a general election is looming on the horizon.
The next step for the federal government is to move away from saying what they have already done, and start to provide details on their plan to better support Canadians and the health care system in the next phase of this pandemic. While we hope we are moving towards a recovery phase, more realistically, governments are actually in an economic and health system preparation stage for the next wave of the pandemic.
For additional insights, listen to our podcast episode with Santis’ own Peter Cleary, Stephanie Gawur and Ian Chesney. In this episode, we dive deeper into the fiscal snapshot and unpack the issues the federal government will be tasked with this fall as health care organizations and providers brace for a potential second wave of COVID-19.