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Two million Canadians could remain unemployed, says Ottawa as deficit hits historic high


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Nearly two million Canadian workers could remain unemployed this year, according to forecasts in the federal government’s long-awaited “fiscal snapshot.”

The document released Wednesday details how the Trudeau Liberals see the COVID-19 pandemic dragging down the domestic economy and sending the deficit to a historic $343.2 billion.

The economic and fiscal report lays out the government’s expectation of a slow return to a new normal, with unemployment high and growth low through to at least the end of 2021.

Even though the assessment says the worst of the economic harm from the pandemic is behind the country, the document says a recovery can’t begin in earnest until an effective vaccine or treatment becomes available.

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Things could get worse

Things could, however, get worse under two scenarios from the Finance Department.

Should prolonged shutdowns stay in place, or restrictions not be fully rolled back, a return to normal activity for households and businesses will be uneven and slower than hoped for, leading to a more pronounced drop in economic output than is already expected.

And should the country be hit with a second wave of the novel coronavirus during the annual flu season, the ensuing lockdowns would cause what the Finance Department described as a “deeper and longer-lasting negative impact on the economy.”

The Liberals have repeatedly promised to spend what was needed to put a financial shield between Canadians and irreparable harm. The cost of that promise is now $231.9 billion in direct spending and a deficit comparable only to those seen in the Second World War.

Debt passes $1 trillion

The federal debt is set to pass $1 trillion, by the Finance Department’s estimates.

Whatever the costs, they’re worth it, Prime Minister Justin Trudeau said in a news conference Wednesday morning, before the snapshot was released.

“As we measure the cost of helping Canadians, we shouldn’t forget that the cost of doing nothing would have been far more,” Trudeau said, insisting this is not the time for belt-tightening or austerity.

The document tries to make that case, saying the $80-billion Canada Emergency Response Benefit, which had paid out $53.5 billion in benefits as of late June, has covered Canadians’ estimated $44.6 billion in lost labour income through the first half of the year.

The $2,000-a-month benefit is estimated to have covered monthly housing, food, phone and internet costs for the bottom and middle thirds of households, according to Finance Department calculations.

Low interest rates makes borrowing ‘manageable’: Trudeau

Historically low interest rates mean the hundreds of billions in borrowed dollars come with “manageable” costs, Trudeau said, and the alternative would be for individuals and households to load up with debt themselves to cope with months of no or little work.

Goldy Hyder, president of the Business Council of Canada, said the steep cost to the federal treasury, which has covered about $9 out of $10 in emergency governmental aid, underscored how vital it is to get the economy moving again.

Perrin Beatty, president of the Canadian Chamber of Commerce, noted the deficit and the debt-to-GDP ratio of 49.1 per cent “will undermine Canada’s fiscal capacity for decades.” In a statement, he called for a move away from “a subsidy-based crisis response” to efforts that get Canadians back to work.

The snapshot noted a $37.3-billion boost to the federal wage-subsidy program, bringing its budget to $82.3 billion, to account for its extension until the fall. Morneau said details will come soon for businesses interested in the payroll help.

Businesses need certainty: CFIB

The Canadian Federation of Independent Business called the update a missed chance to help businesses know if they qualify for the subsidy.

“Certainty is a cheap stimulus measure that can help many businesses,” president Dan Kelly said in a release.

The Liberals expect more workers to move onto the wage subsidy and off the CERB as that program winds down.

Those who fall through the COVID-19 financial safety net are expected to be caught by a revived employment insurance system, which has been largely dormant since the CERB replaced it in late March.

Government officials admit there will still need to be policy changes to the EI system to help some self-employed workers qualify, and to capture EI-eligible workers who, due to the pandemic, haven’t been able to work the necessary qualifying hours.

“It’s not easy. We’re in challenging times,” Finance Minister Bill Morneau told reporters.

“We’re going to make sure we support people to get through these challenging times because we know that’s the right thing to do.”

Unemployment rate to hit 9.8 per cent for 2020

For this calendar year, the government expects the unemployment rate to hit 9.8 per cent, dropping to 7.8 per cent next year based on forecasts by 13 private-sector economists.

Although that’s an improvement from the record-high unemployment rate of 13.7 per cent in May for a labour force of just over 19 million, it is still much worse than the record low of 5.5 per cent pre-pandemic.

The Liberals will likely have to lay out a training program for workers in the fall even if the economy improves, said Hassan Yussuff, president of the Canadian Labour Congress.

“Not all workers are going to go back to their jobs,” he said in an interview. “Some of those jobs may not be there for workers at the end of the day.”

Opposition reaction

Speaking in the House of Commons, Conservative Leader Andrew Scheer said the Liberals failed to provide a plan to stimulate economic and job growth.

“Coming out of the pandemic, every single country on the planet will be desperately competing for the same opportunities and the same investments. So where is the prime minister’s plan to set us apart?”

NDP Leader Jagmeet Singh noted the lack of a plan to help with child care, without which parents — and disproportionately women — won’t be able to return to their jobs.

“Moving forward, we need to put forward real solutions that address the problems that people are faced with,” he said. “We know the Liberal government won’t do it unless we fight and push them to do so.”

And the Bloc Quebecois said the Liberals should have targeted aid at sectors that can expect to suffer the longest, such as aerospace and culture, while targeting multinational corporations and internet giants for taxes to offset some of the spending.

Finance officials write the pandemic may yet “cast a long-term shadow over economic developments” through higher household debt and persistent unemployment. The document said the government will announce new measures as needed to support the recovery.

Sheila Block, a senior economist with the Canadian Centre for Policy Alternatives, said the uncertainty about the course ahead suggested the need to maintain or even increase spending: “Now is not the time for rash spending cuts and a turn to austerity.”