Ottawa to hand out more cash as PM pledges "we're here for you"

Canadian government's fiscal update Monday expected to announce billions in additional support

Ottawa to hand out more cash as PM pledges "we're here for you"
Steve Randall

All eyes will be on Canada’s finance minister Monday with some big numbers expected from the fiscal update.

But just how big the numbers will be – in terms of the expected federal government spending deficit and support for pandemic-impacted Canadians – is highly anticipated.

Chrystia Freeland is expected to announce extra cash for struggling families and businesses, having insisted last month that Canada can afford huge stimulus.

Justin Trudeau pledged Friday “we’re here for you” for as long as it takes. “We’ve got your back,” the prime minister promised.

But what will extra help mean for Ottawa’s deficit?

RBC economist Colin Guldimann said Friday that a $370 billion overspend is likely for 2020/21, up from the $343 billion expected in July. For 2022 onwards, a deficit of around $35 billion could be on the cards, assuming a winding down of COVID-19 programs.

BMO believes the deficit could top $400 billion which would be 18% of GDP. To put that in context, the 2019 deficit was just above 1% of GDP. Statistics Canada will report the latest GDP data Tuesday.

What help is coming?
RBC’s Guldimann speculated in his report that the finance minister may enhance some flagship programs such as wage subsidies for locked-down businesses. There is also likely to be additional spending on infrastructure projects announced.

With women with young children having been heavily impacted during the pandemic, there could also be extra help for childcare and a boosted Canada Child Benefit. However, the economist notes that some measures may be held back to the spring budget.

But Guldimann raises a potential red flag, that being over-generous may upset the return to a downward slope for the debt-to-GDP ratio if programs are not sustainable and supportive of long-term growth.

“Should spending stay high, with vaccines on the horizon, we’d be more concerned about overdoing the stimulus than underdoing it,” he wrote in his report.

The recent confirmation of Canada’s Aaa credit rating by Moody’s also came with a note that government spending must ease once Canada emerges from the virus crisis.

Business under pressure
For Canada’s businesses, there will be hope that Ottawa will have additional help for them.

The Canadian Federation of Independent Business is urging shoppers to use today – Cyber Monday – to support smaller retailers.

“With 2020 being the toughest year ever for many businesses emotionally and financially, we are urging people to make every effort to support small business. It’s not always our first instinct to look for small businesses online but many have now worked really hard to make this an option,” said Laura Jones, Executive Vice-President at CFIB.

The retail sector will be analyzing weekend sales, which included the high-profile Black Friday and Small Business Saturday events.

According to a report last week by KPMG, already, two in five Canadians are spending one third less on non-essential items in the next six-to-12 months, signalling a possible decline in revenue opportunities.

"But, relief may come from a previously overlooked demographic – Baby Boomers," says Peter Hughes, partner and national leader, customer practice, KPMG in Canada. "For a decade now, online marketing has catered to Millennials and Gen Zs, but retailers now have a unique opportunity to capture a new and growing market segment."

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