Economic aid could be extended beyond the fall if recovery falters, Freeland says

OTTAWA — The country’s beleaguered workers and businesses should be able to stand on their own by the fall and no longer need a slew of financial supports come if the economic recovery moves along as expected, Finance Minister Chrystia Freeland says.

The key, though, is the word “should.” 

As is, the measures to extend business and unemployment benefits will be in place until the end of September after the government’s budget bill became law late Tuesday.

An economic rebound is widely expected to take place starting this month, as provinces roll back restrictions and cooped-up Canadians are able to spend more freely on goods and services.

But there are still a number of risks that could pop up between now and then, Freeland says, including the possibility of a fourth wave of COVID-19 that could require a new round of restrictions or lockdowns.

It’s why the government still has the right to extend supports until the end of November if necessary. Freeland said nothing is 100-per-cent predictable while the pandemic persists.

Speaking at a news conference Wednesday, Freeland said that uncertainty makes this economic recovery far different than any previous one.

“It’s not like turning the lights back on,” she said in French. “It might take a while.”

In the near term, the winding down of individual benefits shouldn’t put a dent in consumer spending because interest rates remain low and costs manageable, while households are sitting on more than $200 billion in savings built up during the pandemic, said Deloitte Canada chief economist Craig Alexander.

However, the drop in income support should push up ratios of household debt relative to incomes, he said, which the Bank of Canada has previously warned could limit Canadians’ flexibility to deal with an unforeseen financial shock like the loss of a job. 

“The accumulated savings, in a sense, trumps the future rise in debt service costs in the near-term,” he said. “That’s why despite, increased leverage, consumers are still going to be spending.”

The budgetary measures that gained parliamentary approval this week include expanding a Conservative-era income benefit to the working poor that the Liberals expect to lift over 100,000 people out of poverty, a new hiring program to offset payroll costs for companies, and spending to start development of a national child-care system.

A group of child-care advocates and academics called on the Liberals on Wednesday to only send federal funding to non-profit and public daycares, which some provinces have balked at in funding talks.

“It is not going to be a cakewalk. It is going to be complicated to get deals done across the country,” Freeland said. “But I am very optimistic and confident we are going to get it done.”

All that spending will send the deficit to $154.7 billion this fiscal year, one year after a record-smashing $354.2 billion deficit induced by the pandemic that sent the national debt above $1 trillion.

The parliamentary budget officer said in a report Wednesday that federal finances are sustainable over the coming decades, with room to add spending or reduce taxes by about $18 billion and keeping the debt at 37.7 per cent of overall economy.

The same couldn’t be said of provincial and territorial governments. For they most part, they would combined have to find $18 billion to stabilize their collective debt-to-GDP ratio at 28.7 per cent.

This report by The Canadian Press was first published June 30, 2021.

Jordan Press, The Canadian Press