MNI: Canada Pares Deficit Forecast On Economic Rebound

Canada shaved deficit forecasts Tuesday citing an economic rebound that has boosted employment and inflation, even after increased costs to fight the pandemic and a settlement in a massive discrimination lawsuit costing billions.

The estimated deficit for the fiscal year ending in March was reduced to CAD145 billion from an April estimate of CAD155 billion, or 5.8% of GDP, Finance Minister Chrystia Freeland said. The deficit is expected to then fade to CAD58 billion in fiscal 2022-23 and to CAD22.7 billion by 2025-26, or less than 1% of GDP.

The improvement comes even as the government is expected to spread out CAD40 billion in payments over seven years to settle claims made on behalf of indigenous children. There's also CAD24.4 billion of other measures coming this year to tackle Covid and recent flood damage in British Columbia.

Canada's GDP should return to its pre-pandemic level in the next three months while employment has already surpassed that mark, according to budget documents. But the rebound remains at risk from the omicron variant even with 84% of eligible Canadians vaccinated, from inflation and a housing squeeze.

INFLATION SEEN AS GLOBAL PRESSURE

"Inflation is a global phenomenon driven by the unprecedented challenge of re-opening the world’s economy," Freeland said in a speech to Parliament. Her budget presentation said the decision Monday to extend the Bank of Canada's mandate will "help ensure that the current inflation rate does not become entrenched."

"We remain committed to the fiscal anchors that we outlined in this spring’s budget – to reduce the federal debt-to-GDP ratio over the medium-term and to unwind COVID-19- related deficits. In October, we shifted from necessary, but costly, broad-based support programs, to more targeted, less expensive measures, as we had promised," Freeland said.

Business groups have criticized Freeland's pledging deficit spending beyond what's needed to tackle the pandemic.

The federal debt is seen coming in lower as a share of GDP, now expected at 48% this fiscal year from the prior estimate of 51.2%, though still well above the pre-Covid level of 31.2%. The ratio declines to 45.3% over four years, the typical term of a government.

SIGNAL ON NEW PROGRAMS

Freeland also credited a decision to shift into longer-term borrowing for keeping debt servicing costs low, a move her department cautioned about.

The prior fiscal year's record deficit was finalized at CAD328 billion from an earlier CAD354 billion or 14.8% of GDP, a share that's still one of the largest in Canadian history.

Freeland, while saying she would remain fiscally prudent, also suggested her next full budget due in the spring may advance new programs.

"As we finish the fight against COVID-19, we will turn our resolve towards fighting climate change, advancing reconciliation with Indigenous peoples, and building an economy that is stronger, fairer, more competitive, and more prosperous," she said.