MNI INSIGHT: Canada Fiscal Update Sticking to Pandemic Relief

Canadian Finance Minister Chrystia Freeland's fiscal update Monday afternoon will focus on measures to sustain the economy through the pandemic, rather than new longer-term spending programs, MNI understands.

The update will have a level of detail somewhere between the fiscal snapshot delivered in July and a regular full budget, MNI understands. The July "snapshot" from then minister Bill Morneau laid out a CAD343 billion deficit for the fiscal year that began Apr. 1, or 16% of GDP. He gave almost no indication of the path after that, a shift from past budgets that looked several years ahead.

The government's view is the economic outlook has become somewhat more certain than in the spring, when much of the country was in a full lockdown, and there are glimmers of optimism because of vaccine developments, MNI understands.

The update will take on some of the flavor of Freeland's speeches a month ago in Toronto and Montreal. Those remarks focused on the virtue of big deficit spending to pull the economy through the pandemic, followed by restoring a fiscal "anchor" rule when things firm up again.

It's not clear whether the government will attempt to bring in the much larger suite of new programs that were touched on when Parliament re-opened in September, such as funding a national daycare program, a public prescription drug program or major new green technology investments.

FOCUS ON HOUSEHOLDS

While industries such as airlines and tourism have called for special bailout packages, the government's focus may continue to be on households struggling financially and implementing recently announced broad supports for firms such as rent subsidies, MNI understands.

The fiscal update may also bring in a new higher debt ceiling. MNI first reported last week that Freeland deferred putting a number on the new cap in part so she could include emergency borrowing of CAD286 billion for which Parliament provided a temporary exemption. The government may also reveal greater detail on plans to sell more long-term bonds to lock in historically low interest rates.

Royal Bank of Canada said the update may bring in a CAD370 billion deficit, while Scotiabank called for CAD425 billion.

Conservative opposition lawmakers and business groups have rejected the idea of using the Covid-19 pandemic to start a broader reshaping of the economy. Such moves, they argue, could lead to unsustainable deficits and help selected industries while existing companies are still struggling to avoid bankruptcy. The other NDP and Bloc Quebecois opposition parties have backed even stronger deficit spending to support workers and healthcare.