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Free AccessMNI INTERVIEW: Canada Budget Officer Sees Red Ink Cresting
--Further Significant Upward Revisions To Deficit Forecast Less Likely
--Budget Officer Says End To Lockdown To Ease Fiscal Pressure
By Greg Quinn
OTTAWA (MNI) - Canada's parliamentary budget officer says further
significant upward revisions to his estimate of a 2020 federal deficit of 13% of
GDP are becoming less likely, telling MNI that pressure on government spending
and tax revenue should ease as businesses reopen from the Covid-19 lockdown.
While data Friday showed two million jobs lost in April, Yves Giroux said
employment declines should moderate. The record low employment rate of 52% was
only two percentage points below the budget office's projection for the second
quarter, suggesting no big markdown of fiscal numbers.
"April was what we think was probably the worst because everything was shut
down, and there is very gradual but some re-openings, so the employment rate
could edge up in May and June," Giroux, also a former senior finance department
official, said in an interview.
Prime Minister Justin Trudeau within hours of the job report extended a
pricey wage subsidy program, but Giroux said fewer people should need the checks
by June 6 when the second phase starts. The government estimated the wage
program's cost at CAD73 billion over its first 12 weeks.
"It will for sure add to the deficit, but extending these benefits is
probably not going to be as expensive as if you just added a third to the cost,
because by July presumably there will be more re-openings," he said.
--FAST SPENDING
Giroux reports independently to Parliament and made shockwaves with an Apr.
30 estimate for the deficit to reach about CAD250 billion or 13% of GDP, both
postwar records and CAD68 billion more than his office estimated just three
weeks prior.
The government's pre-pandemic deficit forecast was around CAD30 billion,
and Trudeau has refused to schedule a budget that usually is delivered before
the fiscal year that starts Apr. 1.
Giroux says his biggest surprise has been the speed with which a government
that can take years to design programs moved out relief checks, boosting
spending by about half in just weeks to aid households and business owners.
Canada created new payout systems to deliver cash, and even this week set up
other programs to lend to large firms and send payouts to seniors.
While the Liberal government needs opposition support to stay in power,
opposition parties have raised no major objections to the massive spending
boost.
Swift action may help the economy turn around, easing the fiscal burden in
the long run if things can return to normal, though the PBO projects a record
12% decline in GDP for 2020.
--TRIPLE-A?
"The moment we start to see an uptick in nominal GDP, it has a positive
impact on federal revenues," Giroux said.
Canada's long-term finances are fairly strong and low interest rates make
adding debt easier, the PBO said in its last report. Even the potential
downgrade of Canada's triple-A credit rating may not be overly problematic,
Giroux said, given the country's relative fiscal health compared to major peers.
"It would be surprising for Canada to be downgraded and for other countries
to remain unaffected," he said. "Even if we were downgraded a notch or two, it
would increase the interest rates we have to pay on our debt, but it would not
push them to levels that are out of whack with other countries."
Projecting deficit figures is harder today than in a traditional recession,
and PBO reports are now based on assumptions around easing of health
restrictions. Fiscal results could swing a lot based on the trajectory of the
restart. "It's very sensitive because economic activity has a very direct link
to federal revenues," Giroux said.
--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com
[TOPICS: M$C$$$,MC$$$$,MT$$$$,MX$$$$]
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.