MNI POLICY: Canada May Surpass Debt Limit by CAD150B: PBO

By Greg Quinn

     OTTAWA (MNI) - Canada may surpass a statutory debt limit by at least CAD150

billion this year, even with a special exclusion of borrowing used to tackle

Covid-19, the Parliamentary Budget Office said Thursday.

     Legislation that took effect November 2017 set a debt limit of CAD1.168

trillion for the government and state-owned companies. That authority extends

for three years, meaning Finance Minister Bill Morneau needs to recommend a new

ceiling by November of this year and could just recommend a higher one. 

     Bond and bill sales are surging in line with Morneau's July 8 fiscal

snapshot showing a record CAD343 billion deficit this fiscal year. 

     "Given Finance Canada's projection of total market debt of $1,236 billion

in 2020-21 in Economic and Fiscal Snapshot 2020, it is likely that total

borrowing (unmatured debt plus agent Crown corporation debt) will exceed the

maximum amount under the Borrowing Authority Act, even if borrowing to finance

the COVID-19 measures is excluded," the PBO report said.

     Parliament approved a special law this year excluding the cost of measures

to deal with the pandemic from other debt tallies, under special powers that are

due to lapse Sept. 30. Those measures have cost CAD228 billion.

     While the government has spent more on healthcare and relief checks during

the pandemic, there has also been a major drop in revenue as the economy shrinks

and businesses have been allowed to defer some tax payments. 

     The Liberal Party government led by Justin Trudeau needs opposition support

for major spending votes to stay in power, though opposition parties have

encouraged more rather than less stimulus so far. 

     Parliament should demand more transparency on the finances of state-owned

companies, and the government should commit to a new fiscal "anchor" after

Canada lost its triple-A credit rating from Fitch last month, the PBO said. 

     "This commitment should be supported with the Government's detailed

economic and fiscal projections over a medium- and longer-term horizon"

following the July 8 update that only gave figures for the current fiscal year,

the PBO said.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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