The Parliamentary Budget Office (PBO) estimates the 2020-2021 federal budget deficit will be $363.4 billion and warns Canada’s fiscal outlook could get worse.
In a report released Wednesday, the independent office predicted the Trudeau government’s unprecedented spending will raise Canada’s debt-to-GDP ratio to the highest it’s been in over fifty years.
“PBO projects budgetary deficits of $363.4 billion and $121.1 billion in 2020-21 and 2021-22, respectively. Relative to the size of the economy, the deficit in 2020-21 amounts to 16.5 percent of GDP—the largest budgetary deficit since the beginning of the series in 1966-67,” the report reads.
“Based on Finance Canada and PBO estimates, we calculate that total federal COVID-19 response measures will amount to $331 billion.”
During the coronavirus pandemic, the Trudeau government spent at a historical rate as government-enforced lockdowns were imposed. While pandemic funding was used to replace income for millions of Canadians, it was also used to give paid leave and free furniture for federal employees.
At the same time, the deficit continues to expand due to non-pandemic expenses such as giving pay raises to MPs.
To accommodate the spending, Finance Minister Chrystia Freeland has proposed raising the debt ceiling from $1.168 trillion to $1.831 trillion.
According to the PBO, Canada’s debt will begin to gradually decline starting next year at the current rate, but warns the situation could worsen if the government does not restrain spending.
The PBO’s report does not include the three-year stimulus plan the government will launch in April which will cost between $70-100 billion.
In a statement, Parliamentary Budget Officer Yves Giroux says the stimulus plan may help the economy if used wisely, but warns it may only create bigger problems if the Trudeau government chooses to use the funding on permanent projects.
“However, the Government’s $70 to $100 billion earmark for stimulus spending and potential budget measures pose an upside risk to our economic outlook and will increase the deficit,” he said.
“Should measures in the upcoming budget translate into new permanent programs that are deficit financed, the sustainable debt-to-GDP trajectory we project over the medium- and long-term could be reversed.”
The federal government is set to unveil their budget on April 19, 2021.