Deficit spending by the federal government has some taxpayers concerned, a concern that grew with pandemic spending, and festered with plans for a guaranteed basic income.
The concerns were heightened by the new Finance Minister Chrystia Freeland when she gave a speech recently on government priorities.
She said the federal government “will spend what it takes to support individuals and businesses through the pandemic” as part of priorities for economic recovery.
That is understandable. Not following through with pandemic assistance would waste all the spending up to now.
Freeland’s next comment that addressing the debt will come later no doubt concerns many voters.
Canada ran a $170 billion deficit in the five months ended in August on 29 per cent reduction in revenues and a near doubling of spending.
The federal government has projected a $343 billion deficit for the year ended March 31, 2021.
Where does the country go from here?
A report by the independent Parliamentary Budget Office (PBO) released in early November indicates current expenditures are sustainable, assuming no new programs or extension of the pandemic measures are introduced.
The PBO predicts that Canada’s debt as a percentage of Gross Domestic Product will remain below the 2019 level in the long term. The federal government has room to increase taxes by $19 billion a year and stabilize debt to 28 per cent of GDP.
Anything over 30 per cent is considered high, although the United States debt to GDP ratio will be 98 per cent by the end of this year.
However subnational debt — provincial, municipal and Indigenous government — is not sustainable in the PBO’s eyes.
The PBO estimates tax increases amounting to $12 billion are needed to stabilize these debt levels. Otherwise, the prediction is that subnational debt will run to half of GDP by 2088. Rising health care costs will push up spending by provinces.
Canada’s proportion of seniors will go from 26.4 per cent to 46 per cent by 2094. The consequent pressure on the Canada Pension Plan places the plan in a modestly unsustainable position needing $1.3 billion in reduced benefits or in higher contributions.
Canada’s deficit by this big picture does not seem insurmountable.
The picture changes when you add a basic guaranteed income to the scenario.
In a separate study, the PBO analyzes the impact of a guaranteed income. Depending on which of three scenarios is implemented, the basic guaranteed income would cost taxpayers between $30.5 billion and $74.1 billion a year and would increase after that.
Paying for that program would take tax increases of 1.6 per cent of GDP to 3.9 per cent. Currently, federal taxes take about 30 per cent of GDP, so taxes need to increase between five per cent and 16 per cent to pay for a basic guaranteed income.
Ron Walter can be reached at ronjoy@sasktel.net
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
