Canada's deficit projected to hit $343-billion

Canada's deficit projected to hit $343-billion

Canada's deficit projected to hit $343-billion

The deficit projection released Wednesday is up from the pre-pandemic economic update delivered in December 2019.

As the Liberals prepare a "fiscal snapshot" this afternoon that will lay out how the pandemic is affecting government finances and the deficit, the prime minister defended the federal government's spending on COVID-19 relief, reiterating his belief that many Canadians needed the help.

Fuelling the deficit is also an unprecedented drop in economic output and employment that will cut revenues the government expected to receive this year.

Today's debt-to-GDP ratio is lower, at 49%, up from 31% during last fiscal year, and interest rates are at historic lows. The yield on benchmark 30-year debt increased 10.8 basis points to 1.092%, according to data from Bloomberg. The prime minister argued the economy would be in much worse shape were it not for the government's response, in part to thwart the need for households to take on more debt.

"Some will criticize us on the cost of action", Morneau said in a speech in the House of Commons on Wednesday.

"Governments want to take on the debt burden (which belongs to all Canadians at the end of the day), so consumers don't have to do so individually", White told Yahoo Finance Canada.

While the shortfall has broad political support, it's a dramatic departure for a country with a longstanding aversion to debt and leaves Canada with the prospect of running large deficits for years to come.

The government also estimates that the economy will contract by 6.8 percent in 2020, with the worst of the losses coming in the second quarter, before rebounding to a growth rate of 5.5 percent in 2021.

"We, the collective we, will have to face up to our borrowing and ensure it is sustainable for future generations".

Jessy Bains is a senior reporter at Yahoo Finance Canada.

For the first time ever, net federal debt is projected to hit $1.2 trillion. The swollen deficit is largely a result of higher projected spending under Ottawa's two key COVID-19 financial aid programs, the Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Response Benefit (CERB), which have been repeatedly extended and expanded in recent months.

The snapshot noted a $37.3-billion boost to the federal wage-subsidy program, bringing its budget to $82.3 billion, to account for its extension until the fall.

This comes as Canada's economy is estimated to shrink by 6.8 per cent - the sharpest decline since the Great Depression - and as almost two million Canadians are expected to remain without work for the rest of this year.

The Liberals expect more workers to move onto the wage subsidy and off the CERB as that program winds down.

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