The Trudeau Liberals' fiscal update this week put a cost to all the emergency COVID-19 aid the federal treasury will dole out. It delivered some shocks: a gigantic deficit and a projection that the federal debt will top $1 trillion.
Late last year, the government forecast this year's deficit at $28.1 billion. But the federal government is staring at a rapid drop in revenues due to the economic lockdown slashing the taxes people and businesses pay: that alone adds $81.3 billion to the deficit. Spending spiked by $236 billion for measures such as the $500-a-week emergency benefit for people whose work vaporized.
"So you have a buyer of last resort which will keep a lid on interest rates at least for the next year." Cooper said raising taxes while the economy is still recovering wouldn't be wise because it would make Canada less competitive, which would make it more difficult to raise the necessary revenues to pay off the debt. That leaves another option, she said: Grow our way out of it.The idea is as the economy grows, there will be more workers and companies paying taxes. The same debt, in raw dollars, is less of a burden on a bigger, more prosperous economy.
Even a best-case growth scenario may not be enough to keep the debt sustainable, said Rebekah Young, director of fiscal and provincial economics at Scotiabank, saying more "decisive action" is needed.
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