Most Canadian provinces ‘regressed’ amid vanishing COVID deficits: report – National
According to a new report from the Canadian Center for Policy Alternatives (CCPA), most Canadian provinces are on track to recover their deficits much faster than expected despite massive COVID-related spending.
The report, Disappearing Act: The State of Provincial Deficits in CanadaCCPA senior economist David Macdonald released on Thursday finds that the provinces are overall in better financial shape than after the last recession.
According to the report, nine out of ten provinces pay less interest now, as a proportion of GDP, than after the Great Recession of 2009-2010.
Therefore, paying less interest saves provinces a combined $6 billion in 2021-22 alone, according to the report.
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“The important thing to take away from this is that these deficits are no longer caused by COVID-19. In fact, economies have recovered in most provinces,” said Macdonald, the report’s author.
According to Statistics Canada, the economy grew by 4.6% in 2021, compared to a decline of 5.2% in 2020, the first year of the COVID-19 pandemic.
GDP growth in the fourth quarter was an annualized rate of 6.7%.
Macdonald also explained that initial estimates of the provinces’ deficit at the start of the pandemic were far from accurate.
“Provincial cupboards are not empty, rather they have been filled with federal cash through large direct transfers and indirectly from the meteoric economic growth of federal spending created,” Macdonald said.
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However, in Ontario and Saskatchewan, the deficits will persist longer because these provinces collect among the lowest taxes relative to the size of their economies.
“At the end of the day, not collecting enough taxes to cover provincial spending is the result of political choices, not the impact of COVID-19,” Macdonald said.
According to the report, British Columbia, Alberta, Manitoba, Quebec, Nova Scotia and New Brunswick are likely to post surpluses this year or next.
Together, the provinces cut their deficits in half in 2020-21 — from initial projections of $93 billion to $48 billion — and by two-thirds in 2021-22, from $70 billion to $22 billion, says The report.
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The report also showed that Newfoundland and Labrador, Ontario and Prince Edward Island should have “manageable deficit-to-GDP ratios of less than 1% by the next fiscal year; Saskatchewan should be close to 2% by then”.
In January 2022, Canada’s Finance Minister Chrystia Freeland told a press conference that this year’s federal budget will emphasize the need to make the country more competitive and innovative.
Freeland said a growing economy would help keep federal finances on solid footing after two costly years when the Treasury provided unprecedented assistance to combat the economic fallout from COVID-19.
The Department of Finance forecasts the deficit will reach $144.5 billion this year, one year after a deficit of $327.7 billion. The deficit for the next fiscal year, which begins in April, is expected to reach $58.4 billion, not counting new spending promises in the budget.
Macdonald said provinces now have the resources to address big pandemic issues, like long-term care and health care, but also non-pandemic issues, like climate change.
“Let us strengthen our health care systems for future waves of COVID-19 or other events. The money now exists in the provincial coffers to do this. So it’s time to act on that with these surpluses,” he said.
— with files from The Canadian Press
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