FRASER INSTITUTE FAIL

Nearly half of federal budget deficit during pandemic not related to COVID spending

“You could argue that part of the reason for the larger deficit was that federal revenues were down during the pandemic and spending up”

Bryan Passifiume - National Post

A health care worker guides a woman wearing a mask outside of St. Michaels Hospital in Toronto during the COVID-19 pandemic.© Provided by National Post

As Canada set new records for government spending during COVID-19, a newly released report suggests nearly half of the spending was not related to the pandemic.

Authored by Lakehead University Economics Professor Livio Di Matteo for the Fraser Institute, the paper — entitled Storm Without End: The Fiscal Impact of COVID-19 on Canada and the Provinces — says federal spending grew by 73 per cent in 2020/21 to $644.2 billion.

That number declined into the next fiscal year, falling 21 per cent to $508.2 billion in 2021/22.

In 2020/21, the report says, the federal government debt grew by around 41 per cent, and 12.4 per cent, to $1.3 trillion, in 2021/22.

“You could argue that part of the reason for the larger deficit was that federal revenues were down during the pandemic and spending up,” Di Matteo said.

“But if you look at the federal revenue performance, it was down about 5 per cent in 2021, but started to rebound quite dramatically.”

Estimates for 2021/22, which Di Matteo said have yet to be finalized, suggest a 17 per cent increase.

Health spending saw an estimated increase of nearly 13 per cent between 2019 and 2020, the report reads — a rate of increase Di Matteo said was over triple the established health care spending growth rate since 2015, and a boost not seen in over three decades.

During the pandemic, around 60 per cent of the federal budget deficit was directly related to the pandemic, largely both federal health spending and related transfers to the provinces, as well as income support programs.

This, the report indicates, suggests a permanent, long-term spending increase.

Projections released late last year by the Canadian Institute for Health Information (CHI) suggested the spike in pandemic health spending — expected to exceed $308 billion by the end of 2021 — could put hamper efforts by provinces to rebuild their health care networks post-COVID.

Dr. Katharine Smart, 

president of the Canadian Medical Association, told The Canadian Press in November that provincial health care systems haven’t kept up with these historic increases in health spending, comparing the problem as an out-of-control freight train.

But what impact does this have on Canada’s economic future?

A looming longer-term consequence, he said, is the impact on the federal debt.

“You’re looking at a debt to GDP ratio going from about 33 to 50 per cent, and for the time being a lot of that is locked in at relatively low interest rates,” he said.

But as that debt starts to turn over and new debt accrues, that could lead to higher interest rates and a subsequent increased cost in servicing that debt.

While a great many factors go into a rise in inflation, the increased spending is certainly having an impact, Di Matteo said.

“Inflation is also a function of the supply chain disruptions, the w ar in Ukraine and u ltra-low interest rates still present, so that’s a complicated picture,” he said.

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