Address by the Deputy Prime Minister and Minister of Finance on the Economic and Fiscal Update 2021
December 14, 2021
Twenty-one months ago, a global pandemic reached our shores. Few of us had any idea how long it would last or the toll it would take. And today, we are facing Omicron, an even more virulent variant of this virus.
But we can be confident that we will get through this because our government did understand, from the outset, that to save lives our economy would have to be locked down. So we put in place unprecedented measures to meet this unprecedented challenge.
We supported municipalities, and we supported provinces and territories; we supported our healthcare system, and we supported schools; we provided free vaccines and PPE and rapid tests and therapeutic medicines.
Our focus was also on people and jobs. We helped millions of Canadians with income supports. We delivered direct payments to seniors and families. And we kept businesses going, particularly small businesses, and helped workers stay connected to their jobs, with the wage and rent subsidies and loans for small businesses.
We did this because it was the right thing to do. We also did it because we knew it was an investment in our economy that would pay off. Our goal was to prevent economic scarring. We wanted to emerge from this with our economic muscle intact; ready, as a country, to come roaring back. Keeping the Canadian economy on life support as we went into COVID-19 hibernation was expensive. But we knew that keeping Canadian families and businesses solvent would help our economy rebound.
This Economic and Fiscal Update provides Canadians with a transparent report of our nation’s finances. It also includes targeted investments that will ensure we have the weapons we need to finish the fight against COVID-19 – an effort more urgent now than ever with the surge of Omicron.
First, we are protecting children with pediatric vaccines, now available for free for all children 5 and over. Booster shots are free for all Canadians, too, just as first and second doses have been. And Omicron makes boosters more urgently important than ever: please go and get yours as soon as you are eligible. I have booked mine and I am very glad to have done so.
We have enough for everyone. Boosters are an essential defence against the mounting threat of Omicron.
We are investing in new anti-viral drugs for COVID-19 patients that prevent hospitalizations and will save lives. We are investing in ventilation improvements, to help prevent outbreaks at schools and workplaces.
To date, our government has delivered nearly 86 million rapid tests to provinces, territories and Indigenous communities, free of charge. This fiscal update sets aside a further $1.7 billion, enough to procure more than 180 million additional rapid tests. Rapid tests are a useful tool in the intensifying fight against Omicron. We are buying and distributing them; we encourage Canadians to use them. And we are providing support to provinces and territories for proof of vaccination credentials.
As we brace ourselves for the rising wave of Omicron, we know that no one wants to endure new lockdowns. That’s why vaccines, vaccine mandates, boosters, ventilation and rapid tests are so essential. But over the past 21 months we have all learned that fast, local action to limit outbreaks is much less costly than waiting and being forced to impose wider and deeper restrictions. In that knowledge, and out of an abundance of caution, we are proposing local lockdown support for workers and businesses. These measures are an insurance policy for our country, and are in place to help local public health officials make the right decisions in the coming months, knowing their communities will have the support they need. And we are moving forward on ten days of paid sick leave for workers in federally-regulated businesses.
We are provisioning an additional $4.5 billion to pay for possible further costs of fighting Omicron and other COVID-19 surges, including spending on border measures and income and business supports.
The pandemic triggered the steepest economic contraction in Canada since the Great Depression. At its worst, it cost 3 million Canadians their jobs as our GDP shrank by 17 per cent.
This was a once-in-a-generation trauma. When it first hit, many predicted it would take years to rebuild. That is why we are so pleased to report that Canada has largely recovered from the economic damage inflicted by COVID-19 and is poised for robust growth in the months to come.
We have now surpassed our target of creating a million jobs. In fact, we have recovered 106 per cent of the jobs lost at the peak of the pandemic, significantly outpacing the U.S. where just 83 per cent of lost jobs have been recovered so far.
From the start, we have understood that few things are more central to the economic wellbeing of Canadians than having a job. That is why our investments have been so singularly focused on employment, and why Canada has experienced the second fastest jobs recovery in the G7.
Our GDP has already returned to near pre-pandemic levels. Our GDP growth of 5.4 per cent, in the third quarter, outpaced the U.S., the U.K., Japan, and Australia. OECD projections suggest that, by 2023, Canada’s recovery will be the second fastest in the G7.
Today’s update shows that the size of the Canadian economy this year will be $2.48 trillion. When we published our forecast in the 2018 budget, that is almost exactly the size we expected our economy would have grown to by this year. And we made that forecast when none of us had any idea our economic growth and our lives would be so deeply disrupted by COVID-19.
Canada posted a $25.1 billion surplus in our trade in goods in October, as our exports rose. Fewer businesses went bankrupt over the past year than in 2019, before the pandemic. In fact, there are now an additional 6,000 active businesses in Canada compared to before the pandemic.
Household employment income is now 7 per cent above its pre-crisis level. And Canadians have used this difficult time to pay down their personal debt relative to their income.
Our recovery from the COVID-19 recession has significantly surpassed Canada's recovery from the 2008 recession. We have already more than recovered lost jobs, a healing which took eight months longer after the much milder 2008 recession. And we are on track to recover lost GDP five months more quickly than after the 2008 contraction.
Provincial government balance sheets were sheltered from the pandemic thanks to strong support from the federal government. Provincial and territorial government revenues actually increased in 2020-21. Why? Because of substantial federal support, both through direct transfers and through Canada’s COVID-19 economic response, which helped put a floor under provincial and territorial government revenues thereby limiting their deficits and debt. $8 out of every $10 provided to fight COVID-19 and support Canadians through the pandemic came from the federal government.
Our government will continue to be agile as we navigate a volatile and uncertain global economy and manage a sneaky and unpredictable virus. The pain of the families who lost a loved one can never be measured. Our guiding principle will continue to be the conviction that the best economic policy is a strong health policy. Because we have been steadfast in putting saving lives first, this is the approach that has driven our strong economic performance and the second lowest mortality rate in the G-7.
As we look ahead, we are mindful of elevated inflation and its impact on the cost of living for Canadians. We know inflation is a global phenomenon driven by the unprecedented challenge of re-opening the world’s economy.
Turning the world economy back on is a good deal more complicated than turning it off. During lockdowns, Canadians’ incomes remained strong, on average, but opportunities to spend on services were severely restricted. The result was that Canadians spent more on durable goods. Without meals in restaurants, personal care, or vacations, Canadians spent their disposable income on renovations, new furniture, appliances, and cars. It will take some time for supply chains to catch up and for our economy to rebalance itself. To help unsnarl Canada’s supply chains, today we are announcing $50 million to launch a call for proposals that will help Canadian ports acquire cargo storage capacity and take other measures to relieve supply chain congestion.
Our government understands that a strong monetary policy framework is the best weapon in our arsenal to keep prices stable so that Canadians can afford the cost of living. That’s why, yesterday we renewed the Bank of Canada’s two-per-cent inflation target to ensure that the current rate of inflation does not become entrenched. Canada was a pioneer when we established an inflation target to guide our central bank in setting interest rates. In the 30 years since, the Bank of Canada has successfully maintained price stability in our country. Our government has every confidence the bank will continue to deliver on this essential mandate. Canadians should be wholly confident in their central bank, too.
Many Canadians worry about paying their bills. That is why we are glad we indexed the Canada Child Benefit to inflation, and are committed to continuing to index Old Age Security, the Guaranteed Income Supplement, the Goods and Services Tax Credit, and other benefits for the most vulnerable. And we are committing today to provide Guaranteed Income Supplement or Allowance beneficiaries who also received the Canada Emergency Response Benefit with a one-time payment to alleviate the financial hardship they may have faced as a result of an unintended interaction between the two benefits.
We are also laying out a plan to provide debt relief to students who need to repay the Canada Emergency Response Benefits they were not eligible for by proposing to offset their debt with the Canada Emergency Student Benefit amount for which they were eligible.
We are proposing to establish the $60 million Canada Performing Arts Workers Resilience Fund which will support new or enhanced sector-led and -delivered initiatives that improve the economic, career, and personal circumstances of live performance arts workers, including independent contractors.
Early learning and child care costs are like a second mortgage for many young Canadian families. And childcare which is too expensive, or just not available, keeps many mothers from going back to work – an unacceptable brake on our economy at a time when we are facing labour shortages.
We knew that high quality, $10-a-day childcare would make life more affordable for Canadian families and drive economic growth. That is why our $30 billion investment in early learning and childcare was the cornerstone of the April budget.
Our plan was widely supported. But many Canadians were skeptical about our ability to get the job done. I didn’t blame them – after all, Canadian women had been trying to establish a national system of early learning and childcare for more than half a century, and, outside Quebec, we had failed.
Well, today, I have great news for Canada’s working mothers and fathers. Less than eight months after we announced our bold project in our budget, we now have childcare deals with nine provinces and one territory.
Within five years, Canadians will proudly rely on $10-a-day child care just as our universal publicly accessible health care system has come to define us as a society. This is an historic accomplishment which will transform the life of every parent in Canada -- and of every future parent in Canada, for generations to come.
So, let’s give this effort a final push and conclude agreements with Ontario, the Northwest Territories and Nunavut. We can and we must get this done.
Immigration is another important driver of economic growth and a Canadian competitive advantage. Our government is committed to bringing in 411,000 immigrants in 2022, the highest number in Canadian history. To help support this effort and reduce processing time for permanent and temporary resident and Canadian citizenship applications, we are investing $85 million in our immigration system.
Housing prices are a real concern, especially for middle-class Canadians hoping to buy their first home. Housing affordability remains a priority for our government and we will take further action in the upcoming budget. As we announced in the spring budget, on January 1, 2022, our government will apply Canada’s first national tax on vacant property owned by non-resident, non-Canadians.
As we said we would, the government is also bringing forward legislation to extend the Northern Residents Deduction so Canadians in the North can claim up to $1,200 in eligible travel expenses on their taxes starting next month. The government will also bring forward legislation to extend small businesses’ deadline for the repayment of Canada Emergency Business Account loans and ensure that seasonal workers who received pandemic benefits can still qualify for the EI Seasonal Workers Pilot Project.
Climate change is causing increased volatility in the economy. Recent and tragic floods in British Columbia devastated homes, farms, and critical infrastructure, and further disrupted supply chains. Severe droughts, including across our Prairies, have contributed to increases in food prices.
We are taking action to fight climate change. Canada has a world-leading price on pollution that is helping to lower emissions and grow a cleaner economy. In fact, as many countries in the world look to up their level of ambition they are seeing inspiration in our plan. We are also working to finalize Canada’s first National Adaptation Strategy by the end of next year.
The green transition of the global economy is underway. It is one of the great economic opportunities, and one of the great challenges, before us. Our government is determined that Canadians must emerge from this international transformation even more prosperous than we are today. We will ensure that there are good sustainable jobs for Canadians in every corner of the country, for decades to come.
Above all, we know that our national focus, once we emerge from COVID-19, must be growth and competitiveness. Measures to promote them will figure prominently in the budget.
Our government understood, from the start of this pandemic, that the best way to maintain strong public finances was by keeping our economy strong. That’s what our emergency spending achieved. This fall, Moody’s and S&P both reaffirmed Canada’s triple-A credit rating.
We know that Canadians work hard to earn a living and expect us to be careful with their money. We know we have a duty to do the right thing for today, and for tomorrow. We understand that our debts must be repaid.
We came into this crisis with the lowest net debt-to-GDP ratio in the G7 and, in fact, we have increased our relative advantage during the pandemic. We remain committed to the fiscal anchors that we outlined in this spring’s budget – to reduce the federal debt-to-GDP ratio over the medium-term and to unwind COVID-19-related deficits. In October, we pivoted from necessary, but costly, broad-based support programs, to more targeted, less expensive measures, as we had promised we would do. Our government will continue to be a responsible and prudent fiscal manager.
This update reports a deficit of $327.7 billion for the last fiscal year and of $144.5 billion for this fiscal year. This compares favourably to our forecast of $354.2 billion and $154.7 billion, respectively, in the April budget. Our debt-to-GDP ratio in the last fiscal year was 47.5 per cent. It will peak at 48.0 per cent this fiscal year and then fall steadily, as will the deficit. This contrasts positively with our prediction in the April budget.
In Budget 2021, we forecast that, in this fiscal year, 42 per cent of our bond issuance would be long-term debt of 10 years or more. Today, we can forecast it will be 45 per cent. And recall, in 2019, only 15 per cent of our debt was locked in over a long-term horizon. Pushing more of our debt into bonds with a longer maturity ensures that Canada’s debt servicing costs are sustainable. Thanks to an improving fiscal outlook, the amount of money we will need to issue in borrowings this year is $35 billion lower than forecast in Budget 2021. Despite a necessary and unprecedented level of spending to support Canadians during COVID-19, our public debt charges as a share of GDP will be the same this year and next year as they were in 2018-19, before the pandemic.
This fiscal update includes a provision to settle the cases on harm to First Nation children currently before the Canadian Human Rights Tribunal and to invest in transforming the services offered to First Nation children and their families. We have provisioned $20 billion for compensation and $20 billion to improve the system going forward.
The Government of Canada is working towards an agreement with the parties on this issue. We know that paying our historic debt to Indigenous Peoples is paramount, and that we must act to ensure these injustices do not happen again. We will not – and we cannot – evade this essential commitment. That is why we are today setting aside the funds to pay for it.
It has been a hard 21 months. But we are succeeding because we are doing what Canadians do in a crisis – we are helping each other, we are working together and we are doing what needs to be done, whether it was as big as wage subsidies, or as small as wearing a mask at the grocery store.
With winter upon us and Omicron now among us, we know that there will still be some tempests ahead. But we are resilient. Our plan is working. And, once we finish the fight against COVID-19, we will turn our resolve towards fighting climate change, advancing reconciliation with Indigenous Peoples, and building an economy that is stronger, fairer, more competitive, and more prosperous for all Canadians.
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