The federal government says it expects the deficit to balloon to $343.2 billion in the current fiscal year because of massive spending to help shield the country from the effects of COVID-19.
The deficit is expected to be the highest since the second World War and the economic contraction is expected to be the largest and most sudden since the Great Depression.
“Some will criticize us on the cost of action. They will point to the size of our deficit for 2020-21. It is a testament of the shock that COVID-19 had on our economy. Our government knew that the cost of inaction would have been far greater,” said Finance Minister Bill Morneau, in the House of Commons.
“Those who would have us do less ignore that without government action, millions of jobs would have been lost, putting the burden of debt onto families and jeopardizing Canada’s resilience.”
The projection is part of Ottawa’s economic fiscal snapshot, which is the first update since the start of the pandemic. Last fall, a $28.1 billion deficit was expected. In a recent report, the Parliamentary Budget Office (PBO) said it could be on track to hit $256 billion.
The Liberals said uncertainty around COVID-19 made a full March budget impossible, but opposition parties called for more clarity on the effects of the spending measures.
For the first time ever, net federal debt is projected to hit $1.2 trillion. The federal debt-to-GDP ratio is expected to rise to 49.1 per cent from 31 per cent. Economists expect the economy to contract by 6.8 per cent in 2020, before rebounding by 5.5 per cent in 2021.
Prime Minister Justin Trudeau defended the spending measures at a news conference on Wednesday.
“We took on debt so Canadians didn’t have to,” he said.
Michael White, portfolio manager and head of multi-asset strategy, Picton Mahoney Asset Management says the snapshot is tacit acknowledgement that Canadian consumer debt is an issue.
“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.
“Holistically it is an admirable goal, but again, leaves the medium/long-term solutions open for debate.”
Ottawa says its plan includes more than $230 billion in measures to protect health and safety of and direct support to Canadians, businesses and other employers. As well as up to $85 billion in tax and customs duty payment deferrals to meet liquidity needs of businesses and families.
Morneau said the debt is manageable, because of borrowing costs that are actually lower than last year due to falling interest rates.
Conservative leader Andrew Scheer, the leader of the opposition, called it a dire picture.
“What we didn’t hear was any kind of a plan to support the reopening of our economy to get Canadians back to work,” Scheer said in the House of Commons.
The Canadian Federation of Independent Business (CFIB) called the snapshot a missed opportunity to provide certainty for small business owners.
“The economic and fiscal projection released today is dire and it underscores the toll COVID-19 has taken on small businesses,” said CFIB president Dan Kelly in a statement.
“They need assurance that the government is focused on recovery and will be swift in enacting measures that will support them. Certainty is a cheap stimulus measure that can help many businesses.”
The next update on how COVID-19 is affecting Canadian workers comes Friday morning, when Statistics Canada reports jobs numbers for June.
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.