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May 25, 2020 - Ottawa and the provinces need to recommit to fiscal and monetary anchors​ in light of the unprecedented stimulus response provided by all levels of government and the Bank of Canada throughout the COVID-19 crisis. While fiscal anchors, such as debt-to-GDP ratios, were necessarily set aside to finance support programs to cope with the economic shutdown, measures to stabilize finances and restore fiscal sustainability in the medium to long-run are critical.

Canada is emerging from the first wave of the pandemic with very high public and private debt loads and is increasingly dependent on domestic and foreign investors to finance them. With the loss of Canada’s fiscal anchor, maintaining investor confidence so that public and private debt can be carried at a reasonable cost is essential.  Moreover, the importance of reaffirming Canada’s remaining monetary anchor, Canada’s low and stable 2 percent inflation target, cannot be overstated. 

The Monetary and Financial Measures Working Group further recommends the following:

  • Governments should make clear to Canadians how they will re-calibrate and eventually remove the temporary fiscal programs currently in place, as part of a transparent plan to stabilize public finances over the medium term.
  • To ensure fiscal sustainability, governments will likely need revenue sources beyond tax rate hikes.  One avenue is through the digital taxation of economic rents realized by the few dominant players in these sectors and through taxation of individuals who have benefited from large capital gains. 
  • Any such new revenue sources must be done in conjunction with other jurisdictions so as not to be seen as an outlier, thus harming Canadian competitiveness.
  • Over the longer run, governments should work with their foreign counterparts to look for ways to unlock excess savings for investment, in order to increase the neutral rate of interest, providing more breathing room from the zero-lower bound.

For more information, please contact: Jeremy Kronick, Associate Director, Research, C.D. Howe Institute; Laura Bouchard, Communications Manager, C.D. Howe Institute: Phone: 416-865-9935; email: lbouchard@cdhowe.org


Full Communiqué: CWGR_2020_0525.pdf