September 22, 2020 – The COVID-19 crisis has left Ottawa’s finances vulnerable to significant downside risks, meaning little room for major post-crisis spending initiatives without tax increases across the board, says a new report from a C.D. Howe Institute Working Group.
The Institute’s Fiscal and Tax Working Group, co-chaired by John Manley, former federal minister of finance; and Janice MacKinnon, former minister of finance of Saskatchewan, debated the question of whether the federal government’s fiscal trajectory is sustainable, given already announced plans. The discussion took place at the group’s second meeting on Thursday, September 17, 2020.
Many members of the group of experts from the private sector and academia see increased spending and deficits on the horizon, given current trends. They noted that if unfunded, ongoing federal program spending permanently increased by a significant amount over the pre-crisis planned level, a large recurring annual deficit over the next 10 years would send the debt-to-GDP ratio on a rising trajectory. A majority of members felt that such a trajectory is unsustainable, unless taxes are raised on a broad basis.
The group recommends:
- No new major ongoing and unfunded spending programs without matching broad-based tax increases;
- Immediate focus should be on targeted spending that promotes growth and raises tax revenues. Examples include incentivizing a return to work such as investments in daycare to cope with the problem of parents leaving the workforce, investments in amortized federal capital infrastructure to provide a boost to the economy, or a return to pre-COVID economic immigration levels.
For more information, please contact: Jeremy Kronick, Associate Director, Research, C.D. Howe Institute; Alexandre Laurin, Director of Research, C.D. Howe Institute; or David Blackwood, Communications Officer, C.D. Howe Institute, 416-873-6168 or email@example.com.