The COVID-19 lockdown has brought a measure of financial uncertainty to everyone. While most of us feel the pressure to budget right now, governments are more inclined to push budgeting off for another day. Budgeting is harder now because nothing is certain and everything comes with greater risk. Individuals, businesses, investors and the government are finding it harder to predict costs and revenue, and nobody wants to bite off more than they can chew.
For governments, an annual budget presents political risk because it lays down concrete commitments. The government must deliver on the promises made in the budget to maintain trust among their supporters and close the door on criticism from their opponents. Uncertainty over its ability to fulfill promises is one of the reasons the government backed away from releasing a budget on March 30th, as initially planned. It’s also likely why Prime Minister Trudeau refused to get pinned down when a reporter asked if the government would release a budget before June 30th. His answer was, “No, it’s not ruled out.”
“Right now there is a tremendous degree of uncertainty… the reflection on what point we might be able to present a budget or even just an economic update is ongoing,” Trudeau added.
Opposition Leader Andrew Scheer said that the Official Opposition will pressure the government to release its next long-term spending plan before the summer recess, especially now that provinces are planning to reopen their economies. Scheer’s comments on releasing a budget to support provincial reopening plans show he thinks the country is interested in moving forward on economic recovery.
Whenever it comes, the next federal budget will likely be a roadmap to recovery for Canada. It could also include a once-in-a-generation investment in the economy, at least according to Dr. Stewart Elgie, professor of law and economics at the University of Ottawa. Elgie, who is also Chair of the Smart Prosperity Group, believes that governments should plan long-term and invest in building an economy that is ready for the future. Instead, he fears they are focussing on getting folks back to work quickly by rolling out infrastructure projects and technology that could be outdated in a few years. It is an interesting time to have a once-in-a-generation investment possibility coming down the pipe. Especially because the development of greener energy sources, rural connectivity, artificial intelligence, driverless and electric vehicles, and even smart cities were already on the minds of many decision makers. The government may have a mandate for transformational spending, but it will also have to consider risk.
The Parliamentary Budget Officer released a grim report last Thursday, showing fiscal capacity is likely to be a major factor in decisions around further federal government spending. The report showed Parliamentarians the effect that the COVID-19 lockdown, expensive relief measures and the downturn in oil prices has had on Canada’s bottom line. He concluded our national coffers will likely face a $252 billion deficit in 2020-21, and that is assuming a 12 per cent contraction in real GDP growth. The deficit could climb even higher with added federal spending.
At a time when most individuals aren’t making major purchases, businesses aren’t investing, and even Warren Buffet is getting out of risky industries, the government may be smart to hold its cards close to the vest. That is at least until it can determine when the lockdown will end and how much spending capacity will be left once the dust settles.
