Finance minister says COVID-19 economic recovery still needs sustained fiscal stimulus

Finance Minister Chrystia Freelanddelivered anemphaticdefence today of the use of fiscal stimulus and deficit spending to sustain the Canadian economy through what she called the "coronavirus recession" and promised to rein it in only after widespread vaccination brings the virus under control.

Speaking virtually to the Toronto Global Forum, Freeland arguedthe federal government can afford to continue spending on emergency support programs for businesses and individualsand that ending themtoo early would imperil the eventual economic recovery.

"We have a moral imperative, but also a hard economic imperative to fight the coronavirus with all our might, and to provide our people and our businesses with a bridge to get through to the other side,"Freeland said.

"We will need to provide meaningful investment to build our way out of the coronavirus recession, and to ensure our economy comes roaring backstronger than before."

Freeland was the keynote speaker for the final day of the three-day event, which brought together politicians,business leaders and academicsfrom around the world to exchange views on global economic issues.

Guiding economic principles

Rather than outliningany new policy measures or detailed fiscal targets,the finance minister's speechlaid out the principles guiding the government's decision-making ahead of an expected fall update on the state of federal finances. Freeland said the government's recovery plan will focus building an economy that is green, innovative and fair.

Her remarks amount to the latest signal that the Liberal government plans to continue spending on support programs and key policy priorities even in the face of deficit levels not seen since the Second World War.

Freeland argued that Canada has the fiscal capacity to afford continued pandemic spending because its debt-to-GDP ratio remains lower than it was in the 1990s when the country faced a debt crisisand because of historically low interest rates.

She added that Canada's debt-servicing costs are also much lower than they were during that crisis.

"We remember the fiscal shock of the 1990s, when Canada flirted with insolvency," said Freeland. "The reality is that, today, the prevailing global economic environment is changed entirely. In fact, not one of the factors that drove the fiscal crisis of the 1990s holds true today."

Freeland'sspeech took placeon the same daythe Bank of Canadareleased anew reportpredictingthe country's economy won't fully recover what was lost to the pandemicuntil 2022.

The bank's monetary policy report estimates the economy will shrink by 5.7 per cent this year, but grow by 4.2 per cent next yearand 3.7 per cent in 2022.

No budget since March 2019

Opposition politicians have accusedthe Liberals of a lack of transparency when it comes to how much is being spent on emergency programs.

The Liberals haven't tabled a full budget since March 2019.Thelast detailed update came in the form of a one-year"fiscal snapshot" tabled by then-Finance Minister Bill Morneau in July.It estimated the federal government's budgetdeficit would hit $343.2 billion this year but it was deliveredbefore the Liberals made aseries of costly changes to benefit programs that are sure to drive that number up.

Prime Minister Justin Trudeau said Mondaythe promised fall update won't cite a specific fiscalanchorto keep spending from spiralling out of control.

Freeland saidshe'll have more to say soon on the rules and limits the government will impose on itself in the near future.

"We will resume the long-standing, time-tested Canadian approach, with fiscal guardrails and fiscal anchors, that preceded this pandemic," Freeland said.

In a recent report, the office ofParliamentary Budget OfficerYves Girouxestimated thatthe size of the debt compared to the size ofthe domesticeconomy which had been the Liberals' preferred fiscal anchor could be around48 per cent this year and next.

The debt this year is expected to push past $1.2 trillion.