Most Canadian provinces have ‘roared back’ amid disappearing COVID deficits: report – National

Most Canadian provinces are on track to have their deficits recovered much faster than expected despite massive COVID-related expenditures, according to a new report from the Canadian Centre for Policy Alternatives (CCPA).

The report, Disappearing Act: The state of provincial deficits in Canada, that CCPA senior economist David Macdonald released Thursday, finds that the provinces overall are in better fiscal shape than after the last recession.

Nine out of 10 provinces are paying less interest now, as a proportion of GDP, compared to after the Great Recession in 2009-10, the report showed.

As a result, paying less interest is saving the provinces a combined $6 billion in 2021-22 alone, the report showed.

“The important thing to take away from this is that these deficits are no longer being caused by COVID-19. In fact, the economies have roared back for most provinces,” said Macdonald, the report’s author.

According to Statistics Canada, the economy grew 4.6 per cent in 2021, compared with a decline of 5.2 per cent in 2020, the first year of the COVID-19 pandemic.

GDP growth in the fourth quarter came in at an annualized rate of 6.7 per cent.

Macdonald also explained that the initial deficit estimates from the provinces at the beginning of the pandemic were far off the mark.

“Provincial cupboards aren’t bare, instead they’ve been stuffed with federal cash through major direct transfers and indirectly through the roaring economic growth federal spending created,” said Macdonald.

However, in Ontario and Saskatchewan, deficits will persist for longer because these provinces collect among the least in taxes compared to the size of their economies.

“The bottom line is that failing to collect enough in taxes to cover provincial spending is the result of policy choices, not the impacts of COVID-19,” said Macdonald.

The report found that British Columbia, Alberta, Manitoba, Quebec, Nova Scotia and New Brunswick will likely show surpluses this year or next.

Together, provinces cut their deficits in half in 2020-21 — from initial projections of $93 billion to $48 billion — and by two-thirds in 2021-22, from $70 billion to $22 billion, the report stated.

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The report also showed that Newfoundland and Labrador, Ontario and P.E.I. should have “manageable deficit-to-GDP ratios of less than one per cent by the next fiscal year — Saskatchewan is projected to be sitting near two per cent by that time.”

In January 2022, Canada’s finance minister Chrystia Freeland said during a news conference that this year’s federal budget will focus on the need to make the country more competitive and innovative.

Freeland said a growing economy would help keep federal finances on solid footing after an expensive two years when the treasury has pumped out unprecedented aid to combat the economic fallout from COVID-19.

The Finance Department is projecting the deficit this year to hit $144.5 billion, one year after a shortfall of $327.7 billion. The deficit for the next fiscal year, starting in April, is projected to hit $58.4 billion, not including any new spending promises in the budget.

Macdonald said now the provinces have the resources to address big issues related to the pandemic, like long-term care and health care, but also issues unrelated to the pandemic, like climate change.

“Let’s strengthen our health care systems for future waves of COVID-19 or other events.. The money now exists in provincial coffers to do that. So now is the time to act on that with those surpluses,” he said.

— with files from The Canadian Press