Federal Budget ‘Overstates’ Economic Impact of Stimulus Spending, Budget Officer Says

May 5, 2021 Updated: May 5, 2021

OTTAWA—Parliament’s spending watchdog says the federal Liberals’ budget overestimates how much of an impact its stimulus measures will have on Canada’s economy.

The budget last month outlined what the government said was $101.4 billion in new spending over three years aimed at helping the country climb out of the economic hole caused by the COVID-19 pandemic.

But the budget officer’s report on Wednesday estimated that only $69 billion of that spending could be considered stimulus.

Yves Giroux said that spending would boost economic growth by one percent next year and create 74,000 jobs, compared with the budget’s estimates, respectively, of two percent and 334,000 jobs.

He went on to say that the higher deficits and debt in the coming years could limit the ability of a government to introduce any new, permanent programs without spending cuts or tax increases.

Giroux’s report landed hours before Finance Minister Chrystia Freeland was scheduled to kick off debate in the House of Commons on the government’s budget bill introduced last Friday.

The minority Liberal government would fall without the support of at least one other major party to pass the budget bill, leading to a process that would likely trigger an election campaign.

The Liberals have pegged their spending plans to a rebound in the labour market, which one year ago witnessed a historic drop when three million jobs were lost over March and April 2020, while 2.5 million more had their hours plummet.

In March, overall employment was 296,000 jobs shy of the pre-COVID level in February 2020, a gap of 1.5 percent, and the unemployment rate hit a pandemic-era low of 7.5 percent.

Statistics Canada will update employment figures on Friday when it releases the April jobs report, which experts expect to show a decline as renewed restrictions and lockdowns took hold in response to the pandemic’s third wave.

Even with a drop in jobs in April, Giroux said the budget office still expects the labour force to be back at its pre-pandemic levels by next year, which is when the first tranche of stimulus money is supposed to move out of the federal treasury.

“And that reinforces the point that we’ve made repeatedly over the last several months that the $70 (billion) to $100 billion to jump start the economy is miscalibrated,” Giroux said during a morning briefing with reporters, “or in other words, too much and over too long a period of time if the objective is to return labour market indicators to their pre-pandemic levels.”

Giroux also said the government’s ability to manage the next economic crisis could be curtailed by the Liberals’ decision to gobble up expanded fiscal room with new spending items.

By Jordan Press