For anyone watching today’s speech from Finance Minister Bill Morneau on the fiscal “snapshot,” it was a sobering moment when we discovered what the deficit is projected to be: $343.2 billion dollars. As with so many announcements from Ottawa, since February, we have been reminded that for most of us, we’re living in a time without precedent. This is the worst deficit since the Second World War, and the first time Canada’s debt has reached the $1 trillion mark.

The snapshot spoke of 5.5 million Canadians who are either out of work or who have lost hours increasing the unemployment rate to 13 percent in May – more than double the pre-pandemic figures. Consider this a significant factor in the economy shrinking by 6.8 percent and a projected $71.1 billion decline in tax revenues.

Of additional concern for this government will be the surge in the debt to GDP ratio. While it is not as high as mid-1990’s levels it is now hovering at 50% with a looming danger of increasing still more as the government begins to consider its stimulus measures, rumored to be delivered this fall by government insiders

Yet what those watching the government’s bottom line closely will remark upon is this new deficit number. It’s close to $100 billion more than what the Parliamentary Budget Office projected just last month. The government accounts for this by stating it has now earmarked an additional $50 billion dollars for the wage subsidy program, as well as an anticipated increase of $10 billion dollars in EI payments. Among other contingency measures.

As eye-watering as all these numbers are, and as dire as it looks for any V-shaped recovery, the cost of inaction for Canadians would have been far worse, Morneau contended. The government had to react with stimulus measures at the “speed, scale and simplicity required” to lay the foundations for the quickest return to “normal” as possible – whatever this new normal might be.

If there is a silver lining at all in today’s snapshot, it is this: the federal debt will be tackled with historically low-interest rates. Indeed, while the deficit figures soar, Canada’s interest payments will actually be $4 billion less than anticipated just last year. As Morneau stated, “Canada’s debt structure is prudent, it’s spread out over the long term, and it compares well to our G7 peers.”. Some consolation for those hoping to return to work or to rebuild their businesses in the months ahead.

Key Sector Breakdown: Where we are and how your money has been spent

Healthcare

Canada’s COVID-19 Economic Response allocated $5.8 billion to healthcare spending. This included preparing and expanding our health system for needed services such as virtual care and COVID-19 testing – with specific funding for Indigenous communities – as well as procuring personal protective equipment and supplies such as ventilators. There has also been a focus on medical research and vaccine development to accelerate made-in-Canada innovation as a countermeasure to the virus.

Financial Services

Key to the economic management of the pandemic, Canadian financial institutions were partners with government in providing mortgage/debt relief for customers, acting as financing arms for government aid to businesses of all sizes and in advising on the outlook for the economy long-term. As in other recession periods, many economists who work for the financial service sector, were asked for their take on the ‘threshold ‘ for debt,  interest rates and international credit rating standing. The views of the financial sector have been an important sounding board for the government.

For many in the FI sector, today’s fiscal snapshot providing the projected deficit number of $343 billion, debt to GDP ratio of 49.1% will not be a big surprise. Many of them will have factored these numbers into their analysis and economic outlook. What is of importance to the FI sector, the finance projections for the 5.5% rebound in 2021 and  the extension of the stimulus programs such the Emergency Wage Subsidy. As the economy starts to rebound, the wage subsidy will be an important cushion for consumers and a modest assurance that consumers can meet their financial obligations to their financial institutions given the high debt load of individual Canadians.

Canada’s financial sector will continue to be active participants in this health/economic crisis.

Technology and the Innovation Agenda

In addition to the government’s widely publicised fiscal programs, like the Canada Emergency Wage Subsidy, the government has made a range of technology investments primarily through the medical and manufacturing sectors. To date, the government has committed nearly $1.4 billion to support COVID-19 medical research and vaccine development. Of this support, $792 million will be provided through the Strategic Innovation Fund, with the remaining funding be directed for a number of R&D organizations.

The government’s Regional Relief and Recovery Fund is aimed at assisting businesses that are not eligible for CEWS or other fiscal programs, and are critical to regional economic growth. The $962 million program will be administered through Canada’s regional development agencies. The government has also committed to flow $250 million through the Industrial Research Assistance program to provide wage support to pre-revenue small and medium sized tech companies.

Among one of the larger surprises was the omission of funding for rural and remote broadband and cellular connectivity. While the government has continually assured stakeholders that a comprehensive universal broadband program is forthcoming, there was no indication of such a program in today’s announcement.

According to the update, employers in the professional, scientific and technical services industry received the most approved Canada Emergency Wage Subsidy applications while those in the financial and information and cultural industries were among the bottom half of employers who accessed the program.

Defence + Procurement

Over the past few days, several media outlets have entertained speculation from former senior defence leaders as to potential impacts to spending. Going on the “offensive”, pundits and retirees are advocating for the continuation of major capital programs and maintenance of the current budget profile. Their principle argument is that budget reductions would not only erase several years of progress, it would also be poorly conceived given current world affairs, including the aggression of China and Russia.

Beyond current conflicts, defence spending represents tremendous domestic wealth generation and economic stimulus.  Shipbuilding in particular represents tens of thousands of employment-years. Any reduction would only add to the unemployment burden. Further, any reduction in defence spending will only result in equipment delays, increased maintenance costs associated with ageing equipment, and a set-back to any progress made to-date on Canada’s official policy of “Strong, Secured and Engaged”.

Energy

The government’s flagship program for the energy sector remains the $1.7 billion orphan wells program. The funding, which allocates funding to Alberta, Saskatchewan and B.C., is earmarked for the cleanup of inactive and orphan oil wells. While the funding is welcome by industry, it is aligned with the government’s broader sustainable energy priorities and will do little to win over hearts and minds of workers in the sector.

Media + Culture

The fiscal snapshot did not have any new information on programs for the arts, culture or media sector, only reiterating existing programs and funding announcements such as the $500 million emergency support fund for cultural, heritage and sport organizations. However, the economic impact of the pandemic is recognized to have hit cultural venues disproportionately.

The government also notes in the report that the recovery will be uneven across sectors due to continued public health measures to protect citizens from infection.The report also found that the arts and cultural sectors have not been accessing the wage subsidy in great numbers, with approximately 4% of successful wage subsidy applications originating from the arts and cultural industries.

These different factors suggest that cultural and heritage industries might require additional supports through the second half of 2020 if core economic activities like concerts and festivals continued to be prohibited.

Opposition Perspectives

While there was the expected gasp from conservative leader Andrew Scheer regarding the deficit and debt figures, the opposition leader focused his criticism of the government’s fiscal update on its lack of plan to restart the economy. The Conservatives also repeated their concern that many of gaps identified in existing programs went unaddressed yet again.

Looking Ahead 

Not covered in most of the reports on this update is something Morneau provided for a select group of reporters at the lockup press conference: there will be no increases in taxes for Canadian families and no cuts to government spending. Consider this a nod to the fact we’re still very much in a minority government, and Trudeau’s Liberals do not want to be caught flat footed by any rise in the Conservatives’ fortunes in the months ahead, nor by any claim by the NDP and Bloc that they’re imposing too much fiscal discipline too soon. Trudeau is enjoying record levels of approval for his government’s management of this crisis but his team has a clear eyed sense of how ephemeral this may be if the national mood darkens on the costs of a long road back to prosperity.

Aside from the budget bill, there will be significant legislation in the fall where the question of navigation for that route will be subject to renewed scrutiny, with impacts for the sectors that will spur the most growth, including technology, energy and agriculture. There is also a national pharmacare plan that has to be costed, a pipeline to be built (and presumably sold) and a strategy for trade diversification and expansion of our export markets that will not wait for any bromides on perseverance and how “we’re all in this together.” There is an increasingly vocal constituency who are questioning how togetherness is defined – and who “we” might be, apart from a charity they never want to hear about again.

So the challenges are great. But perhaps Morneau and the government can be credited for an unvarnished take on the costs – so far. It is a level set on expectations for recovery, but it could also be a canny first step in exceeding them, just in time for talk of an election once again next spring.