Canada unveils federal budget to end ‘Covid recession’

Canada’s finance minister Chrystia Freeland delivered the Liberal government’s first budget since 2019, vowing to “punch our way out of the Covid recession” with C$101bn (US$81bn) in spending over three years.

“This budget is about finishing the fight against Covid,” she said during her budget speech, which she delivered to a nearly empty parliament with Prime Minister Justin Trudeau seated nearby. “Our country cannot prosper if we leave hundreds of thousands behind.” 

In drafting the budget, Freeland said the government drew motivation from mistakes some countries made in the wake of the 2008-09 recession, which showed “the cost of allowing economic hardship to fester”.

“In some countries, democracy itself has been threatened by that mistake,” she said. “We will not let that happen in Canada.”

The country’s budget deficit for the last fiscal year ending March 31 was projected to hit C$354.2bn, equal to 16 per cent of gross domestic product. The deficit was projected to shrink in the next fiscal year to C$154.7bn and keep declining to C$30.7bn in 2025, when it would account for 1.1 per cent of GDP.

Canada’s federal debt for the last fiscal year hit C$1.08tn, more than double what it was in the fiscal year before the pandemic. Ottawa projects the federal debt will reach C$1.4tn in fiscal 2025-2026, or 49.2 per cent of GDP.

“Canada continues to have the best debt dynamics within the G7,” said a senior government official. “Our leadership position there is retained, notwithstanding the magnitude and importance of the efforts the government has made through the pandemic and the plan being announced today.”

A centrepiece of the budget is a plan to create a national child care programme with a goal of providing C$10 a day in child care services by 2025. The project, expected to cost C$30bn over five years and another C$8.3bn each year thereafter, aims to address the collapse of women’s participation in the labour force, which fell to its lowest level in 20 years during the pandemic.

“Early learning and child care has long been a feminist issue,” said Freeland. “Covid has shown us that it is an urgent economic issue, too.”

The budget also included measures aimed at fulfilling the Trudeau government’s longstanding pledge to tackle climate change, such as directing spending to encourage the development of zero-emission vehicle production, interest-free loans for homeowners to retrofit their homes with energy-efficient upgrades and a C$2.3bn conservation effort aimed at protecting 25 per cent of Canada’s oceans and lands.

As part of the budget, Ottawa set a target for Canada to reduce its greenhouse gas emissions 36 per cent below 2005 levels by 2030. In 2015, the previous Conservative government put in place a 30 per cent target.

Canada will also begin to issue so-called “green bonds” to finance infrastructure projects and other sustainability measures. It plans to issue C$50bn in fiscal 2021-2022.

“This is a plan that embraces this moment of global transformation to a green, clean economy,” said Freeland. “In 2021, job growth means green growth.”

The Liberals also used the budget to announce measures such as a tax on vacant properties owned by non-residents and taxes on high-end cars, private aircraft and luxury boats. 

The budget came as Canada grappled with a third wave of the pandemic, which has surpassed the second wave in cases and hospital admissions.

Ontario, the country’s most populous province, has been the biggest driver of Covid-19 infections since the start of March. For the sixth straight day on Monday, Ontario reported more than 4,000 infections.

Canada’s third wave has been made worse by a slow vaccine rollout, with the federal and provincial governments pointing the blame at each other.

While Canada seemed to have an early head start after the Trudeau government ordered more vaccine doses per person than any other country, the country quickly fell behind when orders were delayed. When vaccines arrived, several provinces, including Ontario, seemed unprepared to administer them in a timely manner.

When it comes to getting people fully vaccinated, Canada sits at just 2.5 per cent of the population, compared with 24 per cent in the US.

That reflects a decision to delay second doses in order to get more people vaccinated. The share of people in Canada who have received at least one dose stands at 24 per cent, according to the Our World in Data website. Canada is ahead of Germany and France but trails the US, UK, Serbia and Chile.

To avoid vaccine shortfalls in the future, Freeland announced C$2.2bn in funding over the next seven years to increase Canada’s vaccine manufacturing capacity.

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