Federal Government 2021 Fiscal Update Promises New COVID-19 Spending

The federal government is committing to spend an additional $8.1 billion to help finish the fight against COVID-19 while at the same time, predicting a moderate decline in the national deficit.

Deputy Prime Minister and Finance Minister Chrystia Freeland provided a snapshot of the country’s finances on Tuesday while unveiling the fall economic and fiscal update.

The new line items contribute to a broader spending vision of $71.2 billion over the next seven years. That starts with $28.4 billion in the 2021-22 fiscal year, with $4.5 billion going towards combating the Omicron variant, and another $5 billion going towards B.C. flooding recovery efforts.

Among the new pandemic proposals, the government proposes to allocate $2 billion over two years, starting in 2021-22, to the Public Health Agency of Canada (PHAC) to procure COVID-19 therapeutics.

The government is also proposing to provide $1.7 billion to Health Canada and PHAC to help provinces and territories secure rapid tests and the supplies needed to administer them.

Responding to calls from opposition politicians, $742.4 million will also be funnelled through one-time payments to low-income seniors across Canada who saw their Guaranteed Income Supplement clawed back by accepting the Canada Emergency Response Benefit or the Canada Recovery Benefit.


The document forecasts that the deficit in 2021-22 will drop to $144.5 billion, down from $154.7 billion estimated in the spring budget. In the 2022-23 fiscal year, the deficit is projected to sit at $58.4 billion, down slightly from the earlier predicted $59.7 billion.

The 2021-22 fiscal outlook includes two short-term cost pressures – Omicron and the B.C. floods – that could influence how the deficit picture ultimately shapes up.

For that reason, the government has provided a faster recovery scenario and a slower recovery scenario. The former, predicts a deficit of $142 billion and the latter predicts a deficit of $147.9 billion.

Kevin Page, former parliamentary budget officer and current president of the Institute of Fiscal Studies and Democracy, said while the deficit is still “enormous,” it’s “dropping like a rock.”

“The deficit will then continue to normalize over the medium term. So can we hold the government to account for those years over year deficit reductions, I think will be an issue for legislators,” he told CTV News Channel’s Power Play


The declining deficit is explained by an increase in federal revenues and a decrease in national spending projections.

The fiscal update notes that due to a more optimistic labour market outlook, personal income and corporate profitability, income tax revenues are “projected to be higher by roughly $12 billion per year on average over the forecast horizon.”

Total tax revenues, including excise taxes and import duty revenues, will reach $312.1 billion by the end of the 2021-22 fiscal year, climbing to $391 billion by 2026-27.

Government spending will decline from $28.4 billion this fiscal year, which ends in March, to $3.8 billion in 2026-27.

A sizeable portion of that will go towards compensating First Nations children harmed by Ottawa’s underfunding of child services on reserve. It will also help pay for long-term reform of the child-welfare system.

The government announced on Monday $40 billion would be reserved for the cause, but the fiscal update shows they had already accounted for $16 billion of the total spend.


On inflation, the document notes that economists expect price pressures to continue for some time while highlighting that these pressures are “global trends” and are impacted by supply chain disruptions and shipping bottlenecks.

As such, the government’s outlook for the Consumer Price Index (CPI) has been revised to increase to 3.3 percent this year, and 3.1 percent in 2022.

“CPI inflation is then expected to gradually normalize to around two percent over the remainder of the forecast horizon, which is consistent with the average rate of inflation in Canada over the last 30 years,” the document reads.

Freeland delivered her speech to unveil her fiscal update virtually after two of her staffers tested positive for COVID-19. On Twitter, she said she had two negative molecular tests Tuesday but out of an abundance of caution chose not to attend in person.

“This economic and fiscal update provides Canadians with a transparent report of our nation’s finances and also targeted investments that will ensure we have the weapons we need to finish the fight against COVID-19, an effort more urgent now than ever with the surge of Omicron,” she said.


Conservative Leader Erin O’Toole responded to the update in the House on Tuesday, citing the 18-year inflation high and arguing that the government is taking advantage of it.

“Inflation is boosting their tax revenues, Mr. Speaker, if you raise the general price level almost five percent, that boost GST revenues by five percent,” he said.

“Canadians are paying the price. Inflation may look good to pad their budget, as it makes it impossible for Canadians to meet their budget.”

NDP Leader Jagmeet Singh meanwhile said the document doesn’t respond to the “seriousness” of what Canadians are going through, mainly referring to the struggles of finding a home.

“There are no real measures to tackle the housing crisis…we would choose people over those that are profiting off the housing market by putting in place those measures that would actually cool the market,” he said.

The government did pitch a host of measures to cool the housing market in the election campaign, including scrapping blind bidding, but these provisions were absent from the update.

“We know housing prices are a real concern, especially for those in the middle class looking to buy their first home. Addressing housing affordability remains a priority for our government. Our work is ongoing. We will take further action in the upcoming budget,” the document reads.

This post is also available in: Tiếng Việt

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