Government Continues Spending As Federal Deficit Grows To $381.6 Billion

Ottawa is keeping the spending taps open.

The government of Prime Minister Justin Trudeau announced plans for another dose of stimulus spending and vowed to prop up the domestic economy for as long as needed.

Finance Minister Chrystia Freeland unveiled $51.7 billion of new spending over two years in a mini-budget announced in Parliament on Monday. The bulk of the new spending will be directed to an enhanced wage subsidy program for business.

Freeland also pledged another $100 billion of additional stimulus spending over three years to spur the recovery from Covid-19. That spending isn’t in the fiscal framework, with the Finance Minister promising to deliver it as needed going forward.

The federal government also revised higher the nation’s projected deficit this year to $381.6 billion, or 17.5% of gross domestic product (GDP). That’s up from a deficit of 1.7% of GDP last year. No major economy will show a bigger fiscal swing in 2020 than Canada, according to the International Monetary Fund (IMF).

In total, spending linked to the government’s Covid-19 response accounted for $275 billion of this year’s deficit, and $51 billion next year. Based on Monday’s projections, the deficit is seen gradually narrowing to about $51 billion in two years and $25 billion by 2025.

The government announced that its marquee wage subsidy program will cover as much as 75% of payroll costs for businesses and the extension of commercial rent subsidy and lockdown support top-ups until the end of March 2021.

The government also detailed some help for the tourism sector, including funding for airports. But there was no specific money announced for airlines such as Air Canada (TSX:AC) and WestJet Airlines (TSX:WJA).

The Canadian dollar weakened slightly following the government’s release of the budget update and was trading at $1.30 per U.S. dollar at 4:45 p.m. Bond yields were little changed.