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Pandemic, oil's collapse taking a toll on economy, watchdog report says

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Current federal spending is sustainable but ceiling has been reduced, watchdog report says

by: Alex Ballingall Toronto Star

Parliament's fiscal watchdog says the federal government now has less room to keep spending in a sustainable way, as the Trudeau Liberals promise expensive new programs like national child care and vow to do whatever it takes to fight the COVID-19 crisis.

In a report published Friday, the Parliamentary Budget Officer (PBO) said the double punch of the pandemic and the collapse of oil prices earlier this year have had a "stark" impact on the Canadian economy.

Friday's update says the current level of spending from Ottawa is sustainable, meaning it won't push the federal debt to "increase continuously." But that's only if the current suite of emergency programs, which have pushed the federal deficit for this year beyond $300 billion, wind down as currently scheduled.

The federal government can now permanently hike spending - through new programs or tax cuts - by $19 billion without pushing its debt beyond pre-pandemic levels over the long term, the report says. That's down from $41 billion in projected spending room on Feb. 27, when the PBO last published a fiscal sustainability report.

The government is already trying to pass another pandemic spending bill in Parliament this week, which seeks to cancel a planned decline in federal wage subsidy payouts and extend the program until next summer. It would also change the government's rent subsidy so commercial tenants can apply directly instead of through their landlords.

On top of that, the Liberal government's throne speech in September promised new spending on "all types of infrastructure" over the next two years, as well as "the largest investment in Canadian history" to train workers and create one million jobs.

It also pledged to speed up work to create a national pharmacare program, as well as create a national child-care and early learning system.

The government is expected to unveil details for its child-care plans in the coming weeks, and some advocates are calling for initial spending of at least $2 billion from Ottawa.

In a written statement to the Star, a spokesperson for Finance Minister Chrystia Freeland defended the government's spending decisions and said Canada is in a "strong fiscal position" relative to other G7 countries.

"Canada has a well-deserved international reputation for smart and prudent fiscal management, which will continue to be the approach of our government," Katherine Cuplinskas said.

Speaking earlier to reporters on Parliament Hill, Prime Minister Justin Trudeau reiterated the government's pledge to spend money to create 1 million jobs and said Ottawa will do what is necessary to help people and businesses get through the crisis.

The Conservatives say the PBO report makes it clear that now is not the time to create new permanent federal programs.

The party's finance critic told the Star that the shrinking fiscal capacity highlighted by the PBO makes Canada "vulnerable" because it will have less room to spend on a future crisis.

Pierre Poilievre agreed Ottawa should keep money flowing to support individuals and businesses during the pandemic, but said a better way to create jobs is to approve new natural resources projects, reduce trade barriers between provinces and scrap measures like the coming clean fuel standard.

But New Democrats see a different risk in the PBO report: that of future program cuts in the name of fiscal prudence. Peter Julian, the NDP's finance critic, said the government should instead heed his party's call for a fairer tax system, which includes the creation of a special "wealth tax" on net worth beyond $20 million and a new tax on "excess profit" that corporations have reaped during the pandemic.

2020 Toronto Star (ON)

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