Compared with expectations, Ontario saw $2.7-billion more revenue and $6.5-billion less in expenses – which should knock the 2020-21 deficit down to $29.3-billion from $38.5-billion.Chris Young/The Canadian Press
As the worst of the pandemic recedes, here’s some good news: The financial wallop that COVID-19 laid on the fiscal books of Canada’s biggest provinces is less severe than forecast.
British Columbia is the latest to report a better-than-expected fiscal picture as it closes its books on 2020-21. Thanks to revenues that came in higher than predicted, and emergency expenses that were lower, the province’s official deficit for 2020-21 is $5.5-billion. That’s well below the $8.1-billion shortfall forecast four months ago, and less than half the $13.6-billion deficit pencilled in last December.
These numbers landed at the end of July, when B.C. published its 2020-21 public accounts, for the fiscal year ended March 31. It’s usually a little-noticed annual exercise, because by the time the official numbers arrive, it’s already the second quarter of the next fiscal year, and everyone is looking ahead. Normally, there isn’t much variance between the final tally and earlier estimates. But these are not normal times. In only a few months, B.C.’s picture shifted dramatically – for the better.
And B.C.’s good news extends a positive (or less negative-than-expected) fiscal run in most other provinces. Saskatchewan, Quebec, Alberta and Ontario are all showing the same trend – higher revenue than originally expected, and lower emergency expenses. Yes, there are still many billions of dollars in extra red ink on 2020-21′s ledgers. No, the fiscal condition of the provinces is not ideal. (The worst off, thanks to prepandemic megaproject megalomania, is Newfoundland and Labrador.) But the pandemic’s fiscal blow has proved less brutal than feared.
National Bank Financial economists say the “striking improvement” in the provinces’ fiscal state is two-thirds attributable to emergency spending that didn’t max out as high as expected, and one-third to higher-than-expected tax revenues, thanks to an economic slowdown that wasn’t as slow it could have been. (Why wasn’t the recession deeper? Massive government income-support programs, mostly from Ottawa, which kept Canadians solvent and spending.)
In Ontario, where public accounts are usually released in late summer, the province’s Financial Accountability Office provided a preview in July. Compared with expectations, Ontario saw $2.7-billion more revenue and $6.5-billion less in expenses – which should knock the 2020-21 deficit down to $29.3-billion from $38.5-billion.
B.C.’s numbers detail how and why these swings happened. The province had budgeted $7.8-billion for COVID-19 contingencies. A lot of that was spent, on everything from health care and education to social services – but not all of it. B.C. also booked $3-billion more in tax revenue than it expected last December. The slowdown was less deep than feared; more people with higher incomes than originally forecast led to higher income tax revenues and, with a booming housing market, more in property transfer taxes.
More good news: If Canada can keep a lid on the fourth wave, the economic forecast is strong. National Bank Financial looked at expectations for economic growth in 2021-22 provincial budgets, and argues the Canadian economy is likely to outperform them. In Ontario, for example, the province built a budget around estimated nominal economic growth of 6.2 per cent in calendar 2021. National Bank Financial thinks 10 per cent is the more likely figure. That would mean more people working, higher tax revenues, lower emergency spending and, when you add it all up, a smaller deficit.
On the federal level, the public accounts do not land until the fall – but given the trend among the largest provinces, it is a reasonable bet that Ottawa’s 2020-21 could also look a little less bad in the final accounting.
While there is less negative economic news in the rear-view mirror, and reason to hope for more positive economic news in the months to come, the current reality still involves widespread economic pain. The unemployment rate in June was 7.8 per cent, down from 8.2 per cent in May. It’s progress, but Canada has recovered only nine out of 10 jobs lost in the pandemic. There remains the threat of a fourth wave. Even if Canada beats it, it could still have an economic impact if it hits hard at our trading partners, notably the United States.
But there are many reasons to hope the ongoing recovery can be sustained. Pandemic debts are big, and the provinces are all carrying much more red ink than in 2019. A period of long, strong growth is the best way to lighten the load.
Keep your Opinions sharp and informed. Get the Opinion newsletter. Sign up today.