Digging Out of the COVID-19 Fiscal Hole: Canada’s Fiscal Policy Outlook to 2040

This annual economic forecast presents Canada’s long-term fiscal policy outlook.

Documents Highlights

• In response to the COVID-driven economic crash, governments resorted to unprecedented levels of stimulus and income support in an effort to help individuals and businesses stay afloat. Digging out of this historic fiscal hole will be the main focus of governments over the next two decades.
• Prior to the pandemic, Canada was already facing serious headwinds from population aging. Older cohorts place more demand on governments for benefits and services, such as Old Age Security and health care.
• At the same time, population aging will slow revenue growth, adding further pressure to government budgets.
• While rock-bottom interest rates will help alleviate some of the pressure from debt repayment charges, governments will have to limit their spending if they hope to keep their debt at controllable levels over the long term.
• Unsurprisingly, the federal government and the collective provincial governments will remain in deficit for the next two decades. We expect the federal balance to improve over that period, but the provinces will struggle to keep their deficits under control over the next 20 years.