Making sense of Canada’s $381.6 billion federal budget deficit
The Trudeau government this week published its fall fiscal update for 2020. The headline-grabbing number emerging from the report was the government’s forecasted budget deficit for the year—$381.6 billion.
As is often the case when it comes to discussing government finances, this is such a large number that it’s almost impossible to wrap your head around and comprehend. For most of us it is, literally, an unfathomable amount of money.
So in this post we provide a few different ways to think about what $381.6 billion means using comparisons to other high-value items and expenditures we’re more used to thinking about, in an effort to provide context on what this huge number really means.
Consider that in 2008/09, Canada went through a steep recession that helped produce by far the largest deficit (both in nominal terms and as a share of GDP) since the fiscal consolidations of the mid-1990s. The federal government would go on to run a budget deficit in every subsequent year. In the 12 straight deficit years beginning in 2008/09, Ottawa’s cumulative deficits totalled $282.3 billion in 2020 dollars. In other words, this year’s deficit is (in real terms) 35.2 per cent larger than all the deficits run during and in the decade following the “Great Recession” of 2008/09.
Here’s a second way to understand the scale of this year’s $381.6 billion deficit. During 2019, the federal government’s total revenue was $334.1 billion while the budget deficit for fiscal year 2019/20 was $39.4 billion. If you add these totals together, you get $373.5 billion—almost exactly the same number as this year’s deficit. This means that this year’s deficit is almost exactly as large as it would be in a normal year if the federal government collected no revenue at all. Put differently, if Ottawa declared a complete tax holiday last year, it’s deficit for 2019/20 would have been approximately as large as the actual deficit this year.
Here’s one more. Consider Canada’s ever-controversial equalization program. Equalization is a federal program that distributes money from general federal revenues to some lower-income provinces to help ensure all provinces can provide comparable government services at comparable rates of taxation. Equalization is a major source of revenue for the five “have-not” provinces (all three Maritimes provinces, Quebec and Manitoba). The program comprises more than 10 per cent of all provincial revenue in all recipient provinces. Meanwhile, the program is such a source of consternation in Alberta that Premier Jason Kenney has promised some sort of “equalization referendum” in the autumn of 2021.
So equalization is a large federal program ($20.6 billion in 2020) that provides a substantial share of government revenue to half of the provinces in Confederation. However, eliminating the entire equalization program this year would reduce the federal deficit by only 5.4 per cent. This means that, even if hypothetically, this large and controversial program, which plays such an important role in the finances of five provinces, was eliminated entirely, this year’s federal deficit is so large the savings would be negligible in percentage terms.
The study and discussion of government finances generally involves almost incomprehensibly large numbers. That’s especially true this year, with Ottawa’s $381.6 billion deficit. In this short post, we’ve tried to provide context for understanding the scale of this year’s deficit, by noting historic debt accumulation in Canada’s past, overall tax revenue collected in a normal year, and the lifetime cost of equalization.
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