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The COVID-19 pandemic has further muddied its longer-term fiscal plans, after Ottawa funnelled vast amounts of cash to businesses and people to keep them afloat during economic restrictions. It is now projected to run a $343 billion deficit next year.
“I think we have at a minimum given up enormous flexibility in our options,” Manley said in an interview. “We’ve done the right thing by protecting people’s incomes and keeping businesses alive. But it’s not without cost,” he said.
Higher spending and economic lockdowns caused Ottawa’s net debt as a percentage of GDP to balloon, from 30 per cent to around 49 per cent today. It was around 66 per cent in the 90s.
The C.D. Howe report on Tuesday said that reducing Canada’s debt-to-GDP ratio by just one per cent per year would require Ottawa to trim spending by five per cent annually, beginning in 2022.
Adding to Ottawa’s fiscal woes are demographic challenges: Canada’s aging population is expected to put strain on the healthcare system in coming years, raising expenditures. Elderly benefits, which already make up Ottawa’s single-largest expense, are expected to nearly double to $99 billion by 2030, according to a report by Royal Bank of Canada earlier this year.
We have at a minimum given up enormous flexibility in our options
In a separate report Tuesday, the Fraser Institute estimates that elderly benefits transfers and other seniors costs could inflate the federal debt-to-GDP ratio to as high as 69.6 per cent by 2050, if spending elsewhere is not curbed.
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