Challenges Ahead: Canada’s Post-Pandemic Fiscal Prospects

This issue briefing examines the fallout of the COVID-19 crisis on the longer-term fiscal situation of the federal and aggregate provincial/territorial governments.

Document Highlights

• The economic crisis caused by the COVID-19 pandemic will have a lasting effect on Canada’s economic performance, lowering profits and labour income—the main sources of revenue for the federal and provincial/territorial governments.
• The federal and provincial/territorial governments will see their total net debt rise to over 95 per cent of GDP after the crisis has passed, levels last seen in the early 1990s when surging deficits led to nearly a decade of fiscal restraint.
• This time around, low interest rates will help the federal government manage its debt load, but the situation for the provinces is bleaker.
• Policy-makers must start planning for the longer term, as provinces and territories will look for additional health transfers from the federal government to cope with their aging populations.
• By 2030–31, the provinces and territories will see the net debt-to-GDP ratio top 53 per cent, in line with that of the federal government and pushing the aggregate net debt-to-GDP ratio to well above 100 per cent.