A new study from the Canadian Centre for Policy Alternatives (CCPA) finds that, contrary to what one might think, most provincial economies are in good shape two years into the pandemic which has taken the lives of more than 37,000 Canadians.
The report, Disappearing Act: The state of provincial deficits in Canada, found that “the majority of provinces are either already in a fiscal surplus position or will be in the next fiscal year,” crediting historically low interest rates and stronger provincial debt payment-to-GDP ratios.
Written by CCPA Senior Economist David Macdonald, the study looked at data from the onset of the pandemic up to March 1, 2022. Macdonald found that most provinces “initially overestimated the recession’s impact on revenue and the amount of money they would spend on COVID-19 mitigation efforts.” He credits that miscalculation partially to the “heavy lifting” that Canadians saw from the federal government.
Among the provinces expected to show surpluses either this year or next are British Columbia, Alberta, Manitoba, Quebec, Nova Scotia, and New Brunswick. Altogether, provincial deficits dropped in half in 2020–21 and by two-thirds in 2021–22.
Macdonald writes that even Newfoundland and Labrador, Ontario, and Prince Edward Island should expect a deficit-to-GDP ratio of less than one per cent by the next fiscal year, leaving those provinces in a much better position than projected two years ago.
Saskatchewan, the province in the worst economic position two years into the pandemic – according to the author – will have a deficit-to-GDP ratio at or near just two per cent in the upcoming fiscal year.
Macdonald’s research found that “ongoing deficits past 2022–23 aren’t being caused by the impacts of COVID-19” but by the “policy choice not to collect enough in taxes to cover provincial spending.”
As part of the research, Macdonald compared how provinces fared in the COVID-19 pandemic compared to the last recession in 2009–10.
“While seven out of 10 provinces have higher net debt-to-GDP ratios compared to 2009–10, nine out of 10 provinces are paying less interest in proportion to the GDP, than they were after the last recession, which saved provinces $6 billion in 2021–22 alone.
Feds paid 86 cents of every COVID-19 dollar spent
In an interview with rabble.ca, Macdonald described the report’s goal as revealing who has paid for what in the pandemic. The who being both federal and provincial governments, while the what includes a wide variety of programs that supported both people and businesses stay afloat during COVID-19 lockdowns.
“I wanted to see who was really picking up the tab when it came to COVID expenses on the health care front, but also in other places like financial support for jobs and businesses,” Macdonald explained. “It was largely a federal affair, with the feds picking up 86 cents of every COVID dollar spent.”
Macdonald called the initial projections of massive revenue declines “overly pessimistic,” when in reality, provincial governments aren’t struggling economically from COVID-19. If anything, he added, it’s poor policy choices.
“If you don’t collect enough in taxes to cover your expenditures, you end up with a deficit, but that’s not [the viruses’] fault. That’s a policy choice to not collect enough in revenues,” he explained.
Macdonald pointed to one significant difference between Canada’s response to COVID-19 and the last recession: putting federal dollars back in people’s pockets, “[people] weren’t as hard off as they had been in previous recessions.”
He also believes that as the pandemic restrictions continue to ease, “the economy could roll back to life.”
“Even though the debt is higher, the interest rates are so much lower today,” Macdonald said, compared to the recession over a decade ago. “There’s been so much refinancing longer term at these very low rates that the amount that provinces pay this fiscal year was $6 billion lower than they would have paid in 2009–10.”
‘You can’t blame this on COVID’
Macdonald attributed the “lingering deficits” in Ontario and Saskatchewan to the fact that those two provinces collect the least in revenue from taxpayers. He noted that both provinces provided additional tax cuts in the middle of the pandemic, making up between 10 and 20 per cent of the overall deficits.
“[They] can’t blame this on COVID. [They] chose to do this,” Macdonald said.
Macdonald’s report busts the myth that most Canadian provinces don’t have the financial means to invest in public services like long-term care and health care.
“There’s also other issues that have been on the back burner for the past two years, things like climate change and the housing crisis,” Macdonald said. “Now these priorities are really going to be in competition with corporate income tax cuts.”
“This is going to be a real temptation for governments. Instead of learning the lessons of COVID, they’ve tried tax cuts because it’s more immediate and less work and doesn’t prepare us for future crises in health care and climate change.”