12.7 Covid 19 and Fiscal Policy

In March 2020, the World Health Organization classified the outbreak of COVID-19 disease as a global pandemic. In response, as reported by the Ministry of Finance, the Canadian government enacted emergency measures to combat the spread of the virus and announced the COVID-19 Economic Response Plan to help stabilize the economy during the pandemic. This was a part of their Expansionary Fiscal Policy. The emergency measures introduced by the government are intended to protect the health and safety of Canadians and provide direct support to Canadian workers and businesses. Legislation was enacted to provide the government with additional borrowing authority to fund the response to the crisis. Between April 1 and July 2020, the government increased its debt by $323 billion to meet the government’s projected financial requirements under the Economic Response Plan up to that date. The reported budgetary deficit was $327.7 billion for the fiscal year ending March 2021. Federal revenues decreased in 2021 compared to 2020, largely due to the economic impacts of the COVID-19 crisis on both employment levels and business activity. Compared to the 2019–20 fiscal year, revenues decreased by $17.7 billion, or 5.3 percent, in the 2020-2021 fiscal year, primarily reflecting lower excise taxes and duties, particularly due to COVID-19 shutdowns and the one-time enhanced Goods and Services Tax (GST) credit payment.

As of the financial year ending in March 2022, the government posted a budgetary deficit of $90.2 billion compared to a deficit of $327.7 billion in the previous fiscal year, which was primarily due to an increase in tax revenues as the economy reopened and markets started functioning normally during the most of 2021.