Ottawa is not only taking over the potential debts of Canadians, but has borrowed tens of billions of dollars to fill their bank accounts

Federal liberals defended their record-breaking deficit spending during the pandemic on the rationale that the government is getting into debt so Canadians don’t have to, a reasoning that emerged again in Monday’s economic update.

But Ottawa continues to drastically exceed that limit, with household income data released Tuesday showing emergency support programs launched to cushion the economic blow from the coronavirus have outweighed the loss of earnings since late March. Ottawa is not only taking care of Canadians’ potential debts, it has borrowed tens of billions of dollars to replenish their bank accounts.

Data from Canadian statistics shows that primary household income, or private sector earnings, barely fell between the first quarter of 2020 and the third quarter, only dropping 1%, or $ 15.2 billion, to reach $ 1. , 52 trillion. But transfers from the government, which include existing programs like labor insurance plus new coronavirus-era programs, have made up for that decline many times over. Those transfers increased by $ 103.8 billion from Q1 to Q3, meaning the government actually gave households nearly $ 7 for every dollar of private sector income lost. These figures are seasonally adjusted and reported on an annualized basis.

Once the other costs were taken into account, household disposable income increased by 7.6 percent between the first and third quarters, while it decreased slightly compared to the second quarter, when the imbalance between income losses and public transfers was even greater. Canada is virtually the only one to see such an increase in household income, with only the United States coming close to such an increase. (Both countries placed much more emphasis on sending funds to individuals rather than on wage subsidies that were at the heart of policy in other advanced economies.)

For some economists, the extra billions of dollars sent to households are evidence that the new income support programs are simply too generous and exceed the goal of protecting Canadians from economic catastrophe. “We’ve probably gone too far with too much expense,” said Jack Mintz, a colleague of the president at the University of Calgary School of Public Policy.

However, economist Armine Yalnizyan said the support payments outweighed the loss of income was justified by the need to keep workers at home during the pandemic. That need persists, he said. “We haven’t gotten over the pandemic,” said Ms. Yalnizyan, an Atkinson colleague on the future of workers. “The fall is not the time to stop it.”

Mr. Mintz said the overpaying likely stems from the Canada Emergency Response Benefit facility, which paid $ 500 lump-sum payouts to qualified recipients regardless of their earned income. This meant that low-paid workers, especially those with part-time jobs, could see their incomes rise. The self-employed only needed to certify that they had lost at least half of their income, giving them the opportunity to add CERB payments on top of their remaining earnings and thus increase their total income. One caveat: Statistics Canada figures don’t take into account the taxes that CERB recipients will eventually have to pay, though Mr. Mintz said he believes Ottawa will eventually feel the pressure to waive those tax debts.

Statistics Canada data does not break down quarterly household income data by income levels. But a Bank of Canada research paper released last week said CERB has more than replaced the lost wages of low-paid workers.

Liberals attempted to reduce income support when they launched Canada Recovery Benefit this fall, initially proposing a $ 400 payment plan for the program launched on October 1. But that low was pushed back to $ 500 after discussions among minority government liberals. and the NDP.

But the government gave no indication on Monday that it plans to scale back the CRB or other income support programs. Instead, he said the resulting extra savings were “a preloaded stimulus that Canadians will be able to deploy” to revive the economy, while saying rapidly rising federal debt levels are sustainable due to low interest rates. .

Benjamin Tal, deputy chief economist at CIBC World Markets, said it’s true that key interest rate cuts earlier this year pushed funding costs down for the federal government, even with record deficits. . But he warned that the government cannot simply assume it will remain true. Interest rates could rise and markets could demand rewards for jurisdictions that have riskier tax paths. “Sustainability also means potential risk,” he said.

Rebekah Young, director of fiscal and provincial economics at the Bank of Nova Scotia, also questioned the government’s assurances that her debt load is sustainable, while acknowledging that debt costs are low at the moment. One concern is spending beyond what is contained in the economic update. For example, costs for general engagements in the Speech from the Throne such as drugstore and a larger federal role in childcare are not included.

The assumption that interest rates will only slowly rise from their historic low levels may be overly rosy, he said, noting that the September private sector economic forecast used in Monday’s economic update was prepared before viable vaccines emerged. Those vaccines could shorten the pandemic and boost economic growth – good news, but a trend that could rekindle concerns about inflation and drive up interest rates. Likewise, the possibility of a breaking of the impasse on US economic stimulus could further fuel concerns about growth and inflation.

But Ottawa’s most volatile issue may be the assumption that markets will not react to rising debt levels in Canada. Ms. Young said there is currently little danger of international lenders asking for higher interest rates on Canadian-issued debt due to perceived tax risks. But that could change if other countries begin to pull back fiscal stimulus and chart a path to smaller deficits and Canada has not yet come up with a plan. “Nobody knows what the ceiling is,” he said. “Once you are there, you will know and it will be too late.”

Tax and Spend is a weekly series that examines the intricacies and oddities of taxation and public spending.