The top lenders of the country are sending a message to the Trudeau government, warning that the massive budget deficit will have future consequences.
On Thursday, Finance Minister Chrystia Freeland held a call with chief executives from the nation’s biggest banks, according to Bloomberg. The call was to discuss economic outlook and potential policy that may be relevant to the Throne Speech scheduled for September 23. Freeland was informed that while low interest rates assist the economy, the government have more to address debt in the budget.
Chrystia Freeland was abruptly chosen as Finance Minister after Bill Morneau stepped down to due to the WE Scandal. Upon naming Freeland as the new Finance Minister, Trudeau suggested he plans to keep deficits historically elevated. While this element is going to be relevant to the Throne Speech, some lenders voiced their concerns.
“There’s no specific line in the sand for how high the government’s debt-to-GDP ratio can go, but the sky is not the limit,” Royce Mendes, an economist at Canadian Imperial Bank of Commerce, said by phone.
“Frankly, I am a little bit concerned about some of the messaging we’ve heard from Ottawa in recent weeks about using this ‘golden opportunity’ to launch all kinds of new spending,” Doug Porter, chief economist at Bank of Montreal, said by phone.
Others see a higher ceiling for the economy. In a report released on Monday, Bank of Nova Scotia economists Jean-François Perrault and Rebekah Young, suggested the debt ratio could jump to as high as 65 percent, which would give the Trudeau Liberals the ability to run deficits reaching $500 billion.
It remains to be seen how the general public will view the soaring debt. A new Ipsos poll carried on behalf of MNP LTD has found that four in ten (43 percent) Canadians are still experiencing fiscal disruption as a consequence of COVID-19. According to the same survey, about one in ten Canadians currently receiving COVID-related benefits (11 percent, +5) indicate they will declare bankruptcy if the financial support ends. With this in mind, the Liberal government may feel confident in their Throne Speech, in regard to further economic measures.
The Parliamentary address is scheduled for September 23rd, where the Trudeau government is suspected to unveiled future plans for the economy.
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