TORONTO – Take stock of the health of Canadian finances and understand if the conditions exist to plan a return from the long-term deficit. These are the two central themes on the eve of the presentation of the new tax update by the federal government, also in light of the additional expenses approved to cope with the Covid-19 emergency and the growing uncertainty linked to the development of the new Omicron variant in Canada and the rest of the world. 

Finance Minister Christya Freeland must however start from not too encouraging facts: in the last fiscal year Canada recorded a record deficit of 354.2 billion dollars, while in the current fiscal year the red budget revolves around 155 billion dollars, a figure that is destined to rise in the coming months. The federal government, in fact, has reiterated how the latest package of measures launched after the vote with the aim of helping Canadian families, workers and businesses in this phase of the pandemic will have a total cost of about 7.4 billion dollars.

The state of emergency, combined with the uncertainty we are experiencing in this fourth wave of the pandemic, could determine a further ballast in the public accounts, with the planned recovery and investment plans that will be postponed sine die, until there is a loosening of the grip of Covid on our economy.

But it is not only the situation related to the pandemic that causes concern: there are other factors that the government will necessarily have to take into account to have an exhaustive snapshot of the state of health of our economy.

Inflation, for example, has reached record levels never seen in the last 18 years: the cost of living – from energy products to food – has a very significant weight on consumer finances and the forecasts made no later than last week speak of a probable growth in inflation also for the first half of 2022.

To this we must add the progressive increase in the cost of houses and, more generally, a real estate market now out of control with bubble risk around the corner.

Finally, and this is now a recurring fact, the direction that the pandemic will take is completely unpredictable: in fact, we cannot fail to take into account the worst scenario, that of an exponential growth of infections linked to the Omicron variant and the consequent lockdowns at the provincial level, as happened throughout the country during the previous waves of the pandemic.

In short, to an already shaky fiscal situation, with the accounts perpetually in the red for two years and with the plans to return from the deficit still on the high seas, a new closure of the economy could be added. A deadly mixture for growth plans and support for the economy, which instead of taking off should once again deal with limitations and restrictions related to policies to contain the contagion. Ultimately, the government has a truly unpredictable challenge ahead of it.