Question Period Note: Fiscal consolidation

• Canada’s rate of fiscal consolidation is the fastest in the G7.
• Budget 2022 includes significant fiscal consolidation.
• The IMF fiscal outlook continues to show Canada as a leader in the G7, with the lowest net debt-to-GDP ratio and the fastest pace of deficit reduction by next year.
• With Budget 2022, the government firmly pivots its focus from broad-based emergency support towards targeted investment that will build Canada’s economic capacity – the best way to make life affordable for years to come.
• The measures in the Affordability Plan, $8.9 billion in total, for those who need it most, is new support, but these measures were built into the last two budgets, and are already accounted for in Canada’s AAA-rated fiscal framework.
FEDERAL PRICE ON POLLUTION
• The direct proceeds from the federal carbon pricing system remain in the jurisdiction where they are collected, and for several provinces, the government’s price on pollution includes an element where proceeds are returned directly to residents, with most households receiving more in payments than the costs they face from the federal price on pollution.

• In terms of the pace of fiscal consolidation, the IMF expects Canada to display the fastest pace among its peers, driven by the termination of support measures together with more normal levels of taxation revenues (Table 1). Indeed, Canada is expected to record the largest improvement in its deficit in the G7 between 2020 (the peak year of pandemic response, when Canada had one of the largest deficits in the G7) and 2023 (when Canada is set to have the second smallest deficit, almost tied with Germany), just ahead of the United States and the United Kingdom.
Table 1: Post-Pandemic Fiscal Consolidation :
Change in Deficit-to-GDP Ratios From 2020 to 2023, G7 Countries
(per cent of GDP)
2020 2023 Change (p.p. of GDP)
(% of GDP) (% of GDP)
Canada 11.4 0.8 -10.54
France 9.1 3.8 -5.30
Germany4.3 0.7 -3.63
Italy 9.6 3.9 -5.75
Japan 9.0 3.5 -5.46
UK 12.8 2.3 -10.43
USA 14.5 4.0 -10.47
G7 Average 11.9 3.3 -8.56
Note: Totals may not add due to rounding.
Source: IMF WEO (April 2022).
• For Canada, the general government (i.e., federal, provincial and local ) deficit is projected to narrow from a peak of 11.4% of GDP in 2020 to 2.2% of GDP in 2022 and 0.8% in 2023, the second lowest in the G7 just behind Germany (Table 2). This would be the fastest pace of deficit reduction from 2020 to 2023 in the G7. Continued improvement in the budgetary balance over the following years is expected to result in a deficit of 0.3% of GDP by 2027.
• After a peak of 33.6% in 2021, Canada’s general government net debt-to-GDP ratio is projected to decline in every year of the forecast horizon but remain 4.5 percentage points above its pre-pandemic level at 27.6% by 2027. Canada’s net debt-to-GDP ratio is expected to remain the lowest among G7 countries and less than one third of the G7 average over the forecast horizon (Table 3).

Table 2: General Government Budgetary Balance Outlook—G7 Countries
(per cent of GDP)
2019 2020 2021 2022 2023 2024 2025 2026 2027
Canada 0.0 -11.4 -4.7 -2.2 -0.8 -0.7 -0.5 -0.4 -0.3
France -3.1 -9.1 -7.0 -5.6 -3.8 -3.4 -3.3 -3.3 -3.3
Germany 1.5 -4.3 -3.7 -3.3 -0.7 -0.1 0.3 0.4 0.4
Italy -1.5 -9.6 -7.2 -6.0 -3.9 -3.3 -3.0 -2.8 -2.5
Japan -3.0 -9.0 -7.6 -7.8 -3.5 -2.5 -2.5 -2.6 -2.8
UK -2.2 -12.8 -8.0 -4.3 -2.3 -1.5 -1.4 -1.3 -1.0
USA -5.7 -14.5 -10.2 -4.8 -4.0 -4.4 -5.2 -5.1 -5.2
G7 Average -3.8 -11.9 -8.4 -4.9 -3.3 -3.3 -3.6 -3.6 -3.6
Note: On a general government basis and National Accounting basis, Canada as a whole posted small surpluses in 2018 and 2019 (it reflected near-balanced budgetary balances at the federal, provincial and territorial, and local and aboriginal levels and the usual surplus at the CPP/QPP level).
Source: IMF WEO (April 2022).
Table 3: General Government Net Debt Outlook—G7 Countries
(per cent of GDP)
2019 2020 2021 2022 2023 2024 2025 2026 2027
Canada 23.1 33.6 33.2 32.1 31.6 31.3 30.8 29.1 27.6
France 88.8 102.6 99.8 100.1 100.4 100.6 100.7 101.0 101.4
Germany 40.5 46.3 49.0 51.1 49.0 47.5 45.7 43.9 42.2
Italy 121.7 141.8 138.3 138.5 137.1 136.0 134.8 133.7 132.6
Japan 151.4 162.4 168.9 172.1 171.0 171.4 172.1 173.2 174.5
UK 74.1 90.2 84.3 76.1 71.3 68.0 64.8 61.9 59.2
USA 83.0 98.7 101.3 95.8 94.9 96.1 99.2 102.4 105.6
G7 Average 86.8 100.8 101.2 97.5 96.2 96.5 97.8 99.2 100.5
Source: IMF WEO (April 2022).
1. The internationally comparable definition of “general government” includes the central, state, and local levels of government, as well as social security funds. For Canada, this includes the federal, provincial/territorial, local and Indigenous government sectors, as well as the Canada Pension Plan and the Quebec Pension Plan.

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