Federal government has spent $576B in new measures since start of COVID pandemic: PBO report

The report casts doubt on the government’s capacity to generate additional revenue or reduce government spending to pay for promises going forward

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Since March 2020, the federal government has spent or planned to spend $576 billion in new measures — but more than a third, $204.5 billion, of this spending has nothing to do with the COVID-19 pandemic according to an analysis by the Parliamentary Budget Officer (PBO).

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In its most recent report released Friday, the PBO took a detailed look at the federal budget and came to the conclusion that Finance officials are painting a rather rosy picture of Canada’s fiscal outlook. It also casts doubt on the government’s capacity to generate additional revenue or reduce government spending to pay for promises going forward.

The report is meant to “assist parliamentarians in their budgetary deliberations”, so expect some of these arguments to come up as the budget makes its way through Parliament.

In the budget presented this year, the PBO calculated $56.6 billion that can be classified as new spending that could be “partially offset” by $25.4 billion in taxes and spending reduction plans.

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It is estimated that almost half of these savings — $11.2 billion — would be generated by recovering more revenues by investing in more resources for the Canada Revenue Agency (CRA) and by reviewing and reducing previously announced government spending.

The PBO, which has been critical of the CRA’s performance in the recent past, has noted that expanding audits “will likely trigger an increase in the number of objections and appeals from taxpayers”. The average delay to process objections from audited returns, according to the Auditor General in 2016, was 1,424 days.

“While the situation might have improved since, there does not appear to be any funding announced in Budget 2022 with respect to objections and appeals,” reads the PBO report.

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The budget introduced $1.2 billion over five years to reinforce the CRA’s capacities, and is expected this new spending to bring in $3.4 billion in tax revenue over that same time period. But with the anticipated objections and delays, the revenue “might not reach the expected level or will take a longer time to materialize” according to the PBO.

As for the reduction in spending — which is expected to save the government $9 billion over four years — the PBO notes that “specific details regarding the scope of the review have not yet been announced” and that “it is unclear” which expenses will be primarily targeted.

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Nonetheless, experts were quick to point out after the budget was tabled that Finance Minister Chrystia Freeland had stayed prudent in the government’s expenses given global uncertainty.

The PBO calculated that the government announced $34.9 billion in new measures since December’s economic and fiscal update, which is far off from the hundreds of billions of expenses that became the new normal in the past two years.

That included $31.2 billion in new measures in the budget specifically, notably for a number of measures on housing that were promised in the Liberals’ election platform such as the Housing Accelerator Fund and the Tax-Free First Home Savings Account.

But there remain several campaign promises that have not made it in this year’s budget, noted the PBO, including the Canada Mental Health Transfer or the increase in the Guaranteed Income Supplement by $500 for individuals and $750 for couples.

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The implementation of the other platform measures, in addition to the promise of pharmacare made to the New Democrats in exchange for keeping the Liberals in power until 2025, “will impact the budgetary balance going forward,” reads the report.

But even without these additional expenses, the deficit could be higher than anticipated.

The PBO’s projected deficits are on average $10.5 billion higher per year than what is mentioned in the budget — having taken into account lower projected revenues in corporate income taxes and a slower reduction of program expenses than anticipated.

Whereas the budget projected a deficit of $52.8 billion this year and lowered at $8.4 billion in five years, the PBO projects the deficit to be $56.6 billion this year and $20.2 billion in 2027.



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