Canada update of economic and fiscal projections

In the near-term, this is driven by the faster-than-expected economic recovery in the second half of Over the longer-term, an improvement in the outlook for the labour market, personal income and corporate profitability drive revisions to personal and corporate income tax revenues. Program expenses, particularly major transfers to persons and direct program expenses, are projected to be significantly lower in relative to FES , largely reflecting the revised timing and re-estimation of the cost of COVID-response programs, such as the Canada Emergency Response Benefit.

Public debt charges have increased to reflect higher expected interest costs on interest-bearing debt due to higher interest rates, and a revised financial requirement. This is in spite of the substantial increase in federal debt as a result of the pandemic. This limited growth reflects the negative impact of the COVID crisis on household incomes, partly compensated by measures put in place by the government to support income. For the remainder of the forecast, PIT revenue growth is expected to return to an average of 4.

Corporate income tax CIT revenues are projected to decrease by 7. The decline is driven by lower corporate profitability and general economic weakness due to the impact of COVID Starting , CIT is expected to rebound and grow at an average rate of 7. Non-resident income tax revenues are income taxes paid by non-residents on Canadian-sourced income, notably dividends and interest payments.

From on, growth is expected to return to an average of 4. Over the remainder of the projection period, GST revenues are forecast to grow by 4. Over the remainder of the horizon, customs import duties are projected to grow at an average annual rate of 6. The new digital services tax DST is expected to be in effect as of January 1, Over the remainder of the projection horizon, premium revenues are anticipated to grow at an average annual rate of 7.

The government will continue to review premium rates following the results of its consultations on future EI reforms over the course of the next year and where the labour market stands further on in the recovery.

Other revenues consist of three broad components: net income from enterprise Crown corporations; other program revenues from returns on investments, proceeds from the sales of goods and services, and other miscellaneous revenues; and revenues in the Exchange Fund Account.

These projections reflect the outlooks presented in corporate plans of respective enterprise Crown corporations, including the impact of COVID on profits, and the impact of Bank of Canada programs introduced during COVID, including purchases of Government of Canada securities on the secondary market to support liquidity in financial markets.

Other program revenues are affected by consolidated Crown corporation revenues, interest rates, inflation and exchange rate movements which affect the Canadian-dollar value of foreign-denominated assets.

These revenues are projected to decline by Over the remainder of the forecast horizon, these revenues are projected to grow at an average annual rate of Net foreign exchange revenues, which consist mainly of returns on investments held in the Exchange Fund Account, are volatile and sensitive to fluctuations in foreign exchange rates and foreign interest rates.

These revenues are projected to decrease in due mainly to lower interest rates. As such, EI-related revenues and expenses that are credited and charged to the Account, respectively, in accordance with the Employment Insurance Act, are consolidated with those of the government, and impact the budgetary balance. For consistency with the EI premium rate, which is set on a calendar-year basis with the objective of having the Account break even over time, the annual and cumulative balances of the Account are also presented on a calendar-year basis.

The EI Operating Account is expected to record annual deficits from to as a result of the increase in EI benefits excluding the Emergency Response Benefit and the temporary freeze on EI premiums through The increases reflect the practice of the rate-setting mechanism that started with the setting of the premium rate. Table A1.

Program expenses consist of three main categories: major transfers to persons, major transfers to other levels of government, and direct program expenses. The government has committed to crediting the EI Operating Account for costs resulting from the Emergency Response Benefit, which means that they will not result in higher future EI premiums.

After which, EI benefits are forecast to grow at an average of 2. The CST is legislated to grow at 3 per cent per year. Operating expenses reflect the broad range of day-to-day costs of government operations for more than government departments, agencies and Crown corporations. This includes spending related to the procurement of vaccines and personal protective equipment in response to the crisis. These losses were due mainly to lower long-term interest rates used to value the obligations, as well as increased costs associated with the utilization of disability and other future benefits provided to veterans.

Over the horizon, net actuarial losses are forecasted to decline reflecting the increase in projected long-term interest rates. The budgetary balance is presented on a full accrual basis of accounting, recording government revenues and expenses when they are earned or incurred, regardless of when the cash is received or paid. These include changes in federal employee pension liabilities; changes in non-financial assets; investing activities through loans, investments and advances; and changes in other financial assets and liabilities, including foreign exchange activities.

As shown in Table A1. A financial source is projected for pensions and other accounts for to The financial source for pensions and other accounts largely reflects adjustments for pension and benefit expenses not funded in the period.

Financial requirements for non-financial assets mainly reflect the difference between cash outlays for the acquisition of new tangible capital assets and the amortization of capital assets included in the budgetary balance. They also include disposals of tangible capital assets and changes in inventories and prepaid expenses. They also include loans, investments and advances to national and provincial governments and international organizations, and under government programs, including the Canada Emergency Business Account CEBA.

The projected financial requirements for and mainly reflect the disbursement of loans under CEBA and loans advanced to enterprise Crown corporations under the consolidated borrowing framework. A financial source is projected for , largely reflecting the expected repayment of CEBA loans.

Financial requirements are projected from to , reflecting retained earnings of enterprise Crown corporations, as well loans provided to Crown corporations and third-parties. In general, loans, investments and advances are expected to generate additional revenues for the government in the form of interest or additional net profits of enterprise Crown corporations, which partly offset debt charges associated with these borrowing requirements.

These revenues are reflected in projections of the budgetary balance. Other transactions include the payment of tax refunds and other accounts payable, the collection of taxes and other accounts receivable, the conversion of other accrual adjustments included in the budgetary balance into cash, as well as foreign exchange activities.

A financial source is projected for , primarily reflecting adjustments for accrued expenses not paid in the period and non-cash exchange rate impacts. There is still a large amount of uncertainty regarding the ultimate path of the recovery and the eventual return to normal economic activity.

The outlook continues to be shaped by the path of the virus and its variants as well as by the vaccination rollout. Indeed, the Canadian economy was more resilient during the second wave than the initial wave, suggesting that Canadian households and businesses have adapted to operating under public health restrictions.

To illustrate the consequences of different health outcomes and the associated responses of households and businesses, the Department of Finance has considered two alternative scenarios to the projections of the private sector economists which reflect downside and upside risks to the outlook.

In this scenario, new and more contagious variants of the virus broaden their circulation in Canada, leading to tighter restrictions on businesses vulnerable to social distancing and a delay in the reopening of borders e. While these restrictions would be less severe than those assumed in previous downside scenarios, activity restrictions induce Canadians to consume less and add further to their accumulated savings.

Further, this scenario assumes that vaccine supply disruptions delays the projected roll out, and assumes vaccines have less efficacy against new variants.

In this scenario, getting a critical mass of Canadians vaccinated would take until the end of the year either due to the rise of new variants or some delay in getting the second dose for the two-dose vaccines, resulting in delays of the return to normality. Overall, the downside risks scenario suggests a reduced pace of growth over the second and third quarters compared to the March survey outlook, with the recovery accelerating in the final quarter of This reduces the rebound in real GDP to around 5.

This is still faster than the baseline forecast for of the Fall Economic Statement, which expected growth of 4. Most importantly, COVID related deaths and hospitalizations plummet rapidly as vulnerable populations are vaccinated. With hospital capacity restored, provinces are able to quickly lift the most stringent public health and border restrictions e. Public fears of the virus start to recede by the spring and a more robust rebound occurs in the hospitality sector, quickly lifting employment and economic activity.

Further, the prospect of significant fiscal stimulus and a faster vaccination rollout in the U. Overall, the upside risks scenario suggests much faster growth in the first half of this year compared to the March survey forecast, with growth slowing thereafter, resulting in a rebound of about 6.

The potential impact of these alternative scenarios on the projected federal deficit and debt-to-GDP ratio is shown in Chart A1. Under this scenario, inflation is expected to reach a peak of 2. Notably, in all cases, the debt-to-GDP ratio forecasted here is lower across the planning horizon than the upper limits projected in the Fall Economic Statement, including the impact of planned stimulus.

This reflects a generally better economic environment against which the recovery may unfold faster or slower. Changes in economic assumptions affect the projections for revenues and expenses. The following tables illustrate the sensitivity of the budgetary balance to a number of economic shocks:. These sensitivities are generalized rules of thumb that assume any decrease in economic activity is proportional across income and expenditure components, and are meant to provide a broad illustration of the impact of economic shocks on the outlook for the budgetary balance.

The sensitivity analysis conducted in this section has been presented routinely in budgets since , and is separate from the scenarios for a faster or slower recovery presented earlier in this Annex. Fiscal updates and the Budget often contain action items that directly and indirectly affect newcomers.

Government policies on a variety of issues including job creation, health care, education, infrastructure, child care, and more impact all those who live in Canada, including immigrants. Sometimes the action items are tailored to immigration, as was the case in Budget In her new address, Freeland went over the policy measures the government was pursuing to allow Canada to recover economically and socially from the pandemic.

Our government is committed to bringing in , immigrants in , the highest number in Canadian history. This remark stresses the Canadian government remains committed to achieving the ambitious targets set under the Immigration Levels Plan In addition, Freeland alluded to the need to reduce immigration application processing times.

Application backlogs have grown during the pandemic. Earlier this year, Budget contained five significant pledges on immigration, some of which have already come to pass such as the funding for the Temporary Residence to Permanent Residence TR to PR pathway. Budget also called for the replacement of the outdated Global Case Management System GCMS , which processes citizenship and immigration applications.

It also suggested the government is looking to reform Express Entry , giving the immigration minister more authority to select candidates based on labour market needs, although further details are not yet available. The additional funds would increase employer compliance inspections to prevent worker mistreatment, and supporting vulnerable foreign workers by allowing them to get open work permits if they were abused by their Canadian employers.