The Economic and Fiscal Update 2021 projects a lower budget deficit of $144.5 billion compared to the previous forecast of $154.7 billion. Inflation has skyrocketed to 7.6% in 2021, much higher than the 3.6% projected previously. While the economy has recovered and surpassed pre-pandemic job levels, inflation remains a major concern driven by global supply chain issues. The update allocates billions for continued COVID-19 response and Indigenous reconciliation but provides little information on long-term growth plans.

1. Canada’s Economic and Fiscal
Update 2021: COVID-19 is Producing
Debt and Inflation for All
December 15, 2021
1
Prepared by:
Michael Rowell, Lead Research Analyst –
Digital Technologies
Rustam Nurbekov, Research Analyst

2. Economic and Fiscal Update 2021
2

3. Economic and Fiscal Update - Key Takeaways
The expected budget deficit is lower than
previously forecasted in Budget 2021, dropping
from $154.7 billion to $144.5 billion.
New budget items include billions on pandemic-
related spending over six years and $40 billion
on addressing Indigenous issues.
Inflation has skyrocketed to 7.6% in 2021, up
from the projected 3.6% in Budget 2021
3
Source: Economic and Fiscal Update 2021

4. “This update is exactly that, an update, designed to buy some time ahead of the
2022 budget. The better revenue picture is largely due to a stronger nominal GDP
growth due to inflation. That will not last long. It provided the government with some
unexpected flexibility regarding new spending. The update is under the fog of
COVID and therefore does not provide any real info about some of the government’s
big plans on taxation and the environment.”
-Bejamin Tal (Deputy Chief Economist at Canadian Imperial Bank of commerce)
4

5. Short-term Provisions in Economic and Fiscal Update 2021
The fiscal outlook includes two provisions in 2021-22 for
expected short-term cost for unfolding events:
• $4.5 B - the estimated cost of responding to the Omicron
variant, including possible increased use of the
government’s support programs, particularly the
lockdown support measures, additional border testing
and health measures; and
• $5 B - an early estimate of the federal government’s
share of recovery costs under the Disaster Financial
Assistance Arrangements as well as other costs related
to the recent natural disasters in British Columbia
Source: Economic and Fiscal Update 2021 5

6. Addressing Past Harm and Discrimination
The government has provisioned $40 B to respond to the order of the Canadian Human Rights
Tribunal, compensate for harms by the First Nations Child and Family Services program and for
delays or denials in needed children’s services, and support long-term program reforms to make sure
communities have the support they need to keep families together.
-20
-15
-10
-5
0
5
10
2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27
Expenditures Addressing Past Harm and Discrimination, Less Funds Previously
Provisioned
Addressing past harms and discrimination related to First Nation child welfare Less: Funds previously provisioned in the
fiscal framework
6
Source: Economic and Fiscal Update 2021

7. Chapter 1. Finishing the Fight Against COVID-19 (AGAIN)
Some measures to fight COVID and
support the economy include:
• Vaccine Mandates — Making Travel
Safer – a total of $37 million over the
next 3 years
• Additional COVID-19 Therapeutics
Procurement – a total of $2 billion over
2021-22 and 2022-23
• Immigration to Grow Our Economy and
Welcome New Canadians - $85 million
investment in 2022-23
• Expanding Resettlement Efforts to Bring
More Afghans to Safety - $1.3 billion
over six years
7
Source: Economic and Fiscal Update 2021
Categories ($M) 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 Total
Continuing to Keep
Canadians Safe from
COVID-19
3,046 4,327 2,857 498 489 489 11,705
Supporting Canadians
and Canadian
Businesses Through
the Recovery
9,996 2,629 428 300 147 134 13,633
Additional
Investments
0 892 46 46 46 46 1,077
Policy Actions since
Budget 2021
9,726 4,344 2,753 491 489 489 18,293
New Measures in
Chapter 1
3,315 3,503 577 353 194 180 8,122
Chapter 1 - Net Fiscal
Impact
13,041 7,847 3,331 844 683 670 26,416

8. $631 B Later and Canada has Accomplished What?
346 85.1 80.6
86
31.5 2.6
0
50
100
150
200
250
300
350
400
450
500
Direct Measures to Fight COVID-19 and Support People Tax and Payment Deferrals Credit Support
The Economic Response to COVID-19 ($ B)
Federal Provincial and Territorial
The federal government has spent $511.6 B on COVID-19 relief measures as of Dec. 14, 2021. With additional
$120.1 B provided to Canadians by Provinces and Territories this brings total spending on COVID support to
$631.7 B.
8
Source: Economic and Fiscal Update 2021

9. Chapter 2. The Road to Recovery
As of the third quarter of 2021, Canada’s real GDP is only 1.4 per cent below its pre-pandemic level and
is expected to reach its pre-pandemic level by the first quarter of 2022. OECD projections suggest that
by 2023, Canada’s recovery will be the second fastest in the G7.
9
Source: Economic and Fiscal Update 2021

10. Canada’s Solid Job Creation
At the height of lockdowns, 3 million Canadians lost their jobs and another 2.5 million Canadians were working
significantly reduced hours—in total about 30 per cent of the pre-pandemic workforce. Initially, the labour
market bounced back quickly, recouping 80 per cent of the jobs lost by November 2020. By October 2021,
Canada has surpassed its pre-pandemic job totals.
10
Source: Economic and Fiscal Update 2021

11. “On behalf of CCI’s members, we had hoped to see measures to enhance the pool
of highly skilled talent available to domestic technology companies. Our members
had also hoped to see early steps on streamlining and modernizing the
cornerstone innovation funding program in Canada, the scientific research and
experimental development tax credit, which both the government and the official
opposition have recently advocated for.”
- Ben Bergen (Director of Canadian Council of Innovators)
11

12. Investments to Help Canadians Afford the Cost of Living
“The government is focused on supporting families,
growing the middle class, and improving
Canadians’ standard of living, and making
significant investments to help Canadians afford the
cost of living. This includes sizeable structural
investments in early learning and child care and
housing.”
12
Source: Economic and Fiscal Update 2021

13. Chapter 3. Fiscal Update - A (IR)Responsible Fiscal Plan
“Finishing the fight against COVID-19 remains the single
best way to secure a strong economic recovery, for
everyone. The government is prudently managing federal
finances to help preserve fiscal firepower for future
challenges and crises, and ensure that future generations
are not burdened with COVID-19-related debt.”
13
Source: Economic and Fiscal Update 2021

14. “The statement hinted the government will use some of its new-found fiscal room (i.e. a
debt-to-GDP ratio that’s 4 ppts lower than previously projected) to ‘support Budget 2022
investments that will help boost long-term growth.’ We’re cautious on that … point, as we
had to look pretty far down the list of campaign promises to find measures specifically
targeting growth. … We think innovation policy, climate and infrastructure funding, IP
strategy, tax competitiveness, attracting talent and improving education and lifelong learning
can help move the needle on Canada’s sluggish potential GDP growth. Today’s update
shows the extent to which a stronger economy can improve the fiscal outlook, which we
hope will motivate the government to focus on measures that grow the economy on a
sustained basis.”
-John Nye (Senior Economist at Royal Bank of Canada)
14

15. The Sorry State of Canada’s Budget
-327.7
-144.5
-58.4
-43.9
-29.1 -22.7
-13.1
42
43
44
45
46
47
48
49
-350
-300
-250
-200
-150
-100
-50
0
2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27
Canada’s Budgetary Balance ($B)
Budgetary Balance Budgetary balance (per cent of GDP)
The budgetary deficit for 2021-2022 is forecasted to be 144.5 billion, increasing the federal debt-to-GDP ratio
to 48%. From 2020 to 2027, the projected cumulative budget deficit will be $639.4 B.
15
Source: Economic and Fiscal Update 2021

16. Bad News…We will be Servicing Debt Forever!!
16
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
0
50
100
150
200
250
300
350
400
450
%
OF
TOTAL
GOVERNMENT
REVENUE
$
BILLION
FISCAL YEAR
Federal Revenues Versus Debt Charges ($B), Canada
Debt Charges (Left Axis) Budgetary revenues (Left Axis) Debt as % of Government Revenues (Right Axis)
Projection
With a federal debt to GDP ratio hovering around 45 per cent in the next 5 years, the ongoing costs of
servicing Canada’s federal debt which is currently at around $1.2 trillion and is projected to reach $1.36 billion
by 2026-27 would eat up about 7% to 8.5% of projected federal revenues.
Source: Economic and Fiscal Update 2021

17. Good News…We Are Servicing Less Debt than others
“Canada’s history of prudent fiscal management means that, even with unprecedented investments
to fight the virus, Canada continues to have the lowest net debt-to-GDP ratio relative to international peers.
In fact, over the course of the pandemic, Canada has even increased its low debt advantage.”
17
Source: Economic and Fiscal Update 2021

18. Tax Update from Budget 2021 Announcements
Effective for 2022 Underused Housing Tax
• A 1 per cent tax on the value of residential real estate
owned by foreigners that is vacant or underused
Payable as of 2024 Digital Services Tax
• A 3 per cent tax on revenues earned by large
businesses from certain digital services that rely on
data and content contributions from Canadian users
Luxury Tax
• A 10 to 20 per cent tax on sales for personal use of
luxury cars, boats and personal aircraft.
Tax Incentive for Carbon Capture, Utilization, and
Storage
• A tax credit to companies that invest in CCUS
technology (Final design of the tax credit is expected to
be laid out in Budget 2022)
18
Source: Economic and Fiscal Update 2021

19. Canada’s Projected Economic Growth
Budget 2021 projected Canada’s real GDP growth in 2020-2021 to increase to 5.8%, though the Economic
and Fiscal Update 2021 has lowered the expected growth projection to 4.6%.
What can the government do now to ensure sustainable economic growth in the long term?
0
1
2
3
4
5
6
7
2021 2022 2023 2024 2025 2026
Projected Real GDP Growth – Budget 2021 Vs. Economic and Fiscal Update 2021
Budget 2021 Economic and Fiscal Update 2021
“Overall, private sector economists expect solid
real GDP growth of 4.6 per cent in 2021, down
from the gain of 5.8 per cent expected in Budget
2021.”
19
Source: Economic and Fiscal Update 2021

20. Concerning Inflation Rates in Canada
The Economic and Fiscal Update 2021 projects 7.6% inflation for 2021, more than twice as high than Budget 2021
projections. The government projects that inflation will magically drop to 2.2% in 2022 despite noting how global supply
chain disruptions that are contributing to high inflation will not be resolved until late next year.
0
1
2
3
4
5
6
7
8
2021 2022 2023 2024 2025 2026
Projected Inflation – Budget 2021 Vs. Economic and Fiscal Update 2021
Budget 2021 Economic and Fiscal Update 2021
20
Source: Economic and Fiscal Update 2021

21. What is Driving up Canadian Inflation?
The elevated level of inflation primarily reflects
pressures on prices of goods owing much to
strong demand combined with supply
shortages, with prices for services playing a
much smaller role.
There is a considerable amount of uncertainty
over the timing of when shipping bottlenecks
and various shortages will dissipate and the
economic consequences of variants like
Omicron.
21
Source: Economic and Fiscal Update 2021

22. “We support the government’s investments in vaccines and rapid tests, as well
as targeted support for those most affected. In the coming months, it will be
important to preserve fiscal firepower and further reduce the federal deficit as
insurance against future emergencies. Now is not the time for fiscal
complacency. We are encouraged by the finance minister’s commitment to bring
forward, in Budget 2022, measures to strengthen economic growth and
competitiveness. In her words, ‘the best way to maintain strong public finances
[is] by keeping our economy strong.’ Any such plan should include significant
investments to help the country transition to a low-carbon future.”
- Goldy Hyder (President and CEO of Business Council of Canada)
22

23. Thank You!
23
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