In response to the pandemic, governments in Canada launched an unprecedented wave of spending. In Ottawa, the federal government has sought to make that wave permanent. In 2020/21, federal spending increased by 73 percent to $644.2 billion before declining 21 percent to an estimated $508 billion in 2021/22. Total provincial government spending rose 9.2 percent in 2020/21 to an expected $504.4 billion, and a further 5.6 percent to $532.9 billion in 2021/22.
As a result, between 2019/20 and 2020/21, the federal deficit-to-GDP ratio (an indicator of a jurisdiction’s ability to pay its debt) went from -1.8 percent to -13.2 percent, while the collective deficit-to-GDP ratio of the provinces went from -0.8 percent to -1.9 percent. Consequently, the federal net debt-to-GDP ratio rose from 33 percent in 2018/19 to reach nearly 50 percent by 2021/22, while the collective provincial ratio went from 29 percent to approximately 31 percent.
At the provincial level, budget deficits appear positively correlated with the intensity of the pandemic impact in terms of per-capita case counts by province, although this is not so obvious at the federal level. Indeed, federally, about half the deficit incurred during the pandemic related to COVID-19 for either health transfers or income support to people and businesses, while the remainder was due to spending independent of the pandemic, representing a permanent, long-term ramping up of federal expenditure.