Is Canada like… broke?
Please note this is the last Monday newsletter before we go on summer staycation. We’ll be back in September.
In the meantime, stay safe, wash your hands, and don’t let anyone mansplain finance to you.
– xo, Claire, Erin, and the Btchcoin team.
Is a Trillion-Dollar Deficit Really That Bad..?
By Paisley Sim
After months of regular updates from public health officials, Finance Minister Bill Morneau has finally followed suit. On Wednesday, July 8, Morneau released an Economic and Fiscal Snapshot tabling a $343.2 billion budgetary deficit, almost ten times higher than the 2019-20 deficit of $34.4 billion. The snapshot captures the economic fallout from the COVID-19 pandemic and is the best prediction of what Canada’s balance sheet will look like up until March 31, 2021.
The federal debt has lept from $716.8 billion to a staggering $1.06 trillion (Googles “how many zeros in a trillion”). That’s $1,060,000,000,000. A $343.2 billion deficit is equal to 15.9% of GDP, while a $1 trillion debt is equal to 49.1% of GDP – thought still well below the 1996 peak of 66.8% of GDP.
If your early financial education is anything like mine, your reaction to all those zeros might be, “Whoa–that can’t be good.” We’re taught to associate big numbers and big deficits with bad outcomes. So how big and how bad is a $1 trillion debt? It all depends on how you feel about the future.
In the mid-1990s, Canada’s public debt charge (think of it like the $1.50 you sometimes pay to use an ATM) was 6% of GDP. Today, public debt charges are around 1% of GDP. So we’re taking advantage of low debt servicing costs and historically low-interest rates.
At the same time, Canada added 953,000 jobs in June, a huge jump from the 290,000 added in May. With new COVID cases down by about 80% since peaking in late April, Morneau is saying the worst is behind us and growth will follow. But is this strategy too rosy? Morneau is suggesting that as long as Canada’s economic growth exceeds the cost of borrowing, then we should go on borrowing.
Despite seeing large rebounds in real GDP growth, the economy is projected to shrink by 6.8% before rebounding by 5.5%. And the snapshot doesn’t include debt held by Crown corporations or refinancing of existing debt. If you add in these obligations, the federal debt is projected to be closer to $713 billion, not $343.2 billion. While it’s true that jobs are rebounding, this isn’t the case for low-wage workers, young people, women, and immigrants who continue to bear the brunt of COVID-related unemployment.
Taking on debt was necessary to stem economic pain, but the fiscal snapshot may paint an overly-optimistic picture. Growth going forward will depend on the level of community spread of the coronavirus and ability to open schools in the fall. The snapshot doesn’t give a sense of when fiscal supports will be unwound or what an economic recovery will look like. Higher federal debt means we have less fiscal room to address a second-wave and could lead to higher borrowing costs down the line. Let’s hope that the next snapshot paints a better picture.
Canadian Business Schools Under Fire…
By Sabrina Dotsch
(Content warning: racism, sexual and gender-based violence)
As conversations surrounding defunding the police and #MeToo intensify across Canada, university students are starting to shed light on these problems within their academic institutions. Business students from Western and Queen’s University are taking to Instagram to share the experiences of racism, classism, sexism, and xenophobia they’ve faced. From the Instagram accounts of @Stolenbysmith, @silencedatschulich, and @iveyathemargins, posts detailing microaggressions, bullying, sexual assault, and harassment, dominate the feed.
Instances of women being actively discouraged from pursuing finance roles, QTBIPOC students’ achievements being reduced to “diversity hires,” and shaming of low-income students for their backgrounds are frequent submissions on the pages.
Too often, these situations are dismissed, unreported, or ignored by the administration. For schools that tout their diversity, we believe they’ll need to do more than boasting about it in their recruitment packages. If these are the experiences of the future business leaders of the country, we have to do better.
Since their inception, the accounts have grown exponentially, increasing the audience from current students to past and prospective students. With pressure mounting for administrations to address the allegations, @Stolenatsmith founder, Kelly Zou, is hopeful the social media activism will translate to meaningful policy changes.
Addressing systemic issues isn’t going to be easy, but with ongoing dialogue with students, increasing staff diversity, and dismantling the white supremacist capitalist patriarchy that perpetuates this violent behaviour, Canadian universities can change for the better.
When Public Health and the Economy Collide……
By Taryn Bergin
Last week a group of public health and disease experts penned a letter to Prime Minister Justin Trudeau. Notable signatories include Dr. Gregory Taylor, Canada’s former Chief Public Health Officer, Dr. David Butler-Jones, Canada’s first Chief Public Health Officer, and 18 others.
Experts warn the current response will do more harm than good to society in the long run. Prohibiting fundamental human behaviours like school, employment, and health care will create future costs including increased premature deaths, economic consequences, and mental health issues – to name just a few.
The letter, titled “A Balanced Response” urges the government to think of population health and inequity when making future pandemic related decisions. Stating that preventing or even containing every COVID-19 case is unsustainable and will be harmful to low income groups, minorities, and marginalized groups. Children are also particularly at risk. School and structured activities are crucial for proper development and there are clear correlations between level and quality of education with future income and overall health.
The officials urged policy-makers to shift their tactics to preventing death and serious illness while still enabling society to function. Key suggestions include:
Regularly reassessing protocols (quarantine periods, non-medical mask usage, and travel restrictions)
Improving long term care facilities
Reducing fear of COVID-19 and replace with understanding of the disease and the risks associated
Reopening schools, business, and health care carefully
The letter was not well received by The Public Health Agency of Canada who responded saying many of the issues addressed have already been recognized. It’s their stance that it would be foolish to lift restrictions too quickly and the virus should be controlled before economic recovery can become a focus.
However, a recent report from Capital Economics predicts Canada’s economy will suffer for the next 10 years due to COVID-19 regulations. GDP will fall 6.3% this year and stay below pre-COVID levels until 2023. It doesn’t look good for small businesses either. New and constantly changing health and safety regulations are expensive to implement and force businesses to limit capacity and work harder for poorer results.