Question: With the federal and provincial governments’ significant spending and subsidies during the COVID-19 pandemic,
what are the future implications?
Let’s focus on the federal side first. The federal government announced that as a result of the subsidies the 2020-21 annual deficit is now projected to be $343 billion, a staggering amount the likes of which Canada has not had since the Second World War (inflation adjusted). The total federal debt will then total $1.2 trillion, an increase of 40% in this one year. Moving forward, the result is that every person in Ontario will equate to having $58,278 of government debt.
All things considered, the federal and provincial governments have handled these challenging times well. They have had difficult decisions to make and have stepped up to help families and businesses.
But that doesn't mean we should ignore the future implications of the government's response. As a country, we do not have an unlimited credit card. Increasing our debt by 40% in one year will certainly have an impact on our economic future. There are two typical government responses to debt of this size:
Being more financially efficient with how government funds are spent has proven to be a challenge historically, so increasing taxes and fees are most likely the inevitable path forward. While it isn’t our place to give the government suggestions on which taxes and/or fees to increase, which exemptions to reduce or discard or which
new sources they should consider, I expect that higher income earners, such as our readers, will be squarely in the crosshairs of tax authorities. That said, these changes will likely not occur or be discussed in more detail until the next federal election (currently planned for October 2023). With these eventualities, we remain focused on managing your families’ wealth and financial planning with a keen focus on tax planning. This will become even more important given this uncertain future we now face.
Andrew Brydon, CPA, CA