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What Happens to the Federal Deficit if a Recession Occurs in 2019

If recession hits, federal deficit will reach $28 to $34 billion before any stimulus spending


By —— Bio and Archives--February 7, 2019

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If recession hits, federal deficit will reach $28 to $34 billion before any stimulus spendingVANCOUVER—Ottawa’s projected deficit of $19.6 billion in 2019/20 may automatically increase to as much as $34.4 billion if Canada enters a recession this year, finds a new study by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

“By running deficits during a period of economic growth, there is a real risk the country’s finances will deteriorate rapidly when the next recession hits,” said Jason Clemens, executive vice-president of the Fraser Institute and co-author of What Happens to the Federal Deficit if a Recession Occurs in 2019?

The current federal government has run deficits every year since 2015, despite continued economic growth, without a projected return to budget balance until 2040.

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The study analyzes three recent economic downturns and studies the impact that each type of recession would have on federal finances if it struck this year.

Crucially, any discretionary tax or spending changes the government might make in response to the recession (for example, stimulus spending), would be on top of these estimates.

  • If the 1991/92 recession—which had a mild impact on federal finances—happened now, the 2019/20 federal deficit would increase from its projected $19.6 billion to $28.2 billion.
  • If the 2000/01 slowdown—which had a moderate impact on federal finances—happened now, the 2019/20 deficit would hit $32.1 billion.
  • And if Canada again experienced a severe recession like in 2008/09, the 2019/20 deficit would increase 76 per cent, to $34.4 billion.

“Recessions have occurred, on average, every eight years or so since World War Two,” Clemens said.

“Given we haven’t had a recession in Canada since 2009, policymakers should seriously consider and plan for the automatic pressures a recession will place on federal finances, even before discretionary spending comes into play.”

Media Contact:
• Jason Clemens, Executive Vice-President, Fraser Institute
• Jake Fuss, Policy Analyst, Fraser Institute

To arrange media interviews or for more information, please contact:
Bryn Weese, Senior Media Relations Specialist, Fraser Institute, .(JavaScript must be enabled to view this email address)


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Fraser Institute -- Bio and Archives | Comments

The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of 86 think-tanks. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute’s independence, it does not accept grants from governments or contracts for research. Visit fraserinstitute.org.

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