Recession could push federal deficit to between $46 and $120 billion by 2020/21

VANCOUVER—With the federal government running deficits during times of positive economic growth, Ottawa’s annual deficit could reach $120 billion in the next few years if Canada enters a recession, finds a new study by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank. “By running deficits in good times, if and when Canada’s economy slows down—or worse, hits a recession—there’s a very real risk Canada’s existing deficits could grow substantially,” said Jason Clemens, executive vice-president of the Fraser Institute and co-author of Federal Deficits and Recession: What Could Happen.

The study analyzes three different economic downturns, and applied the same revenue declines and program spending increases (both automatic and discretionary) to the current government’s finances. If the economic conditions of the 1991/92 recession—which had a mild impact on federal finances—were repeated now, the 2020/21 federal deficit would increase from its projected $13.8 billion to $46.1 billion. If conditions similar to the 2000/01 slowdown—which had a moderate impact on federal finances—occurred now, the 2020/21 deficit would reach $64.1 billion. And if Canada experienced a severe recession, similar to 2008/09, the 2020/21 deficit would hit a staggering $120.5 billion. “Recessions are inevitable, and the risks to federal finances from even a mild recession, let alone a more severe one, are substantial given Ottawa’s current deficits during times of economic growth,” Clemens said. “The federal government should consider the very real risk of a future economic downturn when drafting future budgets to mitigate the potential damage of even larger deficits and debt accumulation.” MEDIA CONTACT: Bryn Weese, Media Relations Specialist, Fraser Institute, bryn.weese@fraserinstitute.org