Mar 26, 2020
Low rates a 'game-changer' that will keep deficits manageable: Former PBO
Ottawa has released 'a historic size of stimulus': Former PBO
As the federal government pours billions of dollars into Canada’s economy to help soften the blow from the COVID-19 pandemic, ultra-low interest rates will keep deficits manageable, according to former Parliamentary Budget Officer Kevin Page.
Ottawa unveiled a new income replacement fund Wednesday, bringing the government’s total aid package to $107 billion, up from $82 billion initially announced last week.
“It’s a large package but these are historic times,” said Page, who is now president and CEO of the Institute of Fiscal Studies and Democracy, in an interview with BNN Bloomberg's Jon Erlichman on Thursday.
“So you’re looking at a deficit well over $100 billion. That would be about four-to-five percentage points of GDP in Canada. The sense is that deficit as a percentage of GDP will go up.”
However, Page noted the size of the deficit will be easier to manage today compared with similar deficits seen in the past.
“What’s different now vis-à-vis the 1980's when we ran similar deficits is interest rates, they’re just so low,” he said.
Since the crisis took hold in the country earlier this month, the Bank of Canada has lowered its benchmark interest rate to 0.75 per cent from 1.75 per cent.
“The effective cost of borrowing is really the game-changer for managing deficits this time,” Page said. “They’re manageable.”