Article content

The demands on the federal government are rising at a record pace. The Parliamentary Budget Officer was predicting the federal deficit would hit $112.7 billion even before the government announced its $70-billion wage subsidy last week.

These deficit projections are likely to be low. Economic forecasts routinely underestimate the impact of events such as the 2008 financial crisis or today’s coronavirus. This fallibility was on full display last week for the U.S. labour market. Economists predicted weekly unemployment claims would rise from 3.3 million to five million. In fact, they soared to 6.6 million. Worse, economists expected March payrolls to fall about 100,000, when they actually plunged by 701,000. This delay in understanding the speed and severity of the economy’s contraction suggests current deficit forecasts are likely far too low as well.

We apologize, but this video has failed to load.

tap here to see other videos from our team. Try refreshing your browser, or Philip Cross: A modest proposal on public service pay to help tackle the ballooning deficit Back to video

More demands on government are coming. The federal government has not detailed the aid it has promised to such hard-hit industries as oil and gas, airlines, and accommodation and food. The provinces are being squeezed by soaring health-care costs and sharply lower tax revenues, especially sales taxes. Newfoundland and Labrador is likely to be just the first of many provinces seeking federal aid. The cost of pension plans for public servants will rise: in December the government revised its deficit upward as it began to acknowledge that low interest rates mean taxpayers will have to subsidize public pensions more than they already do. With interest rates falling still further, this subsidy will rise even more.