No recovery without a she-covery

We should not be looking at the cost of federal spending on COVID-19 recovery without looking also at its benefits.

On Thursday June 4, 2020, I presented this statement to the House of Commons Standing Committee on Finance on the Government’s Response to the COVID-19 Pandemic. Watch it here.

Yesterday the Bank of Canada told us that the worst could soon be over for the economy, though the pace of rebound for the nation’s GDP was uncertain.

The virus killed income-earning potential for over a third of Canadian workers by mid April, but the federal treasury swiftly acted to help people contain the contagion and prevent a surge of debt, announcing $146 billion in COVID-19 related spending. The Parliamentary Budget Office (PBO) estimates that real GDP will shrink by 12%, so the Government of Canada’s initiatives may backfill about half of the estimated $288 billion hole created by the pandemic.

As our hopes and actions turn to recovery, the debate is already dominated by discussion of how quickly to turn off the federal spending taps, to delimit public deficit and debt.

I contend this is the wrong approach. We should not be looking at the cost of federal spending without looking also at its benefits.

The federal government will need to keep spending more than it did before Covid-19 hit, but targeted in ways to reassure safe re-opening of the economy, instead of keeping people safe at home to contain the contagion; and designed to maximize the future potential for growth. Targeted and providing sufficient resources, such spending could literally pay for itself, not just in “shovel ready” physical infrastructure, but critical social infrastructure that supports economic activity as much as roads and bridges. This pivot from contagion containment to strategies for safe reopening will require a historic federal intervention in childcare, for reasons I have detailed in my presentation to the Standing Committee on Human Resources, Skills and Social development just moments ago.

Simply put: there can be no recovery without a she-covery; and there can be no she-covery without childcare. Without a nation-wide strategy for safe protocols for reopening schools and childcare facilities, we cannot fully redeploy our economic potential. Putting the emphasis on safe re-opening is key. The last thing we want is for childcare centres to become a vector of Covid-19 transmission as was the case for Long Term Care facilities.

A reminder: the problem is actually a cascade of crises: a health crisis triggering an economic crisis triggering a debt crisis. Job 1 is to contain the health crisis. Job 2 is to offset the economic crisis. Only then can we know the scale of the debt crisis we will have to deal with.

More debt is inevitable. The only question is: who will hold it. In accounting terms, there are only four places for the debt to grow: households, corporations, governments and current accounts (cash flows into and out of Canada) Government debt will include federal, provincial/territorial governments; as well as municipal shortfalls in revenue intake for non-discretionary expenditures.

The pandemic should result in more government debt to secure the recovery. That is because federal debt is the lowest-risk, lowest-cost debt in the entire ecosystem of debt. Those arguing to reduce federal deficit and debt are effectively arguing for slower recovery, deeper economic losses for more people, and more income being paid for debt servicing. I am confident this isn’t anybody’s goal at this table.

Thank you for your time and I welcome your questions.