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Trudeau to increase debt with first pandemic budget

(Bloomberg) – Justin Trudeau is set to unveil a vision for Canada’s post-pandemic recovery on Monday that will serve as an election platform, heavy new spending, and reassurance that growing debt is affordable. ahead of the arrival of Covid-19, is an opportunity to expose the longer-term aspirations on which he can campaign in a national vote that could allow him to regain his parliamentary majority. The Trudeau government has announced until ” C $ 100 billion ($ 80 billion) in additional money over the next three years for initiatives ranging from child care to green energy. Expectations are so high that an even more ambitious plan cannot be ruled out. Finance Minister Chrystia Freeland described the budget as “one of the most important of our lives”. To help businesses while the pandemic is still raging, the government will extend wage and rental subsidies until September and implement a new program to temporarily subsidize new hires, at C $ 1,100 per month for each new employee, according to someone familiar with the contents of the budget who requested anonymity before it was released. The budget will contain more than C $ 2 billion for child care, the person said, and will impose new taxes on digital services, this who The government has already promised: “Full of firsts” It comes at a tense time. The economy is recovering faster than expected, but a recent surge in cases of the virus is forcing Canada’s largest province, Ontario, to impose the toughest movement restrictions to date. “Monday’s budget is full of firsts – the first federal budget in more than two years, the first federal budget for Chrystia Freeland and the first federal budget for a female finance minister,” said Elliot Hughes, former adviser to the predecessor of Freeland who now works at Ottawa-based consulting firm Summa Strategies. “And if that hasn’t helped raise the stakes, then Canada is in the middle of the third and deadliest wave of Covid-19. pandemic, ”Hughes said via email. The documents will be released around 4 p.m. in Ottawa, when Freeland is due to begin delivering his budget speech to Parliament. The new spending will come on top of record levels of debt the country is already assuming. . Canada is likely to report a budget deficit of C $ 363 billion, or 17% of gross domestic product, in the fiscal year ending March 31, according to the federal spending watchdog. Another C $ 150 billion budget gap is expected this year, according to the average forecast of a Bloomberg survey of economists. By the time all the money runs out, Trudeau will likely have racked up more debt than the 22 prime ministers who came before him reunited. . But he always bet Canadians are in the mood to think big. France, and other members of the government, constantly discuss the vulnerabilities exposed by the pandemic. Recently, she said Covid-19 opened a “political window of opportunity” to tackle child custody. The Globe and Mail reported on Sunday evening that the funding is going to the provinces under a C $ 10 child care model – part of spending that will reach C $ 100 billion. The newspaper, citing anonymous sources, said there would also be funding for small businesses for e-commerce and a venture capital fund to support sectors hard hit by the pandemic, as well as funding or credits. tax for housing and renovations. ., quoting an anonymous senior official, said the deficit for the fiscal year just ended would not exceed C $ 400 billion. The extension of Covid-19 income support was first reported by the Toronto Star, and the digital services tax by Reuters, which also said the government would impose a tax on luxury items like cars valued over 100,000 Canadian dollars, private planes and yachts. Canada’s economy will fare much better than anyone expected, there will be a pullback against deficit spending – with leading opposition conservatives warning of an “avalanche” of red ink. Despite the record of pandemic, the economy is on the verge of a full recovery last year. losses this year. This means that the government’s rhetoric regarding the additional spending will have to go beyond launching the expansion. Cabinet ministers have already started drawing comparisons between their efforts and President Joe Biden’s infrastructure plan, which aims to support long-term U.S. growth, but politics may be the main reason ambitions are high. . Trudeau’s Liberals retained power but lost their parliamentary majority in 2019. Polls suggest they have a good chance of winning it back, which is why an election is expected soon. There is, however, a risk that voters will punish Trudeau if he is seen as reckless. Deficits matter in Canada, with a collective aversion to debt that was cemented in the mid-1990s amid downgrading ratings, falling currency, and a national unity crisis. forced the government to abandon its last fiscal rule at the onset of the crisis. But Trudeau formally asked the Minister of Finance to restore a “fiscal anchor” and avoid creating new permanent spending. What Bloomberg Economics Says … “A quick return to low deficits is unlikely, in our opinion. However, the federal government’s favorable debt profile before the pandemic gives it more leeway to add spending, and low interest rates, even in shock scenarios, mean costs will likely remain well contained. – Andrew Husby, Economist Click here One benefit of the stronger-than-expected recovery is an improved tax revenue picture. Nominal output is now on track to be around C $ 100 billion more this year than forecast in the government’s last fiscal update in November, which means around C $ 15 billion more than expected. at the time. The windfall gives Freeland some leeway, with some warning that Canada must start considering new taxes to bring the budget closer to balance. The CD Howe Institute, an influential think tank, recommends that Trudeau increase the national sales tax. The Prime Minister gradually increased taxes during his five years in office. Very early on, he increased the marginal tax rate on top incomes. In November, Freeland unveiled plans for new taxes on global tech giants. The government has said it is considering a tax on foreigners who buy homes in Canada but leave them empty. Beyond that, taxation can be a no-starter, for now. Trudeau has long pledged not to raise taxes for middle-class Canadians, choosing instead to rely on debt to fund his ambitious agenda (Updates with Bloomberg Economics analysis after 21st paragraph.) For more articles like this, please visit us at bloomberg.com now to stay ahead of the curve with the most trusted source of business news. © 2021 Bloomberg LP



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