Opinion: A trend that should keep Freeland up at night

With a raft of fresh economic forecasts and a promised $100 billion in stimulus spending tucked under her arm, Finance Minister Chrystia Freeland has embarked on a final round of consultations before launching her recovery budget in a few weeks’ time.

The forecasts contain some good news. In tandem with the rollout of vaccines, the Canadian economy will reopen somewhat throughout the spring and summer, and snap back in the fall as the virus fades away.

But lurking in the details is a worrisome trend that may bedevil the finance minister and lead to political discomfort: the lingering effects of the pandemic on young people and low-wage workers.

To be sure, the headline numbers are encouraging. While the pandemic restraints mean things are bad right now, “much like pulling on a rubber band a bit further, there’s reason to believe that it will be made up with a faster bounce back later in 2021,” writes CIBC economist Royce Mendes.

He sees the economy contracting in the first quarter of the year but picking up quickly to a nine-per-cent annual pace by the fall. For the year, CIBC projects a four per cent expansion, followed by 5.1 per cent next year. Scotiabank sees 4.3 per cent both this year and next. Capital Economics is even more optimistic, with a 4.6 per cent forecast for 2021 and 5.8 per cent next year.

Generally, economists and epidemiologists alike see a rough time this winter. But as soon as the vaccine takes hold, we can open our doors and our wallets again.

There’s no doubt Canada desperately needs to see some growth, and Freeland has committed to doing what she can with her fiscal levers to amplify the rebound and using stimulus funding of up to $100 billion to rebuild the economy.

The quest for growth is not just something Freeland needs for the sake of what it means for profits and jobs. She needs it because of the revenues it brings the federal government to get the debt and deficit under control.

The other way of raising revenue – hiking taxes – isn’t really on the table.

Prime Minister Justin Trudeau and Freeland have said they won’t do that, at least not in a broad way. In his mandate letter to Freeland finally published Friday five months after she was named to the position, he tasks her with raising taxes on extreme wealth –but that’s it on the personal tax side of things.

So if Freeland wants to keep the Conservatives off her back, make investors and business groups happy and fulfil her job description to put the country’s finances on a solid and sustainable path, strong growth is the way to do it.

But her mandate letter also emphasizes a long list of other objectives. She is responsible for embracing clean technology, cutting emissions, creating one million jobs, investing in the social sector, infrastructure and training, beefing up pandemic supports for workers and businesses, helping personal-support workers and enhancing homebuyers’ incentives. Oh, and setting the deficit on a path to decline.

But also, the PM writes, “it is clear that this pandemic has disproportionately affected different communities throughout our country. Therefore, we must ensure our recovery includes all Canadians, with an emphasis on supporting those most affected.”

Some of these tasks fit well together. Pandemic support is not permanent spending. Clean technology can create jobs. Investing in skills and infrastructure can boost growth.

But helping those hurt the most by the pandemic is trickier, because helping those demographics doesn’t immediately lead to the kind of spectacular growth Freeland needs to whittle down the deficit.

On the labour front, job losses have hurt young people, visible minorities, single parents and low-wage workers the most, mainly because they so often find work in the accommodation, food, entertainment and tourism industries that have been pummelled.

While economists expect a rapid rebound in the job market overall, it will be a long haul for people who rely on those sectors and probably more than a year before we see unemployment rates as low as before the pandemic. Meanwhile, long-term unemployment is running at very high levels, and that’s hard to fix because workers’ skills atrophy as they sit on the sidelines, says economist Trevor Tombe from the University of Calgary.

Plus, the pandemic has probably changed those industries for good. E-commerce and a massive shift to online services mean fewer of those public-facing jobs that young people and low-skilled workers rely on. Companies in those sectors are faltering.

There’s plenty of goodwill among policy-makers to find solutions and bolster the chances of these fragile workers. But there’s a competing drive to find the fast-growing segments of the economy, fire them up with stimulus money and hope strong growth rescues us from a fiscal dilemma. Freeland’s first budget needs to do it all.

Heather Scoffield is a National Affairs writer.

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