Within a few months, COVID-19 has imposed a global economic shock the like of which hasn’t been seen since the Great Depression. The particular nature of this crisis, a pandemic with no certain end, sets it apart from other economic downturns. It forced an ultimatum: shut down the economy and most social activities in order to buy time and eventually manage the virus or suffer a much deeper and longer economic depression with a tragically high death count.
Canada’s efforts to manage the COVID-19 pandemic has been steeped in a sense of solidarity with each other as we’ve undertaken great feats of public action: the Canada Emergency Response Benefit (CERB), widespread testing, and coordinated shutdown protocols are all proof of what we can achieve very quickly when we choose to do so.
And our efforts have brought us to a hopeful point. The curve of cases is flattening, and our health system has been able to handle the peaks we’ve experienced thus far. We are seeing a modest reopening in most parts of the country. But we must remember that the future path of this pandemic in Canada and worldwide is still uncertain, and thoughtful experts have warned us that it will continue to have a profound impact, both socially and economically, for at least the next couple of years.
While we won’t know the full cost of the disease for quite a while, we do now know the economic cost of government action taken in the first few months of the pandemic. Finance Minister Bill Morneau’s July economic update pegged the federal deficit at $343 billion dollars.1 Some deficit hawks have responded, predictably, that this is the time to start tightening the belt, a disastrous and completely unwarranted approach at this time—or at any time in the near future.
The economic update also told another story. Despite having the highest debt and deficit in a century, Canada’s debt charges are the lowest they’ve been in the past 30 years.2 The rock-bottom cost of debt means that at least for the next few years, government spending can be dictated by what people need in order to weather this storm and to rebuild smartly and justly to counteract two other calamities on our doorstep: inequality and climate change.
Pre-COVID, the world was just starting to come to terms with the extent of change that would be needed during the next decade to avoid widespread ecosystem collapse due to climate change. Indeed, the pandemic has provided a sobering appraisal of the deep cracks in our systems, from education and health to employment standards and income supports. We have been forced to face up to longstanding inequities and injustices that Indigenous people, women, Black people, and other racialized groups have borne for years. They have suffered some of the worst impacts of the virus.
A recent Financial Times editorial appraised the situation and surmised that “[a]s western leaders learnt in the Great Depression, and after the second world war, to demand collective sacrifice you must offer a social contract that benefits everyone.”3 The piece went on to conclude: “[R]adical reforms— reversing the prevailing policy direction of the last four decades—will need to be put on the table. Governments will have to accept a more active role in the economy. They must see public services as investments rather than liabilities, and look for ways to make labour markets less insecure.”
The editorial constitutes a striking recognition from the halls of fiscal conservatism that the Canadian government and governments around the world need a publicly led and funded social and economic transformation. The question is not whether we can afford it (as we cannot afford not to act) so much as how we will pay for it in a manner that is fair and equitable across social groups, regions, and generations.
Continued deficit spending for the foreseeable future will be a necessity, and with interest rates for federal borrowing near zero, it is also good fiscal policy. Plenty of research has shown that bold investment now in core social supports such as health, education, and housing will reap long-term economic and social rewards. So, too, will investing in a lowcarbon economy. Such investment relies on a simple truth: preventing problems is usually less expensive than fixing them.
But a transformation of this size also requires a permanent increase in public sector supports and programs, and these cannot be funded indefinitely through deficit spending. Significant new sources of revenue are needed. Careful design of those revenue sources should reinforce our objective of creating a more equitable and sustainable society.
A well-balanced, well-designed, and fair tax system can support a society that is also well balanced, smart, and fair. Most Canadians endorse such an arrangement, but our current tax system misses the mark. Many of the decisions that federal and provincial governments in Canada and the governments of other industrialized democracies have made about public revenue over the past 30 years have not delivered on their promised benefits, though they have come with great costs.
Above all, since the 1980s we have managed to engineer an unprecedented transfer of wealth to a small minority that needed help the least while imposing austerity on the majority of the population. The result has been growing inequality and insecurity.
We have also paid huge opportunity costs by giving away the net value of our natural resources for free.
In some sense, these were two trillion-dollar thefts—from the majority of us to the rich and from all Canadians as collective owners of our resources to a relative handful of mostly foreign private shareholders.
To achieve what we need to achieve in these times, we will need to establish more balanced and sensible public revenue policies.
Download the Paying for the Recovery We Want - Report
This report is part of our Essential Solutions Project, which brings together experts across multiple disciplines to generate innovative answers to the complex challenges we face right now, and chart a path towards a more equitable and resilient future for all of us.