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Impact Assessment of Budget 2021 Measures

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Published on May 27, 2021 PDF

This report provides an assessment of the impact of Budget 2021 measures on PBO’s pre-budget economic and fiscal outlook.


Communications

Quotes

  • We estimate that Budget 2021 measures will provide a temporary boost to real GDP growth in 2021 and 2022. By the end of 2025, we estimate that Budget 2021 measures will increase employment by 89,000 net new jobs.

  • Higher interest rates will dampen the stimulative impact of Budget 2021 measures. This means that government revenues will not increase to their full extent. The cost of servicing the Government’s existing debt will also be higher.

  • Assuming no future policy actions, we estimate that there is only a 5% chance the budget will be balanced or in a surplus position in 2025-26. We also estimate that there is a 35% chance the federal debt ratio in 2025-26 will be above its 2021-22 level of 51.3% of GDP.

Yves Giroux
Parliamentary Budget Officer

News Release

{"id":15,"created_at":"2021-05-26T11:41:58-04:00","updated_at":"2021-05-27T08:59:10-04:00","slug":"COM-2122-015--higher-interest-rates-dampen-stimulative-impact-of-budget-2021--des-taux-dinteret-plus-eleves-attenuent-leffet-stimulant-des-mesures-du-budget-de-2021","title_en":"Higher Interest Rates Dampen Stimulative Impact of Budget 2021","title_fr":"Des taux d\u2019int\u00e9r\u00eat plus \u00e9lev\u00e9s att\u00e9nuent l\u2019effet stimulant des mesures du budget de 2021","body_en":"The Parliamentary Budget Officer (PBO) today released his impact assessment of Budget 2021 measures.\n\nThe report extends the PBO\u2019s previous assessment of Budget 2021 stimulus spending to include additional budgetary measures, as well as the potential monetary policy response. The report also provides a sensitivity analysis on the resulting post-budget scenario.\n\n\u201cWe estimate that Budget 2021 measures will provide a temporary boost to real GDP growth in 2021 and 2022. By the end of 2025, we estimate that Budget 2021 measures will increase employment by 89,000 net new jobs,\u201d says PBO Yves Giroux.\n\nIn the PBO\u2019s assessment, monetary policy responds to the increase in economic activity and higher inflation, raising the policy rate by 50 basis points in the second half of 2022, relative to the PBO\u2019s pre-budget outlook.\n\n\u201cHigher interest rates will dampen the stimulative impact of Budget 2021 measures. This means that government revenues will not increase to their full extent. The cost of servicing the Government\u2019s existing debt will also be higher,\u201d adds Mr. Giroux.\n\nThe PBO\u2019s post-budget scenario does not include any new economic developments since the March pre-budget outlook. It reflects only the impacts of Budget 2021 measures relative to the PBO\u2019s pre-budget outlook.\n\nUnder the PBO\u2019s post-budget scenario, the budgetary deficit reaches $36 billion (1.2 % of GDP) in 2025-26 and the federal debt settles at 49.2 % of GDP in 2025-26.\n\nTo illustrate the uncertainty surrounding the post-budget scenario, the report presents distributions of possible future outcomes based on the past forecast performance of private sector economists in Finance\u2019s Canada survey.\n\n\u201cAssuming no future policy actions, we estimate that there is only a 5% chance the budget will be balanced or in a surplus position in 2025-26. We also estimate that there is a 35% chance the federal debt ratio in 2025-26 will be above its 2021-22 level of 51.3% of GDP,\u201d says PBO Yves Giroux.","body_fr":"Le directeur parlementaire du budget (DPB) publie aujourd\u2019hui son \u00e9valuation des effets des mesures du budget de 2021.\n\nDans ce rapport, le DPB poursuit l\u2019\u00e9valuation qu\u2019il avait entreprise pr\u00e9c\u00e9demment sur les d\u00e9penses de relance \u00e9conomique pr\u00e9vues dans le budget de 2021 pour s\u2019int\u00e9resser aux mesures budg\u00e9taires additionnelles, ainsi qu\u2019aux mesures de politique mon\u00e9taire. Le rapport pr\u00e9sente \u00e9galement une analyse de sensibilit\u00e9 du sc\u00e9nario postbudg\u00e9taire qui en r\u00e9sulte.\n\n\u00ab Nous estimons que les mesures contenues dans le budget de 2021 auront pour effet de doper temporairement la croissance du PIB r\u00e9el en 2021 et 2022. Selon nos pr\u00e9visions, d\u2019ici la fin 2025, ces mesures auront permis la cr\u00e9ation de quelque 89\u2009000 emplois nets \u00bb, a d\u00e9clar\u00e9 Yves Giroux, le DPB.\n\nSelon les \u00e9valuations du DPB, \u00e0 la faveur de l\u2019augmentation de l\u2019activit\u00e9 \u00e9conomique et sous l\u2019effet d\u2019une hausse de l\u2019inflation, il y aura un ajustement de la politique mon\u00e9taire, avec le rel\u00e8vement du taux directeur de 50 points de base au second semestre de 2022 par rapport aux perspectives pr\u00e9budg\u00e9taires du DPB.\n\n\u00ab La hausse des taux d\u2019int\u00e9r\u00eat att\u00e9nuera l\u2019effet stimulant des mesures du budget de 2021. Cela signifie que les recettes publiques n\u2019augmenteront pas au maximum de ce qu\u2019elles pourraient. Le co\u00fbt du service de la dette gouvernementale actuelle sera aussi plus \u00e9lev\u00e9 \u00bb, a poursuivi M. Giroux.\n\nLe sc\u00e9nario postbudg\u00e9taire du DPB ne fait \u00e9tat d\u2019aucun nouveau d\u00e9veloppement \u00e9conomique depuis les perspectives pr\u00e9budg\u00e9taires de mars. Il ne pr\u00e9sente que l\u2019incidence des mesures pr\u00e9vues dans le budget de 2021 par rapport aux perspectives pr\u00e9budg\u00e9taires du DPB.\n\nSelon le sc\u00e9nario postbudg\u00e9taire du DPB, en 2025-2026, le d\u00e9ficit budg\u00e9taire atteindra 36 milliards de dollars (1,2 % du PIB), et la dette f\u00e9d\u00e9rale s\u2019\u00e9tablira \u00e0 49,2 % du PIB.\n\nPour illustrer l\u2019incertitude entourant le sc\u00e9nario postbudg\u00e9taire, le rapport pr\u00e9sente une r\u00e9partition des r\u00e9sultats futurs possibles se fondant sur la performance des pr\u00e9visions pass\u00e9es des \u00e9conomistes du secteur priv\u00e9 dans l\u2019enqu\u00eate de Finances Canada.\n\n\u00ab En supposant qu\u2019il n\u2019y aura aucune intervention politique ult\u00e9rieure, nous estimons \u00e0 seulement 5 % la probabilit\u00e9 que le budget soit \u00e9quilibr\u00e9 ou exc\u00e9dentaire en 2025-2026. Nous estimons \u00e9galement qu\u2019il y a 35 % de chances que le ratio de la dette f\u00e9d\u00e9rale au PIB en 2025-2026 soit sup\u00e9rieur \u00e0 son niveau de 51,3 % du PIB en 2021-2022 \u00bb, a conclu M. Giroux.","release_date":"2021-05-27T09:00:00-04:00","is_published":"2021-05-27T08:59:10-04:00","internal_id":"COM-2122-015","permalinks":{"en":{"website":"https:\/\/www.pbo-dpb.ca\/en\/blog\/news-releases--communiques-de-presse\/COM-2122-015--higher-interest-rates-dampen-stimulative-impact-of-budget-2021--des-taux-dinteret-plus-eleves-attenuent-leffet-stimulant-des-mesures-du-budget-de-2021"},"fr":{"website":"https:\/\/www.pbo-dpb.ca\/fr\/blog\/news-releases--communiques-de-presse\/COM-2122-015--higher-interest-rates-dampen-stimulative-impact-of-budget-2021--des-taux-dinteret-plus-eleves-attenuent-leffet-stimulant-des-mesures-du-budget-de-2021"}},"pivot":{"publication_id":128,"news_release_id":15}}