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Roslyn KuninCOVID-19 is still running rampant in many countries, is accelerating in Quebec and Ontario and has recently hospitalized the president of the United States. But in British Columbia, we’re hoping we can avoid a second wave this winter.

We’re starting to turn our attention from immediate medical issues to the longer term challenge that the pandemic presents us with: How do we get our very battered economy to recover?

Estimates vary as to when we can expect output, employment and tax revenues to get back to the levels they were at when the pandemic hit last spring. Even the most optimistic people are talking years, not months.

Some small businesses are beginning to pick up and even rehire where lockdown conditions are eased and consumers start to catch up on their shopping.

However, just since the beginning of October, many major companies and industries in Canada and the U.S. have started to announce layoffs in the thousands.

In the United States, the latest statistics show that the number of unemployed has risen by 837,000 even before the thousands of announced layoffs at Amazon, airlines, the defence industry, the energy sector, entertainment and other sectors have taken effect.

Canada isn’t immune. Our airlines, energy industry, education sector and others also plan headline-level cutbacks.

It seems 2025 is most frequently mentioned as the year we’ll get back to pre-pandemic conditions. The number of pink slips about to be issued by major firms means any greater optimism isn’t justified.

At times like this, Canadians turn to government to get us back on track and governments are happy to oblige. So far, the government solution has been to pour money on the problem and it looks like they expect to continue.

While government spending helped us survive the immediate onset of the pandemic, it can’t continue since it’s beginning to show some strong negative side effects. These include disincentives, dependencies, deficits and debt.

Employers have already noted the disincentive effects as some recipients of the Canada Emergency Response Benefit (CERB) and the Canada Recovery Benefit (CRB) are quite rationally reluctant to return to work for less money or only marginally more than they’re getting while not working.

Those people with weaker attachments to the labour force are also becoming increasingly dependent on these new transfer payments.

And the only way government can maintain these programs even at slightly reduced levels is through ever-growing deficits and debt.

There’s also danger in saying that deficits and debt don’t matter given current low interest rates.

There are two reasons why interest charges can increase:

  • General market interest rates go up. This isn’t likely in the short term.
  • Your credit rating worsens. As growing debts look less and less manageable, provinces and even nations can see their credit ratings fall and their costs of borrowing and carrying debt rise.

Governments can reduce their overhead spending by introducing zero-based budgeting. Every government-funded department, Crown corporation or publicly-supported activity has to build a budget from scratch each year showing what they do, and justifying the costs and benefits. That happens instead of merely putting forward last year’s budget with a cost of living increase and little extra on top.

In addition, governments can make the Canadian economy stronger and more productive by making the economy function as if this were one country. (It should have been done a long time ago but we’ve only been taking baby steps.)

There are still far too many rules, regulations, hurdles and barriers erected by our 10 provinces and three territories that severely limit the movement of goods and people in what we like to think of as one free and open economy. The situation is serious enough that many businesses find it easier to do business in foreign countries than the province next door.

Trucks may have to meet different safety standards for loading and need separate licences to cross provincial borders. Skilled trade workers have to go through an additional examination process if they want to work in a nearby province.

These are just two examples and we won’t even mention the silliness related to alcohol sales. Do we want to make people criminals for bringing a dozen beers from Ottawa to Hull?

If the European Union with 27 very diverse countries and several languages can develop and use one common set of standards to allow full mobility of people and goods, surely Canadians can make this happen – and soon.

This will enable us to improve and maintain our standard of living post-COVID-19 and over the long term.

Troy Media columnist Roslyn Kunin is a consulting economist and speaker. 

© Troy Media

spending, covid-19

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