Will Canada’s Federal Budget meet the COVID-19 Challenge?

A year ago, COVID-19 crashed the world economy. How and where the federal government invests now will determine if we "Build Back Better" or allow rampant inequality to persist.

March 5, 2021

2-minute read

In the lead up to her first federal budget, Finance Minister Chrystia Freeland has already mused that it “will be among the most significant of our lifetime,” focused on “jobs and growth.”

“Jobs and growth” are not exactly new themes for federal budgets. But for the past 40 years, most of the gains from growth have gone to the top of the income distribution. So, can growth still be the panacea that solves our problems? Is growth the best focus in the post-COVID-19 world?

There was a time when growth worked for most Canadians. From 1946 to roughly 1980, incomes were, and remained, unequal, but they grew at roughly the same rate at the top, middle and bottom of the income distribution. Full employment and welfare state social policy made balanced growth possible. Like all grand bargains of political economy, this Keynesian consensus in policy was conditioned by historical context. The generation who had witnessed the immense suffering, loss of life and destruction of the Great Depression and World War II had a widespread skepticism that the market would, by itself, produce enough jobs or a fair enough sharing of growth to be socially acceptable.

A year ago, COVID-19 crashed the world economy. Market income losses from COVID-19 have been very unequally distributed. Salaried professionals who can work from home kept their pay cheques but hourly paid and gig workers in the hotel, restaurant, cultural and retail trade sectors did not.

But the policy-makers who grew up in the 1950s and 1960s, in a world of balanced growth, grew up thinking that social stability was something that could be taken for granted. Faith in the market returned as memories of its failures faded. After 1980, neoliberal policies emphasized balanced budgets, lower taxes and low inflation. But the 2008 financial crisis and ensuing Great Recession shattered neoliberalism’s credibility, and per capita GDP growth stalled between 2010 and 2019. Rising insecurity, middle class income stagnation and increasing concentration of wealth fueled populist appeals to the “left-behinds” of globalized market dominance and welfare state withdrawal, producing Brexit, Trump and political instability in many countries, well before COVID-19 hit.

Then, a year ago, COVID-19 crashed the world economy. Market income losses from COVID-19 have been very unequally distributed. Salaried professionals who can work from home kept their pay cheques but hourly paid and gig workers in the hotel, restaurant, cultural and retail trade sectors did not. Since these workers are disproportionately female, young, racialized and poorly paid, the pandemic’s financial impact has been “K shaped”: recovery at the top, but worsening misery at the bottom.

However, the long-run impact of COVID-19 on inequality will depend on its political economy impacts. Responding to an unprecedented crisis, the federal government mobilized billions in new support programs within weeks – an important “possibility proof” that rapid social policy change can happen. The fact that the sky did not fall when governments increased their deficits by billions of dollars also clearly demonstrated that the barriers to a better social safety net are political, not economic.

The pandemic is the formative experience that will shape the lifetime political perspective of a generation.

So, will post-COVID Canada just pivot back to the zombie neoliberalism of 2010-2019?

Canada’s millennial generation was hard-hit by the Great Recession of 2008, entered the gig economy and rising top-end inequality of the 2000s, incurred much of the earnings loss of COVID-19 and can anticipate bearing the costs of climate change. Their early life experiences are very different from the social stability and shared prosperity that (thanks to full employment and welfare state policies) baby boomers experienced. Their politics will also be different.

The pandemic is the formative experience that will shape the lifetime political perspective of a generation. Its core lesson is the interdependence of the community’s health and well-being and the importance of an adequate social safety net. Climate change has a longer time scale, but its core issue is also our common shared fate.

In the “before times” of 2019, Green New Deal proposals to tackle both income inequality and greenhouse gas emissions through increased public spending and tax reform were attacked as “too radical”. But “Build Back Better” has, in less than a year, become the mainstream perspective of international organizations, the European Union and the Biden administration in the U.S. The federal budget will test whether Canada can also rise to the challenge of the times.


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