In: Economics
Explain how the Government of Canada finances its budget deficits.
The coronavirus pandemic sparked an explosion in Canada's
federal budget deficit, which hit CAN $343 billion ($254 million)
for the current fiscal year.
All deficits need to be financed. This is initially done through
the sale of government securities, such as Treasury bonds
(T-bonds). Individuals, businesses, and other governments purchase
Treasury bonds and lend money to the government with the promise of
future payment.
Spending cut and
debt reduction should be top priorities for Canadian
government.
While plenty of empirical evidence shows a negative relationship
between government debt levels and economic growth, a close look is
warranted at Public Debt and Growth. The recent International
Monetary Fund study examined the relationship between public debt
and economic growth for a group of advanced and emerging countries
over almost four decades. It found that an increase in a country’s
debt-to-GDP ratio leads to a decrease in per-person income
growth.