P.E.I. government deficit huge but 'manageable,' says APEC economist

Given the economic conditions caused by the COVID-19 pandemic, the record deficit forecast in the P.E.I. budget this week is not unreasonable, says an economist at the Atlantic Provinces Economic Council.

"These are extraordinary times, so governments across Canada are running larger deficits," said APEC senior analyst Fred Bergman.

Former Liberal finance minister Heath MacDonald, now part of the third party caucus in the legislature, responded to Wednesday's budget by saying he was puzzled that there was an increase in spending in every department contributing to the $173 million deficit.

There was no evidence of any effort to control spending, said MacDonald.

But Bergman said the deficit is not as bad as it sounds.

"That $173 million deficit, it's about 2.4 per cent of their nominal GDP," he said.

"2.4 per cent is a manageable deficit."

Deficits that get up around four to five per cent of GDP can be a problem, and in those cases it can take quite a while to get back to balance, he said, but deficits of between one and two per cent are not unusual for governments, even during normal times.

"A 2.4 per cent deficit in the middle of a pandemic is not that bad," Bergman said.

"Is it significant? Yes, it is. It's huge compared to, going back to 1980, the last 40 years."

Bergman cautioned this may not be the last word on the deficit. In the early days of the pandemic, APEC forecast a P.E.I. deficit of a little more than $100 million. But since that projection, there have been new program announcements.

A second wave of COVID-19 could prompt more spending and increase the deficit further, he said.

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