The actions to combat the covid 19 outbreak have been likened to those taken in a war. The comparison is appropriate. Although this is not a conventional war, society is disrupted and many innocent lives are lost. Nonetheless, governments must continue to operate a myriad of public services, particularly health, whilst simultaneously providing support for struggling individuals and businesses affected during this pandemic. The expenditures for such services are essentially derived from taxes. However, during this turbulent period as job losses increase and strapped consumers reduce their spending, there is and will continue to be a noticeable decline in tax revenues. This is also occurring at the same time when there is the expectation that governments will be obliged to increase its spending, most notably on long term residences to alleviate the crisis faced by Quebec’s older citizens who have been severely impacted by the covid -19 pandemic
The result is an unavoidable and burgeoning fiscal imbalance which obliges governments to borrow, and in this case, an enormous amount, which will take a significant time to repay. Regarding how long this period can last, it may be instructive to consider the example of Britain in its two World Wars .In both conflicts, the country was obliged to borrow money to help finance the war effort. In 1945, Britain received billion-dollar loans, issued principally by the US, with a lesser sum from Canada. These loans permitted Britain to avoid bankruptcy at the end of that war. Yet, it was only in 2006 that Britain made its final payment on those loans taken sixty years previous. Even more astonishing was the announcement in 2014 by the British Chancellor that the WW1 loans taken in 1915, were to be finally paid off by his government in March 2015.
Although it seems unlikely that it will take a century to repay the substantial debts inflicted by the ongoing ‘covid war’, it may take a significant time, to return to ‘prewar’ normality, and much longer to discharge those financial obligations. To do so, it difficult to accept the recent government pronouncements that there will be no increase in taxes, but surely there little likelihood of much budgetary room for public sector wage increases. Viewing the present economic situation with a realistic eye, it is difficult to avoid seeing an uncomfortable period of government austerity ahead.