One impact COVID-19 is going to have on governments - all levels of government large and small, from municipal to federal governments (and everything in between), will experience deficits in the near-term that will likely carry-on in the months to come. 

The good news in this, if there can be a silver lining about this, is that governments have been here before. Most governments have even seen worst cases of deficits compared to what's happening today. 

Here's an interesting tidbit: For every $100 worth of wage subsidies being handed out, a significant amount goes back to the government in the form of income and sales taxes. So the $100 isn't the exact cost to the government. It's closer to $79. That means $1 of every $5 that the government gives out in wage subsidies is likely funneled directly back to the government. And sales taxes still run anywhere from a few percent to 15%.

Declining revenue

Provincial governments will likely see a combined decrease in revenues of approximately $20 billion. That's a big drop. And provinces like Alberta that are also being battered by a massive drop in oil prices, it's going to be a while before things get better. The current drop in oil prices is so large that we can expect most proposed pipeline and production projects to be put on hold for months (if not years). The loss in high-paying jobs those projects would have brought will make it more difficult to dig out of the current recession.

One can only hope that governments will invest in infrastructure projects like roads and pipelines so that it gets people back to work sooner, and we come out of the recession with tangible benefits that can move the country forward long-term. RBC Economics recently posted a blog that compares our current deficits to the historical highs. READ THEIR BLOG HERE 

Will things get better by the end of the year?

There's talk that the economy will start growing in the last quarter of the year. We've heard all angles on this: Maybe later this summer, maybe next spring. The challenge for governments is getting into the Play-Pause game, where they open things up a bit only to shut things down again because COVID-19 starts escalating again. Opening too soon and going into lock-down shortly thereafter may send markets into a tailspin.

History does have a way of teaching us lessons. We'd all be wise to read up on the patterns of the Spanish Flu and ensure we don't relax things too much before an effective treatment or vaccine has been found. Wikipedia has a detailed article that you can read. READ IT HERE 

We believe things will indeed get better provided governments don't cave-in to public pressure to fully re-open the economy. History tells us there's likely going to be a 2nd wave of this, and it may well be worse than the first. If that's true, governments would be wise to re-open the economy slowly and methodically.