The federal government is taking the threat of a flu pandemic seriously. The new budget allocates $1 billion for pandemic preparedness.

The government warns that a flu pandemic represents a threat to its economic outlook (along with more tangible risks, such as commodity prices, global fiscal imbalances and collapsing U.S. housing prices). It notes that there have been widespread outbreaks of H5N1 influenza virus in birds and about 200 human infections. So far, those human infections have been associated with direct contact with infected poultry. The concern is that the virus could mutate allowing human-to-human infections.

The government admits there is no indication that avian flu is becoming directly transmissible between humans. But, it warns, “A pandemic at some future date could have economic consequences.” It predicts that an outbreak similar to the flu pandemic of 1918 would cause “a brief but noticeable reduction in GDP growth” due to higher worker absenteeism and reduced spending. A milder pandemic would probably have smaller effects on the economy, it suggests.

Others are not nearly so sanguine about the impact of a possible pandemic. Earlier this year, BMO Nesbitt Burns Inc. issued a report indicating, “Unlike other natural disasters or terrorism, pandemics are prolonged and pervasive, so the net economic loss is substantial and extended.”

Its model predicts that a mild pandemic would reduce annual GDP growth by two percentage points (US$20 billion in Canada and US$1.1 trillion worldwide), and a severe pandemic similar to the 1918 flu would reduce global GDP growth by six percentage points (US$60 billion in Canada and US$3.2 trillion worldwide).

Given that the possibility of a pandemic and its magnitude are inherently unknowable, the government is investing in preparedness. The budget devotes $1 billion over five years to this end — $600 million to be allocated to departments and agencies and $400 million to be set aside as a contingency.

Of the $600 million that will be spent, the majority — $367 million — is going to the Public Health Agency of Canada, which was created, in part, to respond to growing concerns about the capacity of the public health system to deal with such threats. The Canadian Food Inspection Agency gets $195 million, Health Canada receives $16.5 million and the Canadian Institutes of Health Research gets $21.5 million to fund a variety of pandemic preparedness activities.

“This includes the purchase of additional anti-virals for the national stockpile, animal health guidelines and surveillance for wild birds and commercial poultry, laboratory enhancements and research, and improvements in vaccine readiness and emergency management preparedness,” the budget explains.

The $400 million contingency will only be tapped if necessary, “… if a pandemic were to occur or the current planning environment were to change significantly,” it says. “The contingency would be used to enhance Canada’s preparedness if an elevated pandemic risk were to occur and to address increased operational requirements during a pandemic influenza outbreak, for example to maintain emergency operations at a higher state of activity.”