Not everyone needs a bailout

Speed trumps perfection in emergency management and the Trudeau government deserves credit for the haste with which benefit cheques were dispatched.

But we are moving beyond the initial phase of the COVID pandemic and the government is obligated to be more prudent with the way it employs the public purse going forward.

The International Monetary Fund predicts Canada’s economy will shrink more than many of its peers; meanwhile, the Parliamentary Budget Officer suggests program spending will increase by $ 168 billion this year, sending the budget $ 250 billion into deficit.

Yet, all the signs are that the Liberal government is primed to provide bailouts to sec tors that have been badly hit by the pandemic.

In some cases, the intervention may be warranted — Statistics Canada’s survey of business conditions suggested the accommodation and food services sector has seen business fall by 73 per cent.

But the government should be wary of backstopping businesses that have the financial resources to ride out the storm.

Justin Trudeau was asked about aid for Canadian airlines on Monday and said he will have more to say about sectoral support in the near future. His comments came the day Air Canada announced a $ 1- billion loss for the first quarter and an increase in net debt of $ 1.3 billion, after it drew down on its credit facilities.

It has seen demand collapse, with capacity down by 90 per cent. The pandemic has heralded the “darkest period ever in the history of commercial aviation,” said Air Canada president Calin Rovinescu.

But this is a business that has seen 27 consecutive quarters of operating revenue growth; one that has access to a further $ 6.5 billion of unrestricted liquidity; and one which has adopted the Canada Emergency Wage Subsidy to pay 75 per cent of its employees’ wages (to a cap of $847 a week) until June 6.

That’s not to say Air Canada may not be worthy of support but that should be provided on a case- by- case, rather than a broad- based sectoral basis. The same is true in retail. Trudeau has already indicated that some kind of rent relief is coming for larger retailers, similar to the emergency rent assistance granted to small businesses that have seen their revenues hit by 70 per cent.

The big retailers and mall owners are asking for low-interest government loans to cover the bulk of rents.

The pressure on the Liberals is, no doubt, intense. The Statcan business survey suggested the retail sector saw sales slide 60 per cent — and that masks an increase in sales for grocery stores. Retail employs two million people — a disproportionate number of them women.

American apparel firm Jcrew was the first major retailer to file for bankruptcy on Monday and it won’t be the last.

In this apocalyptic vision of retail, tumbleweeds blow through downtown malls across the country.

That may be a permanent consequence of COVID in any case. But should the government be using taxpayers’ money to subsidize large property companies, often owned by giant public sector pension funds, that have the resources to navigate a temporary downturn? The answer is self-apparent.

Funds from a broad-based rent relief program would flow to companies like Oxford Properties ( the real estate investment arm of the Ontario Municipal Employees Retirement System), Cadillac Fairview ( owned by the Ontario Teachers’ Pension Plan), and Ivanhoé Cambridge ( the real estate subsidiary of the Caisse de dépôt et placement du Québec).

OMERS has net assets of $ 109 billion, Teachers has $ 207 billion under management and the Caisse has $340 billion.

If they have a problem with their tenants, that is their business.

And it’s not as if those tenants are mom and pop operations.

Office supplies retailer Staples is owned by U. S. private equity firm, Sycamore Partners, which has $ 15 billion of assets under management. Harvey’s, The Keg and Swiss Chalet are all owned by Fairfax Financial, which warned of a first- quarter loss of nearly $ 2 billion but which had net earnings at a similar level last year.

These businesses are going concerns with access to liquidity. Again, retailers may not have seen any revenue for nearly 60 days but they haven’t had to pay labour costs either.

As the government considers sectoral bail- outs, it will also have to mull how to transition the economy to prepare for take-off when the shutdown ends.

It is clear after one week of the wage subsidy that there has been a miscalculation. The government set aside $ 35 billion to cover 16 weeks of emergency benefit at $ 500 a week. The expectation was that it would receive around 5.8 million CERB applications. In the event, there are now 7.3 million Canadians receiving CERB. At the same time, the Canada Emergency Wage Subsidy has undershot. The expectation was that around seven million Canadians would stay with their employers, and see three- quarters of their wage bill picked up by the government until June 6. Yet the first week of CEWS saw just the submission of applications covering just 1.7 million workers.

The government said it may take some time for large employers to make their way through the application.

“In a week, businesses have applied for the wage subsidy on behalf of millions of employees. As firms are continuing to determine their business plans and how the wage subsidy can support them and their workers, more applications will continue to be submitted, enabling eligible employers to use the wage subsidy to keep and re-hire their employees,” said Maéva Proteau, press secretary to the finance minister.

But there may also be an inertia on the part of employers and employees. “CERB is a safe comfortable place to be,” said Kevin Milligan, an economist at UBC Vancouver School of Economics. He said paying people to stay home while the economy is locked down makes sense but as it opens, the wage subsidy will be needed to give it a boost because it means businesses have a ready- made workforce.

“CEWS is an instrument of recovery,” he said. “Looking forward to the summer, there is a need to re-examine CERB. It was the right measure for the shutdown but not for opening up the economy.”

The solution may be to extend the wage subsidy into the second half of the year, perhaps at a reduced percentage of employee wages, to persuade employers to rehire and workers to migrate to the new benefit.

If more taxpayers’ dollars have to be spent to get us through this crisis, better they end up in the hands of hard- up workers than flush public sector pension funds.