‘People need to pay their bills’

There’s a unique problem at the heart of the government’s response to the downturn caused by the COVID-19 outbreak: the more people follow the guidelines laid out by public health officials, the worse the economic crisis will be.

If everyone stays home like they are being advised, many will miss out on income. And if nobody shops and eats in restaurants, businesses will see plunging revenues and possibly bankruptcies. That means governments will be casting their eyes beyond the usual policy of blasting out cash as they look to prop up families and businesses losing income due to quarantines.

Rather than targeting money in ways that will stimulate consumer spending, the government will be helping to pay the bills.

“It’s no time for being cute with this. It’s just a question of getting stuff out to families as best as we can pretty quickly,” said University of British Columbia economist Kevin Milligan, who said the government should err on the side of too much aid. “Most important thing is, when people are saying, ‘Should we do this or that?’ the answer is both.”

Normally stimulus is used to juice the economy by stimulating demand, but the last thing the government wants right now is for people to leave their homes and mingle in public places, possibly spreading the COVID-19 virus. Ontario even took the extraordinary step on Monday of urging bars and restaurants to close.

“We don’t really have a framework to think about this,” said Sean Speer, who was an economic adviser to Stephen Harper during the response to the 2008 financial crisis. “It’s less about increasing demand and more about keeping people whole in order to ensure that they continue to comply with public health objectives and interventions.”

Speer pointed out that if people are short on cash to pay bills they will be less likely to self-isolate purely from the need to support themselves and their family.

Milligan said the aim of government right now is to provide a bridge for people who are not receiving a paycheque but still need to pay their bills and rent. And even businesses with strong fundamentals will be seeing a sudden drop in revenue and will need emergency cash.

“When eventually we can leave our homes and go back to our offices, we’re going to need to have childcare spaces,” said Jennifer Robson, an associate professor of political management at Carleton University. “We want our childcare spaces to have been able to continue to make the rent payment, for example, so that they don’t fall into financial hardship and have trouble actually reopening.”

Money will soon be flowing to businesses. On Friday, the government announced looser lending limits, so banks will be able to lend out more money. Finance Minister Bill Morneau said $10 billion in credit will also be available to small and medium-sized businesses through the Business Development Bank of Canada and Export Development Bank.

Speer also argued for a temporary enhancement to the charitable donations tax credit to help sustain places of worship and other charitable organizations like the food bank. Many of these organizations could be suffering a severe, but temporary, shortfall in donations that could be an existential threat.

Prime Minister Justin Trudeau hinted last week that the government would be offering support to workers who are suffering a disruption in pay and to workers who aren’t eligible for employment insurance benefits. Milligan said the government should also be pushing cash out to families as quickly as it can, preferably in a matter of weeks.

Existing programs, like the Canada Child Benefit, Old Age Security and the Guaranteed Income Supplement, could be used to funnel money directly to Canadians.

Milligan said it would be somewhere in the region of $400 per person or $1,000 per family, which would cost around $10-12 billion.

In the most optimistic potential scenarios, the money would get most Canadians through the partial shutdown and then things would slowly go back to normal.

In the short-term, though, the economy is likely to fall off a steep cliff while Canadians stay home.

On Monday, the economists at the American investment advisory firm First Trust wrote that they were bracing for a 10 per cent contraction in the second quarter, which would be the worst quarter in more than half a century. A strong third and fourth quarter would likely follow.

“Fingers crossed, we expect that six months from now, the economy will be going again,” said Milligan. “But in the meantime, people need to pay their bills, so we need to bridge these families’ ability to provide the basics over the next few months.”

ADRIAN WYLD / THE CANADIAN PRESS Rush-hour traffic was light crossing a bridge between Gatineau, Que., and Ottawa on Monday as governments have advised workers to stay home. Prime Minister Justin Trudeau has hinted that help for workers is possible.