National Post (National Edition)
End of CERB RISKS dealing BLOW to recovery
If the federal government isn't careful, its decision to wind down the Canada Emergency Response Benefit could deal a blow to people's livelihoods and blunt the country's economic rebound from the COVID-19-caused downturn.
The $2,000-a-month CERB — which, on Sept. 27, Ottawa will start transitioning recipients away from, bringing in a “simplified” Employment Insurance program and other temporary benefits instead — has helped millions of people who had to stop working because of the coronavirus pandemic.
In doing so, the benefit has acted as a lifeline for the Canadian economy, helping to keep consumers spending and solvent, as well as businesses operating. The Bank of Nova Scotia estimates the economy is growing at an annual rate of close to 50 per cent so far this quarter, which would undo much of the damage that occurred in the second quarter, when gross domestic product decelerated at a rate of about 40 per cent, according to Statistics Canada.
But the decision to shift away from the benefit and towards something else comes at a delicate time for Canada's economic recovery from the pandemic and its related lockdowns and restrictions.
Most economists assume the rapid rebound that came with the recovery's reopening phase will slow over the winter and into 2021, as health restrictions curb both supply and demand. COVID-19 case numbers have also been rising again recently, stirring fears of a second wave of illnesses and lockdowns.
“People are depending on those cheques to pay rent and buy groceries,” Canadian Labour Congress president Hassan Yussuff said in an interview. “And, more importantly, it's what's been keeping the economy to a large extent going.”
The federal government said CERB was necessary, but that it was meant to be a temporary measure, one that will likely cost more than $80 billion. That cost estimate (as well as that for a projected deficit of $343.2 billion in 2020-21) came before August's announcement that the benefit would be extended by another four weeks, with the overall plan to replace CERB, tweak EI and institute new benefits costed at around $37 billion.
Ottawa also is under pressure from business lobbyists, who argue that overly generous benefits could make it harder for companies to lure employees back to work. The new EI program will be a “more flexible and generous” one, the government said.
Yet Canada is still about one million jobs short of where it was before COVID-19 hit, and eliminating or reducing income support could weaken one of the engines of the country's economic recovery: consumer spending.
Canadian retail sales went from $52.2 billion in pre-pandemic February, to $34.7 billion in April, to $52.9 billion in July, according to Statistics Canada. The Conference Board of Canada earlier this year said CERB “has been an income boost to many households and is likely a big reason why retail sales have recovered ahead of other parts of the economy.”
The income boost could be weaker as EI changes and the new Canada Recovery Benefit comes into effect for a year. The new minimum EI benefit rate is $400 per week, or 20-per-cent less than what CERB offered, a recent report from Toronto-Dominion Bank noted.
“Federal government income support programs and payment deferrals by financial institutions have so far been paramount for averting the delinquency tsunami and protecting the economy,” TD Bank economist Ksenia Bushmeneva said in the report.
“However, these supports are beginning to wane while unemployment remains higher than the peak seen during the last recession, not to mention the risk of the second wave of infections that might be looming.”
Some individuals who were kept afloat by CERB could begin to go under, one of the reasons the Bank of Canada predicts the sharp rebound that came with the easing of lockdowns will turn into a choppy recovery.
Bushmeneva predicted that loan-delinquency rates and consumer insolvencies will likely start rising at the end of this year and into 2021, albeit at a “more gradual and less dramatic” rate than would have happened without CERB and other government measures.
Even if people and businesses avoid going bust, the economy still could suffer because so many households and companies will be focused on staying solvent, rather than spending.
The Canadian Centre for Policy Alternatives (CCPA), a left-leaning think-tank, has estimated that around four million Canadians will be taken off CERB, and that 2.7 million of those people will be worse off financially.
Most current CERB recipients, about 2.1 million, will qualify for the new EI program. However, approximately 482,000 of them will lose federal income support, the think-tank projected.
“Income supports are critical to individuals but, also, to our country's economic stability and positioning for a recovery,” CCPA economist David Macdonald said in a blog post. “Consumer spending, largely due to the rapid roll out of the CERB, has been mostly responsible for keeping the economy afloat since March.”
CERB and other government transfer payments also helped drive up the amount of money that Canadians are saving during these uncertain pandemic times, the TD Bank report found.
Quarterly savings rose to around $3,340 in the second quarter of 2020, from $380 per adult for the last three months of 2019, TD said. The added cash could mean that Canadians may still have a bit more in their savings account to tide them over even if some of them are receiving less income support from the government.
“Savings always overshoot in a shock and if the release of this pent-up demand continues then it could still mean decent growth even if income supports wane,” Derek Holt, head of capital markets economics at Scotiabank, noted last week. “The wild card, of course, is up to you in managing COVID-19 risk of curtailed reopenings and other effects.”
Under the streamlined EI scheme the government has outlined, only 120 hours of work over the past year would be required to qualify for benefits, far fewer than the 420 to 700 hours needed before, depending on the unemployment rate where a person lives. The minimum benefit rate will be $400 per week, available for at least 26 weeks.
The government is aware that some people will be stranded without CERB. In addition to the EI changes, Prime Minister Justin Trudeau is proposing to bring in new benefits, such as the $400-per-week Canada Recovery Benefit (CRB). The program will provide the money for up to 26 weeks to self-employed or EI-ineligible workers who still need income support and are looking for work.
To help implement the new benefits — including the proposed Canada Recovery Sickness Benefit and Canada Recovery Caregiving Benefit — the Trudeau government, which prorogued Parliament until Sept. 23, has said it is planning to introduce new legislation. The three temporary and taxable benefits would stay for one year, as would the lower bar to qualify for EI.
The changes to EI have also opened the door for more talk of additional reforms to the program, and the success of CERB has spurred further discussions about the possibility of a guaranteed basic income.
Small businesses appreciate that the EI changes are temporary — and also appreciate the government freezing the EI premium rate for two years — but the Canadian Federation of Independent Business is concerned about the benefits being generous enough to keep people from returning to work.
“The number of hours of work required to get the benefits is very low,” said Jasmin Guénette, CFIB vice-president of national affairs. “And already small businesses are struggling to bring their employees back.”
That struggle could weigh on Canada's economic recovery, the CFIB contends. However, the Canadian Labour Congress' Yussuff said the monthly jobs numbers suggest that people do indeed want to go back to work. In August, the economy added another 246,000 jobs, after gaining 419,000 in July and 1.2 million in May and June.
If people are reluctant to return to work, Yussuff said, it is typically due to concerns about health and safety.
“But I think from every evidence that I've seen so far, people do want to go back to work, because they recognize having a job is far more important for them than being on a benefit, because they know benefits do come to an end,” he said.