CANADA UNVEILS AID PLAN
$27 billion just a start: Morneau
OTTAWA • Finance Minister Bill Morneau laid out a sweeping $27-billion aid package on Wednesday, part of an effort to shield families and businesses from economic fallout amid the growing COVID-19 pandemic.
The aid package, which came alongside another $55 billion in tax deferrals and low-interest loans, is the first of several measures set to be announced by the Liberal government in a bid to lessen the blow from the virus, which has pummeled global markets and brought the Canadian economy to a screeching halt.
The measures included expanding eligibility criteria for employment insurance, a temporary boost in monthly payments of the Canada Child Benefit, and a one-time GST tax credit for low-income families, among other things. The policies come as part of a joint effort by the Bank of Canada and private lenders in recent days, which have slashed interest rates and deferred mortgage payments for struggling households to cushion against the coming downturn.
Observers broadly applauded the aid package on Wednesday, but the head of Canada’s small business coalition said the “underwhelming” measures don’t go far enough to stem job losses.
Morneau detailed plans to cover 10 per cent of payroll costs for small companies, up to a maximum of $25,000 per firm. But Dan Kelly, head of the Canadian Federation of Independent Business, said that number will have to get much higher in order to stave off widespread layoffs, which are expected to come soon as small businesses are forced to shut their doors amid the COVID-19 outbreak.
Higher unemployment levels will in turn crimp the potential recovery once the virus is contained, he said.
“If we have severed the links between employers and a whole bunch of employees, it’s going to take way longer to get back to full steam. And we need to make sure that we can do that almost immediately.”
Several European countries have introduced wage subsidies closer to 75 per cent, which Kelly said would still represent a significant 25 per cent cost for firms whose cash flows have evaporated. Several provinces have declared a state of emergency due to the COVID-19 outbreak in recent days, shutting down schools, restaurants and public venues, in turn obliterating cash flows for thousands of small companies.
“I think the government is struggling to get its head around the fact that the economic effects are likely far greater as a result of self-isolation of Canadians, rather then the specific health effects,” Kelly said.
IMAGINE THE GOVERNMENT … PAYING 75 PER CENT OF THE SALARIES OF ALL THOSE PEOPLE.
Perrin Beatty, head of the Canadian Chamber of Commerce, applauded the aid package on Wednesday, saying it would provide much-needed support to struggling firms in a timely manner.
“The most important thing right now is speed,” Beatty said in an interview.
The spending plan kicked off a broader debate on Wednesday over how the Liberal government should have structured its emergency fiscal response, and whether it will allow capital to flow to companies fast enough.
While some observers criticized the 10 per cent threshold on wage subsidies, others said such policies could quickly get unwieldy.
“It’s very, very expensive— can you imagine the government of Canada paying 75 per cent of the salaries of all those people that were laid off?” said Yves Giroux, Ottawa’s Parliamentary Budget Officer.
“I don’t see anyway where you could keep all the people employed, preventing job losses, when you have restaurants, airlines and other firms shutting down,” he said.
Morneau on Wednesday said the government would be announcing further measures in coming days, and said “nothing is off the table” in terms of policy.
“We are going to continue to consider the emerging evidence of these challenges,” Morneau said Wednesday, in response to questions about the level of wage subsidies.
With such a large chunk of Canada’s population in self-isolation, the policy debate played out in real time on social media among academics and policy wonks. There was general support for the aid package, although some experts were concerned that it was not sufficiently large or that the money won’t flow quickly enough.
One way around that problem would be for the government to focus on keeping businesses solvent by deferring a bundle of payments they would normally be making. The government can do things on the policy front, but it can also stop doing things that might be detrimental, wrote Mike Moffatt, an assistant professor at the Ivey Business School.
“An obvious policy here is simply to allow businesses a delay in remitting the HST (and) EI they normally would,” said Moffatt. “This doesn’t change their balance sheet any. They’d still need to pay it eventually but it increases solvency.”
Using existing programs, especially if people have direct deposit set up, could be quicker than sending out cheques, argued University of British Columbia economist Kevin Milligan.
After some quick calculations, Milligan said he estimates that the government is expecting 1.5 million recipients for the Emergency Care Benefit, for workers who don’t qualify for the employment insurance sick leave.
Because those benefits use the employment insurance program, people will have to fill in an application to get it. That could slow everything down, argued Ken Boessenkool, an economist and longtime Conservative policy researcher.
“Now is not normal and I’m worried that the measures announced will take time and increase person-to-person interaction,” said Boessenkool.
These application-based programs are a good way, in normal circumstances, to make sure people properly qualify for the programs. But in the midst of a global pandemic, the government is being urged to err on the side giving out too much money, rather than being stingy.
“Normally, we focus on negative incentive effects: we worry that people might choose not to work if benefits are ‘too easy’,” said Milligan. “Here, in a pandemic too easy is a feature not a bug. This is bizarro world, but here we are.”