Expansion of programs part of Ottawa’s struggle to wind down spending
Programs could translate into chronic budget deficits
OTTAWA — A suite of new and expanded relief programs aimed at helping small businesses is the latest example of the immense challenge facing Ottawa as it seeks to wind down its costly COVID-19 support programs, experts say.
Finance Minister Chrystia Freeland last week announced extensions to a number of already sizeable COVID-19 programs, as well as the new Canada Emergency Rent Subsidy (CERS), designed to support small businesses clobbered by pandemic lockdowns. The federal government has yet to release a cost estimate for the changes, and details on the rent subsidy have not been made public.
Observers including Parliamentary Budget Officer Yves Giroux have for months cautioned Ottawa against allowing temporary COVID-19 programs to become permanent, which they say could translate into chronic budget deficits and weaken Canada’s fiscal position.
While Giroux and others have said that the relief programs were largely necessary as a way to offset lockdowns, they have urged Ottawa to control spending where possible and provide credible plans to return to budgetary balance. The Liberal government has not tabled a budget since the beginning of the pandemic, and has yet to establish a new fiscal anchor. Freeland has said she would provide a limited economic update before year end.
“The more these programs keep being extended and expanded, the more expensive, obviously, they become, and the more questions are raised about the long-term sustainability of Canadian finances,” Giroux said in an interview.
“And the absence of a budget, the absence of a medium-term plan, just builds on that uncertainty.”
Among the changes announced by Ottawa last week, the Canada Emergency Business Account (CEBA), which provided up to $40,000 in loans to small businesses, has been expanded to a limit of $60,000. Business owners who pay back the governmentbacked loans within a certain time period can keep as much as $20,000, up from the previous cap of $10,000.
The government also announced it would maintain current rates under its flagship Canada Emergency Wage Subsidy (CEWS) program until the end of December, which pays up to 65 per cent of labour costs for companies. That rate was supposed to be gradually trimmed back until the end of the year.
Freeland last week sought to downplay the total cost of the changes, saying the new programs were “not for everyone” and would only benefit the hardest-hit industries.
Some economists have urged Ottawa to begin trimming back rates under the CEWS, which has now been extended to June 2021, saying overly generous benefits threaten to slow economic growth.
“It’s going to make recovery much more difficult,” said Jack Mintz, economist and professor at the University of Calgary. “By not ramping down at least the rates, I think we’re making a huge error.”
The Liberals last month effectively sought to lower their key emergency benefit to $1,600 per month, as the easing of pandemic lockdowns allowed Canadians to return to work. That effort was eventually abandoned after the NDP negotiated to keep the rate at $2,000 per month.
A similar resistance to lowering rates could be met with the newly announced rent subsidy program, which will cover one of the private sector’s single-biggest costs. The CERS will pay up to 65 per cent of rent for companies based on their individual revenue losses, with an additional 25 per cent subsidy for particularly hardhit firms.
“It’s basically the wage subsidy but for rent,” said Trevin Stratton, chief economist at the Canadian Chamber of Commerce.
Industry representatives say restaurants, retailers, hotels and entertainment providers in particular have been obliterated as lockdowns persist, making government assistance programs critical. New restrictions in Ontario and Quebec have thrust many small businesses back into panic mode.
Meanwhile, other industries like manufacturing, financial tech and, to a lesser extent, construction, have seen a resurgence in recent months that has kept output much nearer pre-COVID levels. Economists are referring to the phenomenon as the so-called “k-shaped recovery,” in which the weak and strong sectors in the economy begin to take on very different trajectories.