The country’s fiscal status will be affected for many years to come,
Massive support to wages staved off permanent economic damage
The federal government is placing its bets on a beefed-up wage subsidy to take the Canadian economy out of crisis and set it on a steadier footing — even though the program is likely to add $82 billion to the alreadygiant deficit.
Finance Minister Bill Morneau has just released his first full accounting of the pandemic relief, and so far, the direct aid he has rolled out since March totals about $228 billion, driving the deficit for this fiscal year up to an enormous $343.2 billion and counting.
The money appears to have formed a floor under the collapsing economy.
As companies and workplaces everywhere shut down and moved their operations into people’s homes, putting a third of the labour force out of work, the federal government moved in with massive support in the hopes of staving off widespread bankruptcy and permanent economic damage.
The fiscal snapshot lays it out, arguing that the federal money did indeed prevent a worst-case scenario. Without the federal spending, the Canadian economy would have contracted by about 11 per cent in 2020. With support, it’s expected to shrink by 6.8 (in real terms) per cent this year, according to private sector estimates.
Similarly, unemployment will hover just under 10 per cent on average this year; but without support measures, it would have averaged about12 per cent.
“Those who would have us do less ignore that without government action, millions of jobs would have been lost, putting the burden of debt onto families and jeopardizing Canada’s resilience,” Morneau said.
It’s important to remember that the downturn, by many economic indicators, has been just as bad as the Great Depression. But back then, Canadians had to boil their shoes to make soup. This time, while the job loss has been horrific, most people in need were able to claim the Canadian Emergency Response Benefit (CERB).
But it comes at an enormous cost that will affect the country’s fiscal status for many, many years. The CERB alone is budgeted to cost $73.1 billion this year, and Morneau made it clear on Wednesday that he hadn’t yet factored in the full cost of stimulating the economy back to health once we start to turn the corner.
“If there is a resurgence, we are ready to do more,” the finance minister told the House of Commons.
The CERB was the aid instrument of choice during the emergency phase of the crisis, and the finance documents suggest it will wind down soon, and unemployed people will be moved over to a revamped Employment Insurance system.
Instead, the government will lean heavily on the wage subsidy to pick up the slack, and make sure the floor they placed under the economy remains intact and serves as a basis for recovery.
The subsidy has been going to companies that have lost at least 30 per cent of their revenues compared to last year and pays for 75 per cent of their payrolls.
It had slow liftoff when it was first announced, but has become more and more central to how firms in Canada are getting back to work at half-speed, while dealing with the impediments of the pandemic.
Ottawa is budgeting for an additional $52 billion into the wage subsidy for a total of $82 billion this year, the documents suggest.
While Morneau has already announced an extension of the program until the end of August, he is still negotiating the terms of the extension. And it’s clear he is considering loosening the requirements, expanding the program’s reach and perhaps lengthening its availability.
The subsidy is helpful because it allows companies to hire back employees even if business is a far cry from being back to normal.
But if there’s a second wave, all bets are off. A second-wave scenario put together by finance officials suggests an11.2 per cent contraction of the economy this year and a recovery that takes much longer.
The pain and cost implied in those numbers are deep indeed.