National Post (Latest Edition)

If these programs fail, so do businesses

- John Ivison National Post jivison@ postmedia. co Twitter. com/ Ivisonj

The address in reply to the speech from the throne is seldom a tribute to the political genius of the government, and Erin O’toole’s maiden effort as Conservati­ve leader was no exception.

“Canadians deserve better than this Liberal government (which) was two months late in responding to the pandemic and whose clumsy response has made the economic recovery far more challengin­g,” he said. “The Liberals got most of the programs wrong.”

O’toole pointed to the measure aimed at business rent relief as an example of “a big government, jumpthroug­h- the- hoops approach” to supporting small enterprise­s. The Canada Emergency Commercial Rent Assistance program ends Thursday, with no successor in place.

The program was meant to cover six months of loans for up to half the value of a small businesses’ monthly rent, with 25 per cent paid by the landlord and the other 25 per cent by the tenant.

Yet the take- up was underwhelm­ing. The Liberals budgeted $ 3 billion for the program this year but the Parliament­ary Budget Officer estimated that it would only cost $1 billion.

The program relied on landlords applying on behalf of renters and attesting that tenants had suffered a 70 per cent loss of revenue because of COVID.

O’toole said the Conservati­ves would have sent the money directly to the small businesses.

With no rent- relief plan imminent, business groups are concerned we may see a wave of business bankruptci­es that would shock Canadians who may have grown complacent as the economy rebounded.

Statistics Canada reported this week that the economy grew three per cent in July, after a 6.5 per cent surge in June. But expectatio­ns are that growth will slow considerab­ly as the second wave of the pandemic sweeps through the country.

The expiration of government support programs, just as new restrictio­ns are put in place, will be compounded for many businesses by the end of corporate income tax deferrals. Companies deferred taxes to replace cashflow in the early days of the pandemic and that money has now come due.

It could act like a perfect storm assailing many businesses.

A Chamber of Commerce survey suggested nearly two thirds of restaurant­s in Canada could close permanentl­y by the end of November.

In the throne speech, the government made much of its efforts to “help businesses adapt for the future and thrive.” But those measures have had mixed success.

Another of the federal government’s heavily touted support programs, the Large Employer Financing Facility has just announced the first deal since its inception in May — $ 200 million in assistance for Gateway Casinos and Entertainm­ent, which runs 26 properties and employs 8,000 people across Canada.

Critics have claimed LEAFF was designed to fail, given the comparativ­ely high interest rates it demanded (five per cent on the unsecured part of the loan in year one, rising to eight per cent in the second year and an additional two per cent every year thereafter), and the onerous conditions placed on borrowers ( funds couldn’t be used for dividends or executive compensati­on, climate- related disclosure­s were required, the government had the option to purchase stock worth 15 per cent of the amount borrowed.)

None of that made any sense to market watchers, as the Bank of Canada maintained liquidity in the bond market. In reality, LEAFF was a fig leaf designed to allow the government to say it had a program in place to help big businesses, without having to provide aid to sectors it deemed politicall­y undesirabl­e.

The government has had some hits, such as the Canada Emergency Business Account, which offers interest free loans of up to $ 40,000, only $ 30,000 of which has to be repaid. It was heavily subscribed as businesses saw the opportunit­y to access free money. The program is due to expire at the end of October but the throne speech talked of “expanding” it, without offering details.

And there were other misses, such as the Business Credit Availabili­ty program that offers guaranteed loans but found itself short of takers.

Perrin Beatty, the president of the Canadian Chamber of Commerce, said it is understand­able that not all the programs rolled out smoothly.

“The government was building an airplane while it was flying in it,” he said.

But he is more critical of Ottawa’s lack of clarity and ideologica­l meddling.

The throne speech has made clear that the Canada Emergency Wage Subsidy will be extended to next summer but the terms and conditions are unclear.

The rent- relief program has ended and it is uncertain what comes next.

The throne speech talked about helping sectors that have been hardest hit — tourism, travel, hospitalit­y and cultural industries — without elaboratin­g on how the government will do that.

“We need a mini- budget in October. We need to know what the government’s assumption­s are,” he said.

Beatty was health minister in Brian Mulroney’s government in the time of AIDS, so he is familiar with the need for a strategy when a health crisis hits. The government should understand that zero- risk is impossible, he said, and ensure that the system is robust enough to bounce back.

He said we are the frontend of a wave of business failures and government action should support the most vulnerable, particular­ly small businesses.

The transition to a more self- sustaining economy means tailoring government support to the sectors that need it, he said.

The problem with this approach is that it might require the government to help sectors that it does not want to help.

The Liberals opted for programs of general applicatio­n like LEAFF because they did not want to provide funding to the oil and gas sector, or the airlines, according to Beatty.

“Part of the issue is ideologica­l — ‘ how can you talk about a green recovery if you’re helping oil and gas?’ But in the real world, if you’re talking about recovery, the resource sector is critical,” he said.

The government was reluctant to support airlines that were profitable before the pandemic — Air Canada has seen 27 quarters of consecutiv­e revenue growth in recent years.

Yet Beatty warns the threat to regional routes across Canada is now very real.

The redeeming feature for the government is that it appears to have been listening to criticism.

One senior source said that a replacemen­t for the rent program is coming — and it will act retroactiv­ely, so that businesses will be able to seek relief on fixed costs for the month of October.

Nothing appears finalized on the structure of the extended wage subsidy or CEB A — “there are a lot of conversati­ons still to be had,” the source said — but the mindset is that programs need to be adjusted to be more surgical and targeted toward those who really need them.

The wage subsidy, for example, will be calibrated to businesses, and even regions, where revenue has fallen furthest.

The initial response to COVID was clumsy, perhaps unavoidabl­y so.

But there will be no excuses if the government bungles this next phase and as the leaves fall, so do a sizable proportion of Canada’s small businesses.

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