Will the next iteration of COVID-19 assistance keep Canadians in their homes?

Will the next iteration of COVID-19 assistance keep Canadians in their homes?

Will the next iteration of COVID-19 assistance keep Canadians in their homes?

Three hundred and forty-three billion dollars. It’s not often you hear numbers like that associated with Canada. Even the country’s largest infrastructure project, the LNG colossus going up in Kitimat, B.C., is estimated to come in at $40 billion, and that’s over a years-long timeline. But that $343 billion is all ours: It’s now the estimated budget deficit for the Canadian government for 2020 alone, and that’s not even counting the deficits being run at the provincial or municipal levels.

Propping up an economy while a pandemic tries to pull it down sector by sector is expensive work, particularly for a country with a tax base as small as Canada’s. But the heavy lifting isn’t over yet. Millions of Canadians are still out of work, tens of thousands of small businesses are expected to close, and a “devastating” second wave of COVID-19 infections is still very much in the cards for the fall, which, in case you haven’t looked at a calendar in a while, is only weeks away.

The government will inevitably need to keep spending, but without knowing the future, deciding how much aid Canadians still require, and what the feds can afford to keep doling out, is a complicated guessing game.

What’s up with CERB?

The Canada Emergency Response Benefit has been sending $2,000 a month to Canadians since the application process began on April 6. Originally scheduled to last sixteen weeks, CERB was extended for another two months at the beginning of July. That means anyone who started receiving CERB funds in April will see their benefits dry up in September.

As of July 26, over 8.4 million Canadians had applied for CERB, resulting in government cheques totalling almost $63 billion.

CERB has been controversial, to say the least. Some describe it as a “lifeline” responsible for keeping millions of Canadians housed and fed, others point to the rampant abuse of the program by recipients who experienced no job disruption. As provincial economies opened up in June and July, some critics felt the amount of money being sent to CERB recipients was disincentivizing them from returning to work. National Bank of Canada found that in some industries CERB replaced more than 80 percent of the average worker’s lost income. It increased the average income of accommodation and food service workers by 19 percent.

“That is a tremendous disincentive,” says Michael Gregory, managing director and deputy chief economist at BMO.“There are a lot of anecdotes of businesses starting up and having a hard time finding the labour they need.”

But Gregory insists that turning off the taps isn’t an option.

“Cold turkey? No. Having had the economy on this life support – ‘liquidity support’ is a better term – just to cut it off immediately would not be an appropriate response,” he says.

RateSpy founder Robert McLister says Canada isn’t even close to being in a position to cut CERB completely.

“Canada is still down almost 2 million jobs, has over a half-million more on permanent layoff and not seeking work, has millions more with reduced hours or earnings, and has one of the highest unemployment rates in the G20,” he says.“Fiscal support is Canada's respirator. You don't want to pull the plug until the country's breathing on its own.

What about CEWS?

The extension of the Canada Emergency Wage Subsidy provides more of a clue as to which basket the government may be shifting its eggs into. The program, which covers up to 75 percent of employee wages for eligible businesses, has been extended twice, first until August 29 and again until December.

The extension means CEWS is locked in far longer than CERB, signaling the government’s intent to both get Canadians back to work and Conservative critics off its back.

"It's going to be critical for the economy, one way or the other, that we transition Canadians off the (income support) and onto the wage subsidy," RCB economist Colin Guldimann told Reuters.

But if businesses continue faltering throughout the summer, or a second wave of COVID-19 flares up in the fall and causes more of them to close, their workers may not have wages left to subsidize.

The new scenario - EI

On July 31, the Trudeau government announced it would be transitioning CERB recipients to the federal employment insurance program in September. Details were scant, but Trudeau insisted “no one will be left behind”.

“EI should cover every Canadian who is looking for work, and for those who don’t qualify for EI right now, like gig or contract workers, we will create a transitional, parallel benefit that is similar to Employment Insurance,” the Prime Minister said.

Under the new EI plan, recipients will be allowed to earn money while receiving benefits. The updated system will reportedly make allowances to broaden eligibility and relax the number of work hours needed to qualify.

According to Gregory, this was the government’s best remaining option.

“Right away, you take it from being an emergency response to being a part of the normal response with a little more latitude or flexibility, which could be cheaper for the government anyway,” he says.

It may be cheaper than CERB, but an expanded EI program means the government will still be on the hook for billions and billions of dollars if Canadians cannot return to their jobs. That can’t go on forever. The U.S. allowed its $600-a-week expanded unemployment insurance program to expire on July 31, with no alternative proposed, despite the country’s inability to get COVID-19 under control and get Americans back to work.

McLister, though, doesn’t think Canada will have the option of ending financial assistance until the COVID-shaped crater in the job market fills itself back in.

“Fiscal prudence is out the window,” McLister says,“and our leaders are too invested to pull out early. They'll happily keep spending taxpayer money until most, or all, jobs come back.”