By the numbers: Feds have grossly miscalculated business needs

It is baffling and bound to be punishing.

Most businesses are in no position to soon resume regular activity, yet the crucial federal backing to make payroll and retain or restore jobs is about to be sliced with no government recovery plan in sight. 

You will recall that the federal government’s message last week was: Every business whose revenue has declined from a year ago will soon get a wage subsidy, not just those hit hardest. And the program will run through mid-December, not August. True, all that.

But the reality is: Most businesses collecting the existing subsidy are about to lose a giant part of it by September.

Finance Minister Bill Morneau was deft in portraying the expansion of the Canadian Emergency Wage Subsidy (CEWS) program, and a modest top-up for the most devastated firms, instead of the sharp decline in the bread-and-butter benefits – releasing difficult news on a Friday summer afternoon is a textbook move we see often. 

But let’s look at what’s ahead. 

Today, a business whose revenue has declined year-over-year 30% would qualify for a federal subsidy of 75% of the first $58,700 of an employee’s salary, an amount that peaks at $847 weekly. This has been a lifeline for companies with weakened cash flow, with debts and doubts, and a signal from Ottawa that they have some time in the game-changing pandemic to pivot or perform.

After August, though, the subsidy for that same firm with a 30% decline from a year ago would drop by more than half. The new formula the government will use is to take the year-over-year revenue decline percentage, then multiply it by 1.2, so a 30% decline would yield a 36% subsidy. 

And the numbers worsen. At the end of September, the multiplier is reduced to only 1.0. A month later it goes to 0.8, then to 0.4 the month after that to conclude CEWS. 

Does any expert believe that our economy will significantly regenerate by then? The economists don’t. The think tanks don’t. The banks don’t.

Last week, our province’s three largest business groups – the BC Chamber of Commerce, the Business Council of British Columbia and the Greater Vancouver Board of Trade – released a harrowing survey of conditions and outlooks.

Only about 30% of the 1,401 businesses canvassed expect a return to normal when government support programs end. Two-thirds of these businesses are using some form of support and they are saying there will be a second wave of negative impacts if the programs expire too quickly.

Well, bring on the nightmare.

While the federal and provincial governments have applied funds systematically to assist business and individuals when the pandemic hit, they have yet to propose plans to reignite what they doused. 

The $19 billion transfer to the provinces from the federal government announced last week is not a recovery plan but one to face the public health challenges – for personal protective equipment, contact tracing, and child care. It is nothing like a reopening blueprint and we are hearing nothing about a reopening blueprint, either from our federal or provincial government. There is evident internal wrangling about the design and purpose of any such federal program, particularly whether it ought to add a layer of complexity by compelling a larger-scale move to go greener than to sustain support for traditional jobs. And the provincial recovery discussions are far from reaching fruition.

So it begs the question: Why cut the subsidy this soon, six weeks from now? Even the Canadian Emergency Relief Benefits (CERB) program will persist into October. In either case, though, will the Canadian economy be back on its feet? 

A preferable course of action would be a plan first with identifiable priorities and targeted spending. Certain sectors, like tourism and hospitality, are clobbered; they’ll need an indefinite but considerable program of specific support, as will many, many others. Presumably, with that in place, what could follow is a cautious reduction of the generalized support.  

But this abrupt, steep slope of free-falling support feels like our government has calculated that the pandemic is running its course in Canada, that our neighbours to the south will also be fine to bolster our economy, that millions of new jobs will be available to match the unemployed talent on the market, and that the damaged psyche of the consumer will be repaired. There is no basis for any of this thinking today.

Trudeau and Morneau earlier miscalculated on business needs – the first subsidy proposal was 10%, not 75%. Maybe this was just another bad exercise on the back of an envelope. Maybe in the weeks ahead the regulations will relent and the subsidies will be sustained. 

But if the legislation passes through Parliament in the days ahead and nothing shifts, we are moving in a seriously wrong direction.

Kirk LaPointe is publisher and editor-in-chief of Business in Vancouver and vice-president, editorial, of Glacier Media.