Ottawa’s wage subsidy silence unsettling for Canada’s economy

The federal government is fast approaching a Decision Day on wage subsidies that will have critical implications for the economic recovery in the pandemic. Its late-day silence on this score is unsettling.

When the coronavirus hit last March and the country moved into a convulsive shutdown, the cash flow suddenly choked for hundreds of thousands of Canadian businesses. The federal government responded tepidly at first to the collapse but then established a well-received subsidy system that averted mass layoffs and business failures.

The Canadian Emergency Wage Subsidy (CEWS) reimbursed firms that had experienced substantial year-over-year revenue declines. Companies could retrieve up to 75% of an employee’s wages under CEWS, up to $847 weekly, if their year-over-year revenues had fallen at least 30%. The system has since been extended and modified to generally provide smaller subsidies, but to a wider range of firms with smaller year-to-year declines. Even in this dilute form, the program has been a difference-maker for many employers.

What is urgently worrisome is not that the program ends in June – that’s a worry for another day – but that the current eligibility criteria end March 13, basically one payroll from now. The key will be how the mid-March-through-June subsidies are articulated.

CEWS will be pretty much worthless if businesses continue any longer to use year-over-year monthly revenue results as the basis of their claims. Once we are into March, certainly April, even the lukewarm 2021 revenues are bound to be better than the disastrous 2020 ones. If not, frankly, it’s likely that the individual business isn’t salvageable without a significant sectoral boost.

Without a reasonable subsidy, though, the risk is real that many companies will be swiftly into a new, painful wave of job cuts. Our national unemployment rate was 9.4% in January, indicating a real softening of the recovery. There are big expectations for 2021 of GDP growth of more than 4% that would include bringing back many jobs, but the optimism is placed well down the calendar. Of course, much can happen by then.

It’s evident that any meaningful CEWS will need to use another reference point against which to base the subsidy – January and February 2020, for instance, as was used when some startups and other firms didn’t initially qualify for funds, or the month-by-month revenues against their considerably better 2019 counterparts.

It has not helped that there is radio silence and that businesses are in the dark at this twilight moment. The last guidance on the issue came last November in the government’s economic statement, which produced amendments to the Income Tax Act. Any changes ahead will need the same, which means political support in a minority government, so it’s evident that we are running low on time for political manoeuvring .

In the same way it didn’t help compel us to obey pandemic restrictions when politicians took winter holidays abroad, it hasn’t helped the business community that some firms had terrific financial years – even dispensed larger-than-typical dividends to shareholders – while accepting the subsidies. Not a great look.

Among the 145 recommendations in recent days of the House of Commons finance committee – and yes, I read them all – were two that stood out on this theme: that companies be prevented from increasing dividend payments or conducting share buybacks while they’re being heavily subsidized, and another that wage subsidies should be used only to pay employees and not for executive bonuses or dividends.

The committee report is strewn with aspirational impossibilities, and historically these committee reports join others on dusty shelves of the bureaucracy. Those two recommendations aside, the federal government would be playing with fire by not finding a subsidy solution for 2021. We won’t be up and running until we are jabbed and protected.

And on a crass political note, this is a federal government looking to get re-elected and soon, possibly this spring providing the national vaccination plan doesn’t further falter. A large new batch of jobless voters do not make for ideal people to meet on the campaign trail.

Complicating matters somewhat is the increasingly popular notion of basic income support wrapped in some form of employment insurance (EI) reform, something that would be more easily scrutinized than corporate subsidies and would provide a more personal connection with the recipient if it were to include some form of universal help. This is not imminent, but it intrigues the government. The spring budget will, one hopes, clarify where it wants its emphasis.

The disruption and dislocation of large-scale job losses may have some medicine in a modernized EI, but the idling of workers and the buckling of businesses would not position the country for a reasonable recovery coming out of coronavirus.

Given Canada’s profligate pandemic response, unmatched per capita among developed countries, at some stage someone is going to need the revenue to roar. But this late in the game if there isn’t a strong, secured extension of CEWS, the spring and summer will be like climbing a mountain on a grapefruit diet. •

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