OTTAWA — The Liberal government is planning a massive increase to its wage subsidy program but is providing few details about how the expansion will work.
Industry groups expressed frustration at the lack of details and urged Finance Minister Bill Morneau to provide more clarity.
In his fiscal update on Wednesday, Morneau increased the estimated cost of the Canada Emergency Wage Subsidy (CEWS) to $82.3 billion, up from an earlier estimate of $45 billion in mid-June. That increase was partly responsible for nudging the federal deficit for 2021 well above expectations, up to $343 billion, as spending on COVID-19 aid programs continue to mount.
Morneau told reporters that an update to the CEWS program would be coming “in the very near term,” but did not provide details on when, or of what nature. An official in the Prime Minister’s Office also declined to provide details.
Industry groups have been calling on Prime Minister Justin Trudeau for months to extend and expand the CEWS program, which effectively pays 75 per cent of wage costs for struggling businesses.
As provincial governments gradually begin to reopen their economies, they say Ottawa has meanwhile failed to provide firm plans for the wage subsidy program, which threatens to increase unemployment levels and weigh on the eventual economic recovery.
“We’ve been given no details,” said Dan Kelly, chief executive of the Canadian Federation of Independent Business (CFIB). “They still seem to be groping around for ways forward. I had expected, given they had been mute over the past four to six weeks, that they would have a bit more of a plan about the broad strokes of what the economic recovery would be. There was none of that.”
Trudeau first introduced the wage subsidy on March 18, initially designed to cover 10 per cent of wage costs. That was later increased to 75 per cent.
The program was originally intended to keep Canadians employed during the economic lockdown, but has been left mostly untapped by businesses due to delays in its rollout and confusion over which companies are eligible. As of Wednesday, just $18 billion out of an expected $73 billion has been spent on the program. The CEWS is scheduled to wind down at the end of August.
Kelly says particular confusion has lingered around whether companies still have to prove whether their revenues have dropped by 30 per cent compared with last year — a provision that disqualified many business owners. Ottawa said in June that it would relax that provision by July, but has yet to do so, Kelly said.
“Fourteen per cent of the July period is already gone, and we still don’t have details as to who’s going to qualify,” he said. “That’s how useless this economic statement was.”
The failure thus far of the CEWS program has caused many employers to simply lay off workers during the pandemic, who in turn applied for the Canada Emergency Response Benefit (CERB), which provides $2,000 per month to the unemployed. Costs for the CERB are now $80.5 billion, up from an earlier estimate of around $25 billion.
Ottawa is facing immense pressure to begin winding down — or otherwise adjusting — those two key programs, as it seeks to reduce dependence on financial aid programs while also supporting unemployed or semi-employed Canadians.
“It is now time for Canada to transition from a subsidy-based crisis response toward restoring economic growth and getting Canadians safely back to work,” Perrin Beatty, head of the Canadian Chamber of Commerce, said in a written statement.
Beatty also raised concerns about the extraordinary deficit projection posted on Wednesday, saying it “will undermine Canada’s fiscal capacity for decades.”
The fiscal update underscored the fiscal bloodbath the Liberal government now faces as it seeks to guide the Canadian economy out of its steepest decline in decades. Total government spending is set to balloon to $612 billion by 2021, nearly double the $346 billion spent in 2019, and the highest as a percentage of GDP since the Second World War.
Canada’s total debt is expected to reach $1.06 trillion in 2021, up from $685 billion last year. Those mounting debts come as total revenues generated by Ottawa through income taxes fall off a cliff, plummeting from $223 billion in 2019 to $195 billion in 2021.
“Today’s economic and fiscal snapshot underscores why it’s vital to get the economy moving and growing again,” said Goldy Hyder, chief executive of the Business Council of Canada
However, even as program spending balloons, the cost of servicing Canada’s debt is actually expected to fall in 2021 due to near record-low interest rates. Total debt servicing costs are expected to be $19.5 billion in 2021, down from $23.3 billion in 2019.
Despite the grim fiscal outlook, the update said the “recession likely reached its lowest point in late April,” and suggested recovery is underway.
“There are growing signs that the worst of the economic shock is behind the Canadian and global economies,” the document said.
Copyright Postmedia Network Inc., 2020