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The federal government announced a sweeping and rapidly assembled $82-billion aid package on Wednesday that includes targeted financial benefits and deferring tax collection for workers and businesses, in an attempt to address the growing economic impact of the COVID-19 pandemic.
Prime Minister Justin Trudeau on Wednesday announced a suite of direct benefits and other measures designed to address the economic effects of the COVID-19 outbreak. The measures mostly target consumers, not companies, and while experts and executives say they’re a good start, it may take a while for businesses to see the benefits of increased spending.
In total, the measures are equivalent to over three per cent of Canada’s GDP. In his announcement, Prime Minister Justin Trudeau also said he’d agreed with U.S. President Donald Trump to shut the land border between the two countries to non-essential travel, while continuing to allow trade.
With Wednesday’s announcement, the government “really wanted to target those people who would lose their income, specifically,” Trudeau told reporters. “We’ve also put on the table a significant support for businesses and employers to be able to support their workers.”
Experts and executives who spoke to The Logic said the package is a good start, but the relief is mainly for individuals, not businesses, and may not be immediate.
“This is a package best-suited for a solution to a problem that we don’t think will last longer than six to eight weeks,” said Matt Roberts, a partner at ScaleUp Ventures. “This is a keep-the-lights-on plan for people who have lost their jobs or can’t go to their jobs…. It is not a stimulus package for businesses.”
“I would have to assume this will be the first step in a longer-term strategy that we don’t know because we don’t know how the pandemic will unfold,” said Rohinton Medhora, president of Centre for International Governance Innovation. “Whether it’s enough for businesses teetering on the edge remains to be seen.”
Here’s your guide to what’s in Wednesday’s announcement.
The numbers game
Canada’s package follows those launched by countries around the world to counter the global economic slowdown from the pandemic. Ottawa’s expenditures are in line with those of much smaller economies like New Zealand (four per cent of GDP), but pale in comparison to those of similarly-sized Spain (nearly 20 per cent of GDP). It also comes in lieu of a federal budget that had been planned for March 30.
But it may be too early to make those comparisons. “The message I heard was that this is phase one, and there’s lots more where this has come from,” said Rebekah Young, director of fiscal and provincial economics at Scotiabank. She said the $27 million in non-tax measures, equivalent to one per cent of GDP, is similar to the government’s response to the 2008 global financial crisis in the first year. But while that package included a wide range of programs including infrastructure spending that took a long time to roll out, Wednesday’s is “far more focused.”
Young calculates 80 per cent of the money “is a direct deposit into an individual’s bank account [to] categories of Canadian that are more affected, and have a higher likelihood of spending it.” But the COVID-19 outbreak also creates challenges for policies that try to stimulate consumption. “One of the unique challenges in today’s environment is nobody wants to go out and spend,” Young said, but added that there are no good alternatives. “I think that the biggest economic impact will be in the second quarter.”
The amount also doesn’t include what the provinces and territories have separately allocated. Those governments have been tightening their spending in recent years, but “the federal certainly has more room than provinces to shoulder a bigger burden of what’s going on,” Young said. Finance Minister Bill Morneau said Wednesday Ottawa is in talks with the Alberta government to help pay for the remediation of orphan wells, a key part of the province’s job-creation plan amid an oil price slump. Young said that’s a positive signal.
A small helping hand on wages
Ottawa will give small businesses back 10 per cent of what they pay out to employees over the next three months, capped at $1,375 per worker and $25,000 per firm. Companies will take the amount out of their workers’ income tax they’d normally pass to the government on each paycheque. The measure is limited to privately held Canadian-controlled firms with less than $15 million in assets. The government estimates it will cost $3.8 billion.
Canada’s wage subsidy is significantly smaller than those announced by some other governments. Denmark will pay up to 75 per cent of staff salaries, with the maximum set at just over $4,874 each. New Zealand’s program is open to any business that demonstrates a revenue drop of 30 per cent or more; they will receive up to NZ$585 ($491) per week for full-time staff for 12 weeks, up to a limit of NZ$150,000 ($125,837).
Roberts said Ottawa’s offering is “not a lot in the face of not having any income.” The package also doesn’t help provide relief for the small-business owner who is exempt from both the EI and payroll offerings announced Wednesday, and received no fixed cost relief for overhead expenditures like rent, he said.
The wage subsidy is “not going to necessarily make the difference between keeping employees and letting them go,” Young said, noting that it’s also expanded the work-sharing program, which subsidizes employers who reduce hours instead of laying people off. She said it’s clear the government isn’t banking on it as a big stimulus measure.
More money for some exporters
Last week, Morneau announced the Business Development Bank of Canada (BDC) and Export Development Bank of Canada (EDC) would make an extra $10 billion in credit available to businesses. On Wednesday, the government announced it will also open up the Canada Account, an EDC-administered program that backs deals the agency itself considers too risky, but that Ottawa considers to be in the “national interest.” That won’t be much use to startups or scale-ups. Last year, the Canada Account financed just four projects, all of which were worth more than $10 million, and its typical beneficiaries are giant aerospace, defence or energy firms.
On Thursday, the Council of Canadian Innovators, a scale-up lobbying group, called for EDC to be required to guarantee loans from Canadian banks.
Employment insurance (EI) extended to the self-employed
Workers who fall ill and have to self-quarantine will get up to $900 every two weeks for up to 14 weeks. They also won’t have to wait the usual week to start claiming EI. Self-employed and part-time workers who do not qualify for employment insurance will receive a new emergency support benefit. The program’s budget is $5 billion.
Ottawa is temporarily boosting the annual Canada Child Benefit by $300 per child for parents facing school closures. It is also increasing the GST credit for those with lower-income, a measure it estimates will be worth $5.5 billion in extra money to spend country-wide, although it won’t be issued until early May.
“The aid package for self-employed or loss of work may help, but a lot of it will depend on how easy it is to access it,” said Rebecca Palmer, founder of EntreLaunch, a global entrepreneurial program for teens. “Where do you apply? What if business is behind on filing taxes? What if people are on EI sick benefits with no job to go back to when they end and not enough hours for traditional employment assistance?” She said the government should consider a universal basic income program that will give Canadians money to manage their expenses as businesses remain closed.
Iglika Ivanova, a senior economist with Canadian Centre for Policy Alternatives, said her biggest concern is the people who’ve been missed. “There are the people who haven’t been laid off yet because their businesses have temporarily shut down. It’s not clear to me if there is any help for them. We don’t know how many people are in this situation, but I suspect there’s quite a bit.”
Workers won’t have to file their returns until June 1, just over a month’s delay. Both individuals and businesses can delay paying any income tax they owe until September 1, deferrals that the government estimates will total $55 billion. The Canada Revenue Agency also won’t subject small- and medium-sized firms to sales- or income-tax audits for a month.
U.S. Treasury Secretary Steven Mnuchin announced a similar deadline extension on Tuesday, though his is more limited—deferrals for individuals are capped at US$1 million and businesses US$10 million; their grace period is just 90 days from the regular April 15 due date. Mnuchin estimated the measure is worth US$300 billion.
The best of the rest
A six-month moratorium has been put in place on the repayment of student loans, and a separate $305-million fund is being set up to help Indigenous communities.
Ivanova said she was happy to see the government providing emergency support to the lowest earners of the economy and the potentially laid off. In proposing these measures, she said the government “is recognizing that various programs aren’t working well,” offering a potential long-term silver lining to the impacts of the package.
Shortly before today’s announcement, Canada’s Big Six banks announced that they would provide up to six-month payment deferral for mortgages, and the opportunity for relief on other credit products.
The deferment would be treated on a case-by-case basis. BMO, Scotiabank, CIBC, National Bank, RBC and TD Bank customers are being asked to reach out to their banks to see what assistance is there for them.
What Ottawa has already done
The federal government had already allocated $1 billion in funding for health research and aid to provinces in response to the virus. Last week, the Office of the Superintendent of Financial Institutions announced it was lowering the amount of capital the biggest banks have to hold as reserves, which it estimated would free up $300 billion for lending. The Canada Mortgage and Housing Corporation, meanwhile, has committed to buying up to $50 billion in insured home loans. An emergency loan program will also provide up to $5,000 each to Canadians stuck abroad.
Council of Canadian Innovators executive director Benjamin Bergen said members “are hopeful the $10 [billion] in new credit announced last week rolls out rapidly, with zero-to-low interest rates and targeted support to both the companies that need it to stay afloat and the companies that are on the frontlines fighting the spread of coronavirus.”
What’s coming next
The government needs Parliament to pass legislation to enact most of Wednesday’s non-tax measures, although the wage subsidy will get going right away and the necessary regulatory paperwork will be backdated.
What has been proposed for now is enough “if we flatten the curve and we’re back to normal in June or July,” Medhora said, but “it will not do the trick if we are in a longer recession.”
On Wednesday, Morneau promised more announcements this week for industries that have been particularly hard hit by the outbreak, citing airlines and oil and gas firms. “We know that they will need specific help, he said. “EDC and BDC are currently developing a tailored set of tools for them and for other affected sectors.”
The government isn’t willing to use the “r” word yet. “Many workplaces have significant slow-downs, if not stoppages, and that is going to have an economic impact,” Trudeau acknowledged, in response to questions about a recession. He said the federal government still has space on its balance sheet to “ensure that we bounce back strongly.”
How you can access these additional funds
The BDC is working with private-sector lenders to coordinate credit solutions. Companies can find more information here.
The Liaison Officer Service, which helps companies understand their tax obligations, is now available over the phone to discuss the new deadlines and measures. Small businesses can request a consultation here.
For individuals impacted by the crisis, applications for the Emergency Care Benefit will be found on the Canada Revenue Agency’s “My Account” portal in April.
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