The $33-billion question: How can Ottawa make the most of the rest of CEWS?

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The federal government has spent more than $77-billion on wage subsidies since the start of the pandemic, the largest corporate aid program in Canada’s history.

And there’s still $33-billion to go before the Canada Emergency Wage Subsidy program’s last claim period ends on Sept. 25, winding up after what will be a run of 18 months.

The program has undoubtedly shored up employment, particularly in the early days of the pandemic last spring when the depth and speed of the economic downturn raised the peril of widespread layoffs.

But along the way, the CEWS program has also sent billions to companies that ended up experiencing a short-lived dip in their business, as The Globe has documented in a week-long series. The program’s design meant that those companies, while legitimately qualifying under the government’s rules, received subsidies even though they were not truly struggling, with some managing even to increase dividend payments. Other CEWS recipients were most definitely in trouble – bankrupt in fact – but the use of subsidies in the process of dismantling their operations was out of step with the program’s goal of preserving employment.

Troubling questions about Ottawa’s pandemic wage subsidy program, CEWS

That leaves a ($33-billion) question: How can CEWS be tweaked to deliver on the goal of bolstering employment without lavishing funds on companies that aren’t that likely to lay off workers?

So far, the government has taken only modest steps to limit the scope of the program. In fact, the biggest change the Liberals announced in last month’s budget was to extend the life of the program through September, boosting the two-year cost of the program by $10.1-billion, to $110.6-billion.

But subsidy rates will be falling during that time as well. As the chart below shows, the maximum subsidy payment per employee shrinks through the summer; by the 20th, and final, claim period under CEWS, the maximum payment will be just over a quarter of its current level.

Additionally, the government is raising the bar for qualifying for subsidies. As of July 4, only companies with at least a 10-per-cent drop in revenue will qualify for payments, with the subsidy then prorated to the size of revenue decrease. And, for publicly traded companies, there is one other change: If there is an increase in executive compensation (generally speaking, the top five executives) over 2019 levels, the amount of that increase will be deducted from CEWS payments. Stock options and share grants are included in that calculation, Katherine Cuplinskas, a spokesperson for Finance Minister Chrystia Freeland, noted in a written statement. “As the economy recovers, this will help ensure the program continues to protect jobs at businesses that need help the most,” she wrote

Those changes don’t change the heart of the CEWS program, however, and leave untouched the features that have resulted in overcompensation for corporate losses. All businesses, no matter their size or resources, remain eligible. All jobs, for the most part, within qualifying companies are subsidized. And, other than the limits on executive compensation, there are no restrictions on how companies spend their subsidy payments, including no requirement to forswear layoffs.

What more could be done?

Don’t make it worse: Given that the government has repeatedly extended the program, it might do so again, worries University of Toronto economist Michael Smart. He says the optimal approach would be to shut down the program immediately, since it is clearly subsidizing some companies that do not need or deserve those funds. Barring that, Prof. Smart says, Ottawa should stick to its guns, and not repeat its mistake of extending the program, as it has done several times over the past year. ”It’s time for the government to follow through in winding the program down.”

Balanced against that is the concern of businesses, particularly small business, about subsidy levels dropping even as lockdowns run into June. Dan Kelly, president of the Canadian Federation of Independent Business, says it would be a mistake to decrease subsidy levels while public-health restrictions, including capacity limits, are still in place.

Raise the bar for qualifying: The government has already given a nod to the idea that companies should be able to stand on their own more as the economic recovery gathers speed through the summer, by phasing out subsidies for firms after June with less than a 10-per-cent drop in revenue. Raising that bar higher would further shrink the pool of CEWS recipients, while still providing assistance for companies hurt by lockdowns or other public-health restrictions.

Mirror the Canada Recovery Hiring Program: Hiring subsidies, which roll out in July, are limited to Canadian-controlled companies that aren’t publicly traded – two restrictions that don’t apply to the CEWS program. That appears to be a recognition that large public companies don’t need government assistance to weather the remaining months of the pandemic economic storm. University of Waterloo economist Joël Blit says limiting CEWS to small and medium-sized companies, and excluding foreign-controlled corporations, would be a good step toward better targeting of the program.

Add some strings: Prof. Blit says one obvious restriction would be to limit CEWS payments so that they cannot exceed the dollar value of a company’s revenue loss. Even that restriction, he observes, would not be that onerous since such a ceiling would not penalize a company. Excluding bankrupt firms and requiring no large net losses in jobs would also be logical, he said.

Show Canadians the money: The government has disclosed only the names of CEWS recipients, not payment amounts, and then, in a way that does not make it clear how much conglomerates received. (The Globe had to cross-reference several databases to come up with tallies for the at least $3.6-billion that hundreds of public companies received.) Prof. Smart says a full and public accounting of payments is needed. “Canadians deserve an understanding of who got that money, and whether it’s money well spent.”

Stop excluding new companies: Mr. Kelly points out an obvious flaw in CEWS: Companies formed after March 15, 2020, aren’t eligible, no matter their financial situation. That rule might have made sense when CEWS was first drafted in the spring of 2020. Now, more than a year later, that restriction excludes new companies and their employees from support. To compound the problem, new companies are similarly excluded from the hiring subsidy program.

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