Ottawa says it will again extend the wage subsidy program that has helped to buttress the economy against the novel coronavirus, a move business and labour groups both welcomed as critical to preserving jobs as the pandemic stretches into 2021.
In the Speech from the Throne, the Liberal government said it will continue the Canada Emergency Wage Subsidy through to next summer, and will “work with businesses and labour to ensure the program meets the needs of the health and economic situation as it evolves.”
The CEWS, which pays employers a set percentage of an employee’s wages, is designed to keep workers from being forced on to Employment Insurance or other income-support programs. But the program got off to a slow start in the spring, with Ottawa forced to hastily redraft its plans after heavy criticism that its initial subsidies were too limited. With the rules for subsidies unclear in the early weeks of the pandemic, many companies laid off workers.
In July, the government extended the program through to the end of the year and substantially revised it again, with qualifying criteria relaxed and payments increased for the hardest-hit companies. However, subsidy levels are slated to decline through to the end of 2020, with the maximum support falling from 85 per cent of salary in August to 45 per cent in the final claims period in December.
Despite the changes, total payments under the program are lagging well behind the government’s projections. As of Sept. 20, those payments reached $37.44-billion – less than half the $82.3-billion cost forecast in the federal government’s limited fiscal update in July.
“It’s been a colossal flop,” said Jerry Dias, Unifor national president, who nevertheless welcomed the extension of the CEWS as “huge” for his union’s members in 20 of Canada’s largest economic sectors.
Mr. Dias said Ottawa needs to scrap its planned reduction in subsidy levels over the next three months, and revise the program to take into account not just salaries, but employers' obligations to pay benefits and pensions.
Big business also welcomed the new measures in the Throne Speech, but pointed out shortcomings in the government’s approach. Perrin Beatty, president and chief executive officer of the Canadian Chamber of Commerce, applauded the extension of the wage subsidy, along with the pledge to overhaul the Employment Insurance program and deliver targeted assistance for hard-hit industries, such as travel and restaurants.
“There are elements that are good, but we need much more information,” Mr. Beatty said, calling for a “mini-budget” at the first opportunity. “There’s no fiscal anchor. There’s not a broader fiscal strategy here.”
For some businesses, the extension of the wage subsidy means at least a reprieve from major hardship. Silver Hotel Group, which owns 20 hotels in Canada, including Hilton, Delta and Novotel locations in major cities, said it would have had to close or redevelop some hotels without the extension.
“It’s a big relief because that means we can continue to operate,” said Deepak Ruparell, president of the family-owned company. “If that wasn’t there, we would be looking at laying off more people and shutting it down.”
The wage subsidy has helped retailers large and small to survive, said Karl Littler, a spokesman for the Retail Council of Canada. “It continues to be a crucial lifeline,” he said, adding it has been the “most important” federal program in helping retailers stay afloat.
The government did not respond by deadline to a question on whether it intends to amend subsidy levels through to the end of this year. Nor did the Throne Speech indicate how much the CEWS extension might cost.
However, BMO Capital Markets chief economist Douglas Porter suggested in a research note that the lower than expected participation in the CEWS to date might mean that budgeted funds will simply cover the cost.
Last month, the Parliamentary Budget Officer pegged the program’s gross costs at $68.4-billion, about $14-billion lower than the government’s July estimate. Even the lower PBO estimate would still leave more than $30-billion yet to be spent as of mid-September.
Beata Caranci, chief economist at Toronto-Dominion Bank, wasn’t surprised by Ottawa’s decision to extend the program into next year. While there’s debate over its effectiveness, she said similar programs in Europe have been successful in keeping employees attached to their employers, “so I wouldn’t want to be overly critical of it at this stage.”
The program has been criticized by University of Toronto professor Michael Smart, who’s noted that payments are for all workers at eligible companies, rather than just employees facing the prospect of earnings losses.
In a recent analysis, he asserted that most jobs funded by the subsidy would still exist in its absence. Prof. Smart estimates that each job saved by the CEWS has cost Ottawa about $25,000 a month. He argued that the program should not be renewed, and future subsidies should be limited to “businesses that rehire all workers laid off during the recession.”
The government gave no indication of how it would fund increased spending, other than saying “this is not the time for austerity.” There was no signal of broad tax hikes, although the government mentioned two much-discussed increases: limiting deductions for stock options and instituting a levy on multinational digital companies.
Industry associations from the tourism, hospitality and performing-arts sectors banded together last week as the Coalition of Hardest Hit Businesses, asking for the wage subsidy to be extended through spring with 75-per-cent wage coverage for businesses with revenue losses of 50 per cent or more.
Susie Grynol, CEO of the Hotel Association of Canada, a member of the coalition, said Wednesday the extension through to summer is critical.
Canada’s small and medium-sized businesses contribute nearly half of Canada’s economic output and have suffered severe revenue losses since lockdowns began in March. Canadian Federation of Independent Business president and CEO Dan Kelly says many small businesses are seeing no signs of reprieve.
The extended wage subsidy, Mr. Kelly said, “is absolutely welcome news,” though he hopes the declining value of the subsidy is reversed to ensure stronger support for entrepreneurs.
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