There are still more than four months (and $33-billion) left in the life of the Canada Emergency Wage Subsidy program, which as a Globe and Mail series laid out last week, suffers from design flaws that have sent billions of dollars to companies that didn’t need the assistance to weather the pandemic.
Economists and others have pointed out several ways that the program could be reformed, a topic that the most recent Tax and Spend examined.
But the government has yet to give any hint that it will tweak CEWS, beyond the measures it’s already taken. The two most significant steps have been to gradually lower the subsidy rates from July through to September. By the last claim period, the maximum subsidy per employee will be only about a quarter of current levels. And as of July, only businesses with more than a 10-per-cent revenue drop qualify. A third measure, requiring public companies to pay back benefits if they have boosted compensation for their top executives, may turn out to be mostly symbolic.
But the debate over CEWS could have much wider implications, since it’s highlighted that some companies did quite well in 2020, even if revenues wobbled a bit in the early weeks of the pandemic. That’s already led to calls for a tax on pandemic profits, with the NDP requesting an estimate from the Parliamentary Budget Officer that pegged the potential revenue at more than $7.9-billion. (That figure assumes that the government also rewrites tax laws to prevent companies from avoiding the new tax, including basic provisions such as carrying forward losses.)
Michael Smart, an economist at the University of Toronto, says the emerging picture that public companies benefited from CEWS even as sales and profits rose, and they boosted dividends, could end up bolstering the argument for a pandemic tax. It might not be fair, or even possible, to claw back CEWS funds directly. “That’s changing the rules of the game after the game is over,” he observes.
But a tax on pandemic profits could encompass cases where companies ended up in a better financial position, even as they tucked public subsidies into their bank accounts. And, of course, it would necessarily include companies that benefited from a once-in-a-generation health and economic catastrophe, even if they didn’t accept government largesse. Canadians for Tax Fairness makes both those points in a brief published on Friday.
Shouldn’t they just pay it back? That was the question one reader asked in response to The Globe’s coverage of companies that received CEWS despite seeing revenue and profit increases.
The legislation that created CEWS is silent on that question. There is no restriction on what companies do with CEWS payments after receiving them. Outright fraud would mean not only the repayment of benefits, but hefty penalties as well. But assuming that the information that companies submitted was accurate, the money is theirs to keep.
But Dan Kelly, president and chief executive officer of the Canadian Federation of Independent Business, has an interesting proposal – harness the power of shame. In an interview, Mr. Kelly said he has suggested to Finance Minister Chrystia Freeland that the government create an easy, and public, way for large public companies that experienced what turned out to be short-lived drops in sales to repay their CEWS benefits. Then, he says, the Liberals could press corporate Canada to do the right thing. “The bully pulpit could be used more effectively,” he said.
There is one hitch, however. First, the government would have to concede that it’s a problem that large companies with rising sales and profits received CEWS payments. So far, Ms. Freeland and other federal ministers have been unwilling to make that concession.
Minimizing the minimis: Consumers buying goods online from U.S. vendors have long enjoyed a GST loophole – if the dollar value of the purchase is below a certain (de minimis) level, currently $40. That exemption has applied even when a vendor ships inventory to a warehouse in Canada and fulfills the order from there. The federal government is now moving to close that loophole; as of July 1, vendors (or the platforms hosting them) that ship items from warehouses will be responsible for charging customers GST on their final sales price, even if under the de minimis threshold. In addition, the government is requiring vendors to charge customers GST on the final price for items over the de minimis threshold, rather than on the wholesale value. In a report released last week, the Parliamentary Budget Officer estimated that those two steps will bring in a net $230-million in the current fiscal year, rising to $377-million in 2025-26.
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