In little more than a week, Ottawa has launched two emergency income relief programs totalling $15-billion, scrapped them, and then introduced a $40-billion replacement that upends decades of employment insurance rules.
That speed of action is a testament to the fast-moving nature of the coronavirus-driven economic crisis, which has already pushed one million Canadians to apply for Employment Insurance (EI) benefits. And this is just the start.
The federal government projects that four million workers will apply for the new Canada Emergency Response Benefit (CERB), which will pay $2,000 a month for four months to individuals who have lost income because of the novel coronavirus.
Unlike EI, those workers will not have to prove they qualify under a stringent set of rules. The self-employed will qualify, including business owners. Even workers who haven’t lost their job can collect – if they are no longer being paid and are laid off, that will be enough to allow them to receive CERB payments.
“It’s universal employment insurance,” says Lindsay Tedds, scientific director of fiscal and economic policy at the University of Calgary’s School of Public Policy.
The CERB differs from the decades-old EI system in at least one other notable way: It is not tied to the recipient’s previous employment income. All recipients are paid $2,000 a month.
That flat benefit means the CERB disproportionately helps recipients at the lower end of the income scale – the kind of worker most likely to have been caught up in the initial rounds of layoffs in the hospitality and retail sectors, says David Macdonald, senior economist at the Canadian Centre for Policy Alternatives. He estimates that four out of five workers will be better off under the CERB than under EI.
The CERB would replace 89 per cent of the lost income of a minimum-wage employee in Ontario working a 40-hour week. EI benefits would replace just 55 per cent of employment income.
But as income rises, the CERB becomes relatively less attractive. The maximum payment under the CERB is $500 a week, but EI weekly payments top out at $572 – a 14-per-cent gap. Once a worker’s annual income exceeds $47,272, he or she would be better off under EI than the new program.
However, Mr. Macdonald notes that EI recipients may have to wait significantly longer for their payments than recipients of CERB benefits. Ottawa introduced the new program, in part, because of enormous backlogs in recent EI applications.
One major change in the CERB program from its one-week-old predecessor, and from EI, is that workers who are furloughed – employed but not paid – are eligible to receive payments.
Finance Minister Bill Morneau is referring to those payments as “wage subsidies.” He’s been using that label as the government has come under mounting pressure to increase the 10-per-cent wage subsidy program it announced last week – subsidies that are paid to employers.
“The way that we have decided to move forward on this is we are providing a wage subsidy that’s going to go directly to employees,” Mr. Morneau said in the Senate on Wednesday, responding to questions from Conservative Senator Don Plett.
Business groups have repeatedly contrasted Canada’s 10-per-cent subsidy with much higher emergency subsidies in other countries, particularly Denmark’s 75-per-cent program. When questioned on Wednesday about that gap, Mr. Morneau disputed the suggestion that Denmark’s program is more advantageous, saying that Canada’s support for small- and medium-sized businesses is “superior.”
On Friday, the government acceded to that pressure, with Prime Minister Justin Trudeau annoucning that the government is expanding wage subsides for “qualifying” small and medium businesses to 75 per cent, backdated to March 15.
Details of the expanded subsidies, including their cost, have yet to be released. For the moment, the funds to be paid to workers under the CERB, forecast at $40-billion, are 10 times greater than the $3.9-billion to be paid to employers as 10-per-cent wage subsidies.
Dr. Tedds said the eligibility of unpaid, but not terminated, workers to receive CREB payments will help preserve employer-employee attachments. But she warned of inadvertent incentives that Ottawa may be create with large subsidies paid directly to workers: Companies may be nudged toward furloughing their more expensive staff, knowing they can recall them once lockdowns have been eased.
Speaking at his daily press conference on Friday, Mr. Trudeau acknowledged the importance of retaining the ties between employees and their workplace – urging businesses to make use of the wage subsidies, including by avoiding layoffs and even rehiring laid-off workers.
Tax and Spend is a new series that examines the intricacies and oddities of taxation and government spending.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.