The federal government’s pandemic supports for businesses may end next month, as Ottawa looks to wind down two years of emergency spending.
Finance Minister Chrystia Freeland signalled last week that the end of an era was nigh. ”Our ability to spend is not infinite,” she said in her speech accompanying the 2022 budget. “The time for extraordinary COVID support is over.”
The government announced the first of many emergency aid programs for businesses on April 9, 2020. The suite of funds eventually grew to include wage and rent subsidies, as well as emergency loan programs.
Three subsidy programs are still on the books: one that targets businesses in the hospitality and tourism industries, one that targets those affected by lockdowns, and one that provides benefits to help companies rehire workers. All are set to expire on May 7.
Over the past year, these and other benefits have approached previous expiration dates, only for a new wave of COVID-19 to emerge, and governments to react with new lockdowns and compensatory financial aid for businesses and workers.
Business groups say they think the government means it this time.
“It feels like they’re done,” said Dan Kelly, president of the Canadian Federation of Independent Business, which lobbies on behalf of 95,000 small and medium-sized businesses.
According to the budget, the government spent a total of $101-billion on the wage subsidy alone in the 2020-21 and 2021-22 fiscal years. The budget estimated a total cost of $283-billion for all emergency aid for businesses and workers.
Economists questioned the need for continuing aid as indicators returned to prepandemic levels last year. For example, according to Statistics Canada, the unemployment rate hit its highest level – 13.4 per cent – in May, 2020. In March, 2022, it was down to 5.3 per cent – roughly the same rate as in March, 2019. The number of active businesses in December, 2021 was 898,000 – the same as in December, 2019. And the number of bankruptcies has remained historically low throughout the pandemic.
Mikal Skuterud, an economics professor at the University of Waterloo, said there is little evidence of a correlation between the introduction of the hiring programs and changes in the labour market.
“You really have to question what the impact of these programs has been overall in changing the employment dynamics through the pandemic,” he said.
Economists have suggested that instead of incentivizing employers to keep workers on the payroll as designed, the stimulus has had a modest effect on the ability of insolvent firms to stay afloat. And research has shown that billions of dollars have gone to the bottom lines of already healthy companies (as a Globe and Mail investigation of publicly traded companies showed last year).
Prof. Skuterud said operating a business has always been a risky endeavour, and that a healthy economy includes businesses opening and closing all the time. It may be time for the government to start letting businesses fail, he said, even though it may not be politically popular.
“It sounds cruel, because these are people who take risks, but if you don’t allow these failures to happen, you’re going to have a pretty lethargic economy,” he said.
With provinces ending all their pandemic restrictions, business groups say they are hoping for a smooth road to recovery.
Cindy Simpson, chair of Restaurants Canada’s board of directors, said food businesses have struggled because of limits on their operations, such as months-long bans on indoor dining.
She said many restaurant owners are hoping to make up for lost revenue this summer, and she applauded initiatives such as Toronto’s CaféTO program, which allows eateries to expand their patios. If the revenue can’t be made up and if subsidies don’t return, she said, she expects to see a spike in closings later this year.
“We’re hoping for the best possible summer,” she added.
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