First, the good news from the Parliamentary Budget Officer. Even with continuing deficits, Ottawa’s long-term fiscal position remains sound.
The PBO, in a report issued last week, said the federal government could either raise spending or cut taxes by $18-billion in current dollars and still stabilize net federal debt at 37.7 per cent of gross domestic product over the long term, through to 2095.
That’s roughly in line with the PBO’s prebudget estimate in November, when it said Ottawa had $19-billion in fiscal manoeuvering room if the government wanted to stabilize the net debt ratio at the prepandemic level of 28 per cent of GDP.
But the relative stability of the federal government is a sharp contrast to the degrading positions of the provinces. As a group, those subnational governments need to reduce spending or increase taxes by $18-billion to avoid a long-term increase in the ratio of debt to GDP, the PBO said. That’s up from November, when the PBO said the provinces and territories had a combined $12-billion fiscal gap.
The most recent provincial fiscal gap equals the federal fiscal surplus. But once pension plans are added into the mix, the combined fiscal position of what’s called the general government sector is not sustainable, the PBO said. That’s a reversal of November, when the general government sector’s fiscal position was sustainable, in the PBO’s view. The parliamentary watchdog did note that while the ratio of net debt to GDP will rise above prepandemic levels in the long term, it will still be well below the peak levels of the past three decades.
Responding to last week’s Tax and Spend about the future of the Canada Recovery Benefit and Employment Insurance, one reader asked about whether lowering the qualifying requirements for EI will create an incentive for large numbers of workers to avoid taking a job.
There are a few factors at play when it comes to the question of income support creating disincentives to work. First, it’s worth noting that looking at disincentives isn’t a judgment about anyone’s work ethic; it’s a question of financial nudges, and in what direction.
The level of payments matter. The $500 minimum level of payment under EI that was put in place during the pandemic comes to an end on Sept. 25 (for new claims made before that date). Previous to that, benefit payments were set at 55 per cent of an applicant’s insurable earnings. If that minimum reappeared as part of a reformed EI, that will indeed make not working more economically attractive to lower-paid workers who would have otherwise received lower benefits.
Clawback rates are another factor. The CRB is more generous on that front than EI. The former only starts reducing benefits, by 50 cents on the dollar, once annual earnings exceed $38,000. For EI, that 50-per-cent clawback kicks in at the first dollar, and rises to a 100-per-cent clawback once weekly earnings equal 90 per cent of a recipient’s insurable earnings. Those EI clawback rules, in most cases, would provide less of an incentive to take on paid work.
And then there’s the question of qualifying levels. To recap, the Liberals made it easier last year to receive EI payments by setting a national minimum for the number of hours needed to qualify for payments. Those rules have been extended until September, 2022. That should make it easier for workers with part-time or intermittent employment to qualify.
It’s hard to see how that rule, by itself, would be much of a disincentive to returning to work. If minimum payments were ended, and EI reverted back to its 55-per-cent income replacement rule, workers with a small number of insurable hours wouldn’t receive much in benefits. Take an Ontario part-time worker earning the minimum wage of $14.25 an hour. If the 420 hours needed to qualify for EI are spread evenly over six months, that worker would be earning just over $230 a week. Fifty-five per cent of that amount is around $127 a week; that’s a relative pittance.
The larger issue would be those minimum payments; if those stay in place, the part-time worker in the example above would currently get $500 a week, nearly double their previous income from work. That’s not a pittance; it’s a real disincentive.
Bonus question: The Canada Revenue Agency has launched its online calculator for claims under the Canada Hiring Recovery Program, the new payroll subsidy intended to spur employment gains. (However, businesses don’t actually need to hire anyone to receive benefits; most incremental payroll increases will do the trick.) The department has also provided some guidance on the program: Changing the timing of paycheques to increase the size of a claim period’s payroll is a no-no. And hiring bonuses will qualify as an allowable payroll expense in some circumstances, although the agency says a definitive determination will depend upon the facts of a specific case.
Happy GST day: If you haven’t already noticed, some digital services companies began to charge GST/HST for their services as of July 1. Netflix and Ancestry.com are among the companies that have instituted that charge.
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