To cross the economic Grand Canyon that Canada is facing as a result of the pandemic, this country is going to need a very big bridge. Three bridges, in fact.
The federal government is planning on spending $255-billion on economic disaster relief. To put that in perspective, it’s equal to nearly three-quarters of last year’s entire federal budget. Fortunately, this flood of new spending is coming at a time when interest rates are at record lows. The yield on the federal 30-year bond was just 1.3 per cent last week, which means Ottawa can borrow $100-billion with a carrying cost of just $1.3-billion a year, locked in for a generation.
For those looking for a silver lining, there is it.
Ottawa’s spending is building three temporary bridges: A bridge to support those without work; a bridge to prevent job losses; and a bridge to assist Canadian businesses directly.
The blueprints were drawn up in a matter of weeks, and there will surely be some tinkering with the details required in the weeks to come. But there’s a compelling logic to what the Trudeau government has come up with.
The first bridge puts money into the pockets of Canadians. As of Saturday, nearly six million Canadians had filed with the government for help. That help includes Employment Insurance and the new Canada Emergency Response Benefit, which will deliver $2,000 a month to those who don’t qualify for EI.
The flow of money through these and other programs will help keep millions of Canadians afloat. It will buy groceries. It will pay rent. And all that consumer spending will help keep a lot of other Canadians employed.
Some have asked why Ottawa didn’t just create a universal basic income, sending a few thousand bucks to every Canadian, then clawing it back from some through income tax a year from now. There are, however good reasons for favouring targeted payments – including the fact that most Canadians are still working. The still-employed include everyone from truckers and warehouse workers to those at grocery stores and food processors. It includes people in government, and in health care.
To encourage companies not to lay off any more people, and to remain poised for the coming economic restart, Ottawa is erecting the second bridge: the Canadian Emergency Wage Subsidy. It covers 75 per cent of an employee’s salary, up to $847 a week for 12 weeks, at businesses with revenue declines of at least 15 per cent in March, and 30 per cent in May and June.
In response, Air Canada rehired more than 16,000 employees, retroactive to March 15. Other companies are doing likewise. That’s what this bridge was designed to do.
All of this support for individual Canadians, to help them if out of work or to keep them employed, is mostly coming in the form of cash.
In contrast, programs to support businesses – the third bridge of the federal response – are tilted towards tax deferrals and loans.
There is a logic to giving people different and more generous support than business. Even without a pandemic, businesses live in a permanent state of upheaval. Even in a healthy economy, new companies are starting up and a steady volume of companies are closing shop. That creative destruction may be sent into hyperdrive in the coming months and years.
Canada will overcome the virus and ease the economic lockdown, but it is impossible to know precisely how patterns of consumer spending may be changed. When movie theatres, pro sports, tourism, sit-down restaurants and a host of other businesses return, will they look like they did in 2019?
That said, there is reason to look at strengthening the business bridge, particularly for small businesses.
The assistance program for small business is the Canada Emergency Business Account. Budgeted at $25-billion, if offers interest-free loans of up to $40,000, to cover expenses like rent. No payments are due before the end of 2022, and $10,000 of the loan will be forgiven if the rest is repaid.
The size of those loans could be increased, along with the amount forgivable. The due date could also be moved to 2023 or 2024.
Many businesses are understandably wary of taking on more debt. Ottawa can make it a bit easier, and less risky, for them to do so. The additional support will ensure that more small businesses make it across the bridge.
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