Finance Minister Chrystia Freeland defended the federal wage subsidy Tuesday as opposition MPs expressed concern that the massive $110.6-billion emergency pandemic program has been used by large firms to pad their bottom lines.
Conservative and NDP MPs questioned the minister about a Globe and Mail investigation, which found that hundreds of publicly traded companies, or their wholly owned subsidiaries, together received at least $3.6-billion in Canada Emergency Wage Subsidy payments as of late January. Among those companies were some of the biggest names in corporate Canada, as well as dozens of hedge funds and wealth managers.
About a quarter of those hundreds of companies saw their revenue increase in the second quarter of 2020 compared with the year earlier, and a large minority saw their net income from operations increase in that period. Only a slim majority saw revenue decreases of 30 per cent or more, the original qualifying threshold for CEWS payments. (However, CEWS applications are calculated on four-week periods, meaning a company could have had a steep revenue decline in one month and then offset that with gains in the remaining two months of the quarter.)
Conservative MP Raquel Dancho said the examples of hedge funds and other companies that received support show “the Liberals have been showering their rich Bay Street friends with millions of taxpayer dollars” while some small business owners have been unable to access any pandemic relief.
“I feel this is a tremendous disrespect for Canadian taxpayers, because we see regular hard-working middle-class Canadians struggling through yet another wave of lockdowns and they are going to be the ones to pay for all this Liberal borrowed debt through tax hikes,” she said during Question Period.
Later on Tuesday, Ms. Freeland appeared as a witness before the House of Commons finance committee, which is studying C-30, the budget bill. At committee, NDP finance critic Peter Julian also criticized Ottawa for the way the wage subsidy program was managed.
“The wage subsidy [is] very controversial. Billions of dollars have been misused for dividends, stock buybacks and massive executive bonuses,” he said.
Ms. Freeland responded by stating that the wage subsidy, which goes to employers to partly offset staffing costs, has supported more than 5.3 million jobs. She also pointed out during the hearing that the budget pledged that any publicly listed corporation that increases executive pay while receiving CEWS may have their wage subsidy funds clawed back. That provision takes effect in July and is not retroactive.
“This program has allowed literally millions of Canadians to continue to be employed,” she said. “These are people who continue to have an income and they are people who continue to have a job and maintaining that connection to your employer is absolutely essential.”
There is no indication that any of those companies broke any rules in accessing CEWS. Instead, The Globe’s review shows that the design of the program allowed companies with sharp but short downturns in their business to qualify for subsidies. National accounts data indicate that corporate profits were higher in the third and fourth quarters of 2020, an indication that CEWS payments overcompensated businesses.
The investigation also found gaps in disclosure, both by the federal government and by recipients.
Since the inception of CEWS, the government has extended its duration, and eased eligibility requirements, several times. In last month’s budget, the Liberals proposed placing limits on executive compensation for CEWS recipients. The qualifying threshold for payments is to rise to a minimum decline of 10 per cent as of July 4. The program, launched in April, 2020, and originally slated to last just three months, is to wind up in September.
Katherine Cuplinskas, a spokesperson for Ms. Freeland, said in an e-mail on Tuesday that if CEWS funds are abused, penalties can include repayment, an additional 25-per-cent penalty and potentially imprisonment in cases of fraud.
Since the budget’s April 19 release, several former senior Finance Department officials have expressed concern at the size of the deficit-financed spending and that the budget plan appears to be more focused on the short term at the expense of long-term growth.
The latest voice to weigh in this week is Kevin Lynch, a former deputy minister of finance and former Clerk of the Privy Council. “This budget’s intergenerational transfer of debt and risk is unprecedented,” he wrote with Paul Deegan in the Financial Post. When asked about those comments Tuesday in committee, Ms. Freeland said that Canada’s triple-A credit rating was recently maintained by S&P Global Ratings.
“I am very confident that the spending in our budget is reasonable and sustainable,” she said.
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