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Minister of Finance Bill Morneau attends a news conference with Prime Minister Justin Trudeau in Ottawa, on March 11, 2020.


The Liberal government announced an economic package worth $1.1-billion Wednesday in response to COVID-19 and signalled more could come in the federal budget, which will be delivered on March 30.

The government announced the budget date on the same day it unveiled several short-term measures to address the health and economic consequences of the coronavirus that causes the COVID-19 infection. The steps include increased health transfers to provinces and territories, a boost in research funding and improved employment insurance sickness benefits for quarantined workers.

The government is waiving the mandatory one-week waiting period to access EI benefits and adjusting the EI work-share program for work forces that are reducing overall hours because of economic factors. The work-share program is aimed at avoiding layoffs by allowing employees to share reduced hours. The program includes federal EI benefits for eligible employees who work fewer hours.

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Wednesday’s announcement also includes $275-million for medical research and vaccine development.

“Let me be clear: No one should have to worry about their job if they have to be quarantined. No employer should feel like they have to lay off a worker because of the virus. We can support you. And we will. Today’s announcement is significant, but we’re already preparing to do more if need be," Prime Minister Justin Trudeau said.

The package was announced during a week in which the first coronavirus-related Canadian death occurred, while the collapse in oil prices and a more than 10-per-cent drop Monday on the S&P/TSX Composite Index have heightened concern about the health and economic consequences of the virus.

Mr. Trudeau indicated that further action is under consideration, including how to provide income support for workers who are not eligible for EI benefits.

The Liberal government has abandoned a 2015 campaign pledge to balance the books and its December economic update projected a $26.6-billion deficit this fiscal year. Instead of eliminating the deficit, Finance Minister Bill Morneau has said he is focused on reducing the size of the federal debt as a share of the economy. As recently as last week, he said the federal debt-to-GDP ratio is projected to decline.

However, economists have recently slashed their forecasts for GDP growth, both for Canada and globally, as a result of the coronavirus.

Parliamentary Budget Officer Yves Giroux released a report last month that found federal finances are sustainable over the next 75 years. It said the federal government has the room to cut taxes or increase spending by as much as $41-billion annually while still maintaining a stable debt-to-GDP ratio.

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Mr. Trudeau mentioned those findings Wednesday in Question Period in response to accusations from Conservative MPs that the Liberals have spent the cupboards bare during good times and are now in financial trouble heading into a downturn.

In an interview on Wednesday, Mr. Giroux said the report’s estimate of fiscal room still largely holds true over the long term. However, in the short term, weaker GDP growth will throw off the government’s plans to reduce the debt-to-GDP ratio.

“It’s clear that if there is a contraction of GDP, the government’s fiscal anchor – debt-to-GDP declining – will be off the rails,” he said. “It will start going up. It won’t go down. Especially if they have to spend a bit to combat a slowdown or even a recession, the debt-to-GDP ratio will be on the rise.”

Canadian Labour Congress president Hassan Yussuff said he welcomed the announcements. He said the work-sharing change could benefit employees in sectors where layoffs could be imminent, such as aviation and hospitality.

Mr. Yussuff said the government will need to go further, however, by lowering the number of hours required to qualify for EI in order to assist the large number of people who do not currently qualify for the program.

“There’s a lot of people in the economy who are living from one paycheque to two paycheques [away] from not meeting their legal and financial obligations. So how are we going to get money to those people if they’re [quarantined] for a week or two weeks?" he said.

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Dan Kelly, president of the Canadian Federation of Independent Business, also praised Wednesday’s announced measures. He said the work-sharing program proved to be useful for employers during the 2008-09 recession.

Mr. Kelly said his organization is urging the government not to add any new taxes on business in the coming budget and to delay any planned hikes, such as already scheduled increases to Canada Pension Plan benefit premiums and carbon taxes.

“I wouldn’t say they need to go and spend their brains out," he said. "But they need to make sure they are taking practical measures to support both businesses and affected workers should things worsen.”

A breakdown of the government’s Wednesday announcement lists 11 measures that total $1.1-billion in spending.

The largest item is a $500-million transfer to the provinces and territories, followed by the $275-million increase in research funding. The changes to EI sickness benefits will cost $5-million and the work-sharing change will cost $12-million.

In a news release that accompanied the announcement of the $1.1-billion package, the government said that if credit conditions tighten, it “will act swiftly to stimulate the economy” by increasing the lending capacity of federal agencies such as the Business Development Bank of Canada and Export Development Canada.

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Fiscal stimulus by the numbers

Although the federal government has considerable room for fiscal stimulus, the costs of any action will mount quickly. Below are some estimates from the Parliamentary Budget Officer’s online tool for the price tag for several options for bolstering the economy.

  • $8.3-billion: Reduction in GST rate to 4 per cent from 5 per cent
  • $4.1-billion: Reduction of lowest income-tax bracket to 14 per cent from 15 per cent
  • $2.8-billion: Increase of $200 in adult GST credit for a family of four
  • $1.9-billion: Reduction in corporate income-tax rate to 14 per cent from 15 per cent
  • $1.5-billion: Increase of $250 in Canada Child Benefit
  • $890-million: Reduction in small business income-tax rate to 8 per cent from 9 per cent

Source: Parliamentary Budget Officer

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