Ottawa boosts wage subsidy after cries for relief

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The federal government unveiled a major emergency package on Friday to dramatically increase wage subsidies to help small businesses – the backbone of the Canadian economy – survive the economic fallout from the coronavirus pandemic.

The package includes $95-billion in loans and tax deferrals, along with billions in wage subsidies, as one million Canadians applied for employment insurance at the beginning of last week.

The move responds to pressure from Canada’s small-business community, which has been urging Ottawa to boost wage subsidies well beyond the 10 per cent announced last week as a way to keep workers on payrolls and avoid massive layoffs.

“It is clear we have to do more – much more – so we are bringing that percentage up to 75 per cent for qualifying businesses,” Mr. Trudeau told his daily news conference Friday. “This means that people will continue to be paid even though their employer has had to slow down or stop its operations because of COVID-19.”

Other countries, such as Denmark, that have recently announced large wage-subsidy programs, have included conditions such as setting a maximum payout for each worker. Mr. Trudeau and Finance Minister Bill Morneau declined to provide specifics on Canada’s program, saying the details – including the total price tag – will be further refined over the weekend and more information would be released Monday.

The new wage subsidy will be backdated to March 15 and available for three months.

In addition to the increased wage subsidy, the government said businesses will be allowed to defer GST/HST remittances and custom duty payments to June 30, 2020.

A third measure announced Friday is a new loan program for businesses called the Canada Emergency Business Account.

The CEBA is a $25-billion program that will provide interest-free loans of up to $40,000 to qualifying small businesses and not-for-profits. The program is open to businesses with between $50,000 and $1-million in payroll in 2019.

If businesses extend the loans beyond the end of 2022, when the interest-free period expires, banks expect to charge 5-per-cent interest, according to two sources familiar with the plans. But that interest rate has not yet been finalized with government officials.

Finally, the government also announced a $20-billion loan guarantee for the export sector through the Export Development Corporation and a $20-billion loan program for small and medium-sized enterprises through the Business Development Corporation.

In total, Finance Minister Bill Morneau said Friday’s announcements add up to $65-billion in new credit for businesses, and $30-billion in additional tax deferrals.

The government did not release a cost for the enhanced wage subsidy. However a report by TD economics said a rough estimate is that it will cost $25-billion.

As part of its original March 18 package of measures, the government announced a 10-per-cent wage subsidy for a maximum of 90 days – $1,375 for each employee and $25,000 for every employer – and said that would cost the government about $3.9-billion. The cumulative package of fiscal measures announced that day was worth $27-billion, plus $55-billion in tax deferrals.

Earlier this week, the government updated its plans and announced a new direct subsidy of as much as $2,000 a month for up to four months called the Canada Emergency Response Benefit (CERB). That program is aimed at laid-off or furloughed workers, as well as individuals who suddenly have no income. The Finance Department later said the CERB would cost $40-billion, bringing the total cost of emergency measures prior to Friday’s announcements to $52.2-billion, plus the $55-billion in tax deferrals.

Canada’s nearly 1.2 million small businesses, plus its 22,000 medium-sized businesses, together contributed more than half the country’s economic output during the first half of the 2010s, according to Statistics Canada. Seven in 10 Canadians employed by the private sector work for businesses with less than 100 employees.

Dan Kelly, president and chief executive of the Canadian Federation of Independent Business, thanked the government for responding to calls for help, including his organization’s specific request for interest-free loans.

He said the wage subsidy “will not help every company or employee but will help small firms retain hundreds of thousands of workers who would otherwise be laid off."

Small businesses and trade associations that represent them had been calling for more help after the government initially pledged $27-billion in fiscal aid. Benjamin Bergen, executive director with the Council of Canadian Innovators, which represents domestic technology companies, said the new measures will help businesses that were on “track to hit a wall in April and go bankrupt. The government is finally hearing the concerns from the business front lines.”

Small businesses said relief couldn’t come soon enough, after the widespread shutdown of the economy pushed them toward the brink of financial ruin. Many weren’t sure if they’d qualify for the aid, and hoped for further relief from Ottawa.

"There's still more to be done," said Brianne Miller, chief executive of Nada, a Vancouver package-free grocery store. She was on the cusp of having to lay off as many as 30 people this week. "The wage subsidy absolutely encourages us to keep as many people around as long as possible," but she cautioned layoff conversations "are happening today, they're happening this weekend," while relief may be weeks away.

Andrea Frost, who owns A-Frost Dance Experience in Peterborough, Ont., said that without more details from Ottawa, she wasn’t sure if her business would qualify for the wage subsidy. While some restaurants have mitigated losses through takeout and delivery, businesses like hers have seen cash flow drop to zero. Rent is foremost on her mind. “April 1, we’re going to be okay, but May 1 is another story,” she said.

For others, the aid package may be of little use. Michael Wood, co-founder of Ottawa Special Events, an events firm, said for “industries such as mine – hotels, restaurants, et cetera – there is absolutely no revenue coming in for the foreseeable future.” The wage subsidy wouldn’t help much, while even a government-backed $40,000 loan would “not cover one month of my overhead,” he said.

Government policy makers around the world are grappling with how to manage massive short-term unemployment due to COVID-19 in a way that gets money out the door quickly and also sets the stage for a fast return to normal once the virus risk fades.

Labour leaders have generally recommended programs that support workers directly, while business leaders have recommended that programs support businesses directly so that they can avoid layoffs.

Canadian Labour Congress president Hassan Yussuff told The Globe that the combination of wage subsidies and this week’s announcement of the CERB for workers should ease the need for layoffs. Mr. Yussuff said companies should consider using the CERB to furlough workers temporarily rather than layoff staff.

“I’m not against the subsidy,” he said Friday. “The employers are saying we need to keep the relationship with the employees so when this thing is over, they’ve got a place to go back to work.”

With files from James Bradshaw

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