The federal government will unveil nearly $30-billion of emergency financial aid on Wednesday to help struggling Canadians and businesses cope with the economic fallout from the new coronavirus crisis, sources say.
Prime Minister Justin Trudeau and Finance Minister Bill Morneau will announce immediate financial assistance to Canadians who have been left without a job because of business closings, including self-employed and part-time workers unable to collect regular employment-insurance benefits, according to the sources.
In addition, late Tuesday, Canada’s six largest banks announced that hard-hit customers will be allowed to defer mortgage payments by up to six months, as part of a co-ordinated relief effort by the banking sector.
The Department of Finance had asked the banks to commit to up to six months of breathing room on mortgages, according to financial industry sources. Ottawa also advised that it was important for the banks to collectively announce the measures, which include relief for other unsecured credit products. Conversations between Ottawa and the highest levels of Bay Street have intensified over the past week, as the Bank of Canada, federal government and banking regulators moved to shore up the financial system.
In a joint statement Tuesday evening, all of the Big Six banks said they would provide “flexible solutions,” on a case-by-case basis, for people facing pay loss, additional child-care burdens or illness due to COVID-19.
The federal stimulus package will include quick financial relief, but part of the almost $30-billion will be set aside to boost the economy toward the end of the crisis, the sources say. Further measures, they say, are also planned to target hard-hit sectors of the economy in the coming weeks.
The Globe and Mail is keeping the names of the sources confidential because they were not allowed to speak publicly about the stimulus measures.
Many Canadian economic forecasters expect a steep second-quarter contraction that could rival or outpace the worst of the financial crisis of 2008-09, making the road to recovery more difficult.
Governments around the world have announced or are working on massive stimulus measures. The Trump administration is negotiating a legislative package with Congress of up to US$1-trillion that could include direct cash payments to Americans. In Britain, the government announced a £330-billion ($567-billion) package of loan guarantees and direct financial assistance to businesses.
In Europe, France and Germany are each offering €500-billion worth of loan guarantees and financial support for companies and employees; Spain a €200-billion package; and Italy €340-billion.
In this country, Canadian Manufacturers & Exporters, one of Canada’s largest industry groups, is calling for temporary cuts to payroll taxes and other government fees; direct grants to manufacturers in financial distress; and elimination of red tape to apply for and use government support programs. Other industry groups, such as tourism, are also pleading with the government for direct financial assistance.
On the proposed federal stimulus package, the sources say Ottawa will use existing programs to help Canadians, such as lowering qualifying rules for Employment Insurance, increasing GST rebates and the child-tax credit and boosting the guaranteed income supplement for seniors. A new temporary program is also expected to be announced to provide income to self-employed and part-time workers who aren’t eligible for EI.
The Prime Minister said at a news conference Tuesday that Parliament will be recalled to pass legislation to help jobless Canadians.
“We are talking about recalling Parliament briefly to pass legislation measures that will allow us to do things around employment insurance, do things around a number of measures to get money into the pockets of Canadians,” he said.
The government has previously signalled that a small number of MPs could return to Parliament during the break in order to pass urgent legislation. Quorum for the House of Commons requires the attendance of just 20 of the 338 MPs.
Mr. Morneau will also announce that Ottawa is pushing back the deadline for individuals and small businesses filing taxes and giving them additional time to finalize their payments without facing penalties or interest payments on money due, the sources said.
“We are looking to give people more flexibility to make payments and businesses to have more liquidity during this time,” Mr. Trudeau said. “Whether it’s making sure small businesses can remain viable through this difficult time, whether it’s so families can take take care of their loved ones and put food on the table.”
Other measures in Wednesday’s emergency package will include additional help for small and medium-sized business that are facing cash-flow problems.
“Where the government owes money to businesses, expedite the payments to address the cash flow,” Canadian Chamber of Commerce president Perrin Beatty said. "If money is owed, give them some flexibility so they are not demanding the money from them.”
Wednesday’s measures are in addition to a series of recent announcements to support health-care services and the Canadian economy. On Friday, Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, approved more than $300-billion in increased lending capacity by easing capital requirements.
Canada Mortgage and Housing Corp. has agreed to purchase up to $50-billion of insured mortgage pools and the Bank of Canada has announced measures to support liquidity and the availability of credit as businesses deal with the coronavirus fallout.
Canadian Labour Congress president Hassan Yussuff, who was consulted on the economic package, said the government is using a combination of existing and new income-support measures to get money to people in need.
“A lot of low-income people are the ones that are going to be in a crisis if they don’t get money because they are one paycheque from bankruptcy and some of them are two paycheques from bankruptcy,” Mr. Yussuff said.
Mr. Trudeau warned that the COVID-19 crisis could go on for months, but stressed that Ottawa has the financial firepower to help hard-hit businesses and families.
“We are the G7 country with the lowest debt-to-GDP ratio,” he said. “And that allows us to invest significantly in Canadians, in businesses to make sure we’re able to make it through this difficult time.”
Some economists say that while expanding EI is a clear choice, the current structure of the program has issues that limit its effectiveness.
For instance, qualifying rules and the size of benefits vary by economic region based on a three-month moving average of the local unemployment rate. That means the program will be slow to capture the sharp and immediate spike in unemployment triggered by the coronavirus.
Further, the percentage of unemployed workers who qualify for benefits is generally less than 60 per cent. The eligibility rate for young workers is usually lower.
“The more important thing with EI is just how few people are eligible for it,” said Miles Corak, an economics professor with the Graduate Center of the City University of New York who served as economist in residence in 2017 with the Canadian federal department responsible for EI and social policy.
Because the EI system can be slow to adjust to an economic shock, Prof. Corak said Ottawa should consider the idea of “helicopter” payments, in which money is sent directly to all or many Canadians.
He said the tradeoff in terms of failing to target the money to those most in need is worth the benefit of speed in this case.
“I think that’s a very good idea because the issues of targeting aren’t so important. It’s a quick response and it gets money into the pockets of people and they can spend or save as they feel is appropriate,” he said.
The Conference Board of Canada warned Tuesday that the added shock of COVID-19, the rail blockades and a collapse in oil prices is putting the country on the brink of recession.
“We expect business investment and exports to post substantial declines and consumer spending to ease. As a result, economic growth will contract by a projected 2.7 per cent in the second quarter,” said Matthew Stewart, the director of national forecast at the Conference Board of Canada. “However, due to the unpredictability of the coronavirus, there are still huge downside risks to the outlook.”
With reports from Mark Rendell and David Parkinson
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