Benefits put in place at the start of the COVID-19 pandemic allowed vulnerable Canadians to stay healthy and maintain an income, but business supports were excessive and show the outsized influence of business groups on public policy, economists say.
Nearly two and a half years ago, the federal government faced an unprecedented task of shutting down the economy to slow the rapid spread of COVID-19. That closure led to a series of pandemic relief benefits intended to soften the blow for workers and businesses, with the two most prominent programs being the Canada Emergency Response Benefit and the Canada Emergency Wage Subsidy.
A recent Statistics Canada analysis based on census data shows that two-thirds of Canadian adults received pandemic benefits in 2020, and these benefits cushioned income losses and reduced inequality.
Previous analysis from the federal statistics agency also found that, as expected, use of the wage subsidy program was correlated with a lower probability of closure and fewer employee reductions.
While there was little time to work out the benefits and fine-tune the details in March 2020, economists are now evaluating the successes and failures of these programs in hindsight.
City University of New York economics professor Miles Corak, who has written reviews of these programs, says any assessment must take into account the uncertainty facing people and governments at the time and the urgent need to keep people healthy.
That said, Corak said that while the CERB was “terribly successful,” Canada’s Emergency Wage Subsidy was a “huge failure.”
“Canada’s Emergency Response Benefit pulled money out quickly in time to keep people home, which is what we wanted to do to save lives,” he said.
On the other hand, Corak said the CEWS “arrived too late, was misguided, and was dramatically overinsured.”
The CERB was quickly announced in March 2020 and $2,000 a month for Canadians who lost income due to the pandemic shutdown. This was followed shortly by the CEWS, which subsidized the wages of company employees by 75 per cent in the hope of encouraging companies to retain their staff.
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Corak says that when the wage subsidy was introduced, many companies had already laid off their employees.
Another source of criticism of the wage subsidy program was that it subsidized the wages of all workers in the affected companies, rather than simply those whose jobs were at risk of being lost, making it especially expensive.
Jennifer Robson, an associate professor of political management at Carleton University, also noted that the wage subsidy program was unsuccessful. Robson said businesses that would have otherwise closed for reasons unrelated to the pandemic were artificially kept afloat because of the wage subsidy.
“These were not businesses that were going to be profitable again,” Robson said.
Data from Statistics Canada shows that the number of business closures rose sharply in April 2020, but a sharp decline followed, bringing monthly closures to a lower level than before the pandemic.
Approximately 31,000 businesses closed in August 2020, while almost 40,000 closed in February 2020.
In hindsight, Corak said the wage subsidy program should have been smaller in scope and aimed at larger companies with specialized needs where it would be important for companies to keep the same employees, such as the airline industry.
The Canadian Federation of Independent Business has said the wage subsidy was “crucial” for small business owners, noting in April this year that only two in five of its members reported returning to normal sales.
Adrienne Vaupshas, press secretary to Finance Minister Chrystia Freeland, said in a statement that the government’s focus at the start of the pandemic was to protect jobs and ensure a strong economic recovery.
“Today we have recovered 114 percent of the jobs that were lost during the darkest months of the pandemic,” Vaupshas said.
In contrast to what some economists have characterized as overly generous supports for businesses, some low-income Canadians have experienced setbacks in welfare benefits because they collected CERBs. The Canada Revenue Agency also expects to recover benefits paid to more than 400,000 Canadians whose eligibility was questioned.
In response, the anti-poverty group Campaign 2000 has called for an amnesty from the CERB.
Corak said that while it’s reasonable to ask those who fraudulently collected benefits to pay them back, businesses must meet the same standard.
“The concern I would have is the asymmetry in this response between individuals and companies,” Corak said.
The CFIB has called for increased loan forgiveness for small businesses that accessed loans through Canada’s Emergency Business Account. The federal government is already offering partial loan forgiveness if repayments are made by the end of 2023.
Robson said that when it comes to shaping public policy, business interest groups have well-equipped public relations teams to advance their interests.
“There’s nothing like it for individual low-wage workers,” Robson said.
Corak noted that at the start of the pandemic, there was a focus on the role of frontline workers, but over time, this shifted to small businesses.
“I think small business lobbying was very effective in informing individual MPs and putting pressure on the cabinet and government to respond in a way that many invisible and unheard mothers, fathers, workers and families simply did not have an equal voice. Cork said. .
The danger of the wage subsidy program, Corak said, is that it sets a precedent for providing excessive subsidies to businesses and thus stifling innovation.
“We are almost moving towards a basic income for small businesses instead of a basic income for individuals,” he said.
This report from The Canadian Press was first published on August 6, 2022.