Poor CERB targeting wastes billions

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Appeared in the Financial Post, August 27, 2020
Poor CERB targeting wastes billions

Despite a near $350 billion federal deficit and national debt exceeding $1 trillion, the Trudeau government continues to borrow billions of dollars to finance cash transfers to Canadians whose need is at the very least questionable.

During a recession income stabilization—where income transfer programs aim to “stabilize” the level of spending in the economy by “stabilizing” the incomes of Canadians—is sound economic policy. But cash benefits should replace the lost income of people in need, not make non-needy people better off than they were before the recession. And yet, there’s increasing evidence that Ottawa is spending billions of dollars, both on new programs and on ad hoc payments linked to existing programs, to do exactly that.

CERB is one of the centrepieces of the federal government’s response to the COVID recession. As noted in our earlier analysis of the program, published in July, Ottawa is transferring up to $11.8 billion to young people (aged 15 to 24) who live as dependents in families with at least $100,000 in household income. In almost every case, the benefits CERB provides to these young Canadians—almost one million of them—exceed their monthly earnings in 2019, actually making them better off now, during one of the worst recessions in Canadian history.

Our new analysis involves spouses who earned between $5,000 and $23,999 in 2019 and currently live in families with at least $100,000 in household income. These spouses—an estimated 581,000 of them—are eligible for CERB benefits and represent a potential CERB price tag of $7.0 billion (not counting the recent extension of the program for another month). These are individuals whose monthly income will be higher under CERB than when they were working.

Had the government simply asked CERB applicants for their household’s income and whether or not its primary earner or earners had been adversely affected by the recession, it could have avoided paying these potentially large transfers to Canadians whose need is questionable. At the very least, Ottawa could have linked the CERB benefit with previous earnings, avoiding situations where some Canadians are actually better offer receiving CERB than they were when working.

But that never happened. In fact, for  young people not eligible for CERB the Trudeau government created the Canada Emergency Student Benefit (CESB), which included no criteria regarding household income—that is, the program doesn’t account for parental income or even for whether the student is a dependent. There are an estimated 324,900 CESB-eligible students living as dependents in families with household incomes of at least $100,000 a year. Like CERB, the CESB makes these students better off than they were in 2019 because CESB payments exceed their incomes from last year. The potential cost to taxpayers for these payments is $1.6 billion.

Ottawa has also spent billions on ad hoc, one-time payments linked to existing programs that have had nothing to do with stabilizing incomes. For instance, more than half of the roughly $2.5 billion of emergency one-time payments to seniors was poorly targeted. In fact, this might be the most egregious example of poor emergency targeting. Why? Because we already have a federal program, the Guaranteed Income Supplement (GIS), that is designed specifically to aid low-income seniors. Had the government limited its COVID payments to seniors receiving GIS rather than include all seniors eligible for Old Age Security (OAS), it would have saved $1.4 billion.

Finally, there’s the one-time payment to families receiving the Canada Child Benefit (CCB). Again, no limit was placed on household income so as to target the assistance to lower-income families or to those hurt by the recession. An estimated one out of every four payments made under this ad hoc subsidy went to families with household incomes of at least $100,000, at a total cost of $503.5 million.

Add it all up and a total of $22.3 billion was poorly targeted, with the money spent on individuals living in families with 2019 household incomes of at least $100,000. This represents 27.4 per cent—more than one in every four dollars—of the estimated $81.6 billion spent on CERB, CESB and one-time payments linked to OAS, GIS and the CCB. To better target assistance to Canadians in genuine need, the federal government clearly has to exercise greater prudence, particularly in light of Canada’s rapidly deteriorating finances.

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