Trudeau government ‘wage subsidy’ increases uncertainty for workers and businesses

During these troubled and uncertain times, Canadian households and businesses need certainty from governments including certainty about how government will help stabilize incomes for Canadians and businesses, which is key to mitigating the economic downturn. While we congratulated the federal government for its early response to the economic downturn, what we’ve witnessed in the past two weeks, including today’s announcement from Finance Minister Bill Morneau on the new wage subsidy, is a continued pattern of fuelling uncertainty.

It’s important to remember that prior to the recession brought on by COVID-19, this government had a record of creating policy uncertainty. Massive deficits created uncertainty about future taxes, aiding rumours of potential increases to capital gains taxes and limits on interest deductibility for business that the government failed to address. New subjective regulations for major projects created massive uncertainty about how and if new infrastructure projects would get approved. And recently, the government’s indecisive handling of the #ShutDownCanada movement and ensuing rail blockages created yet more uncertainty, not to mention significant economic damage.

Nick Bloom, professor of economics at Stanford University, and Steven Davis, professor of economics at the University of Chicago, developed the first rigorous analytical framework for measuring the extent and impact of policy uncertainty. Data for Canada show an increased trend of policy uncertainty over the past five years, with many periods of uncertainty eclipsing that of the 2008/09 recession. Unfortunately, at a time when we need governments to provide calm clear leadership, the current federal government has acerbated uncertainty.

To help stabilize Canadian incomes, the government announced a host of measures on March 18, including the Emergency Care Benefit (ECB) and the Emergency Support Benefit (ESB). For temporary support, the ECB would provide “up to” $900 biweekly for up to 15 weeks. For longer-term support, the government introduced the ESB (costing up to $5 billion) for workers not eligible for employment insurance and who face unemployment. Unfortunately, further details were not provided.

A week later, the government abruptly changed course, announcing the new Canada Emergency Response Benefit (CERB), stating it was combining the previous ECB and ESB benefits. The CERB provides eligible Canadians with $2,000 a month for up to four months, though again many questions remain unanswered.

For businesses, which were and continue to make real-time decisions, the aid package included a temporary wage subsidy to help prevent layoffs. It was initially a limited program of $3.8 billion (only available to small businesses), providing a subsidy of 10 per cent of employee wages (to a maximum of $1,375 per worker) up to $25,000 in subsidies per employer.

Less than a week later, the government increased the wage subsidy to 75 per cent and then later expanded it to all businesses and non-profit organizations with “eligibility criteria” being available “before the end of the month,” a deadline that was not met.

When the details were finally released today, the finance minister provided almost no further details in his press conference or press release than were already publicly available, save of course for the subsidy’s name, the Canada Emergency Wage Subsidy (CEWS). The subsidy will be available for businesses that can show a 30 per cent decline in revenue relative to the same month last year—it will be 75 per cent of the first $58,700 normally earned by employees, to a maximum of $847 per employee.

It wasn’t until questions were taken from journalists that the finance minister provided a few additional details (i.e. the total cost of the program). Shockingly, the minister admitted that the government doesn’t have the details, noting, “We will get the administrative details out as quickly as possible.”

During his opening comments, Minister Morneau also indicated that businesses must “attest” that they are doing all they can to pay the remaining 25 per cent of wages. While “attest” means to provide clear evidence, during questioning the minister seemed to back off of this statement, indicating that the government hoped businesses would pay the remaining 25 per cent.

Another question—is the aid package for specific sectors of the economy deemed to have been especially hard hit by the recession, such as the energy industry, airlines and tourism? Last week, Minister Morneau said that help for the oil and gas industry was “hours or days away.” It’s now a week later and Department of Finance officials say it could be another week before announcements are made.

Clarity and certainty are critically important, now more than ever. The federal government would do well to focus more intently on fewer programs that are better designed, and provide greater certainty to both workers and businesses.