Long-time P.E.I. bed and breakfast owner recalls life-long fighting ...
Peers Alliance set to host annual poetry slam and have some wacky fun ...
UPEI student to share her experiences as an out, queer woman in China
Making East Coast workplaces more inclusive for LGBTQ2+ community
Have you heard about the SaltWire News app?
Visit SaltWire.com for more of the stories you want.
SaltWire Selects: Stories you don't want to miss
What you need to know about COVID-19: August 7, 2020
It was heartening to see a finance minister provide clarity, imagination and hope amid the COVID chaos.
He ruled out further extensions to wage subsidies beyond October but made it cheaper for people to buy homes; reduced consumption taxes for food and accommodation; offered restaurant discounts for people who “eat out to help out,” and created a new green home renovation credit.
Unfortunately it wasn’t Canada’s finance minister. All these measures designed to instill confidence and to get people out of their homes were included in the summer statement by U.K. Chancellor of the Exchequer, Rishi Sunak.
Simultaneously, Canadian Finance Minister Bill Morneau was releasing his “fiscal snapshot,” a self-congratulatory effort that slapped his government on the back for its COVID-19 performance and offered no new details, beyond an eye-popping deficit forecast of $343.2 billion – a full $87 billion higher than the best guess by the Parliamentary Budget Officer.
“We were guided by three key principles: speed, scale and simplicity. I think we delivered on all three,” Morneau said, modestly.
The likely cause of a deficit hike that has gone from mildly hallucinatory to mind-altering is the amount allocated to the Canada Emergency Wage Subsidy. The new update sets aside $82.3 billion for CEWS, even though the take-up so far has been disappointing – 245,000 applicants, covering two million workers, at a cost of $17 billion (compared to eight million applicants at a cost of $53 billion for the Canada Emergency Response Benefit.)
Deep in the fiscal update documents, the government revealed that it “will soon announce changes to the CEWS to stimulate recovery, provide support to businesses during re-opening and help them adapt to the new normal.”
Morneau refused to provide details on what is in store but it is clearly designed to encourage more businesses to sign up for CEWS by removing disincentives to growth, such as the provision that requires businesses to experience a 30 per cent drop in revenue before they are eligible.
Quite why this key restart tool was not included in this document is mystifying.
There was precious little else here to justify Morneau’s sense of “cautious optimism.”
Private sector economists estimate Canada’s GDP will decline 6.8 per cent this year and bounce back with growth of 5.5 per cent in 2021.
The department of Finance has a more gloomy view, suggesting it had modeled two scenarios. One envisages a resurgence of uncontrolled transmission later this year, resulting in an 11.2 per cent decline in real GDP in 2020.
The other sees a slower pace to recovery than the private sector economists imagine, as households remain cautious and avoid public spaces, including restaurants and non-essential shopping. In turn, businesses face low demand, operate under capacity and fire workers. Under this scenario, GDP slips by 9.6 per cent this year.
Yet this is the sequence of events the U.K. Chancellor is taking active measures to avoid.
Obviously, economic health will depend on public health. Testing and contact tracing, not to mention adequate child-care, are going to be key.
But there is a role here for the federal government to take smart, targeted measures to bolster demand and actively help the pivot from fear to hope. Ottawa is still trying to force the provinces and territories to accept its conditions as part of a $14 billion safe restart agreement but those are mainly public health measures, such as more money to increase testing capacity.
There is very little in the update to address FOGO (fear of going out) or to kindle economic activity.
Instead, Morneau rambled through the well-documented actions of the past four months. It is fair to give credit where it is due and say the measures taken prevented things from being worse than they might have been. The update cited an Angus Reid public opinion poll that suggested 30 per cent of respondents were concerned about paying for their rent or mortgage in March, but by May only six per cent said they were unable to foot their monthly bills.
Some programs were a success. The CERB replaced $53 billion in lost income, the Canada Emergency Student Benefit is helping 600,000 students and the Canada Emergency Business Account has provided 680,000 small businesses with interest-free, partly forgivable loans.
Others have had less take up – the Canada Emergency Commercial Rent Assistance has had a mere 29,000 requests; the Business Credit Availability loan guarantee program has offered just 148 guarantees. The Large Employer Emergency Financing Facility (LEEFF) doesn’t appear to have had any takers at all.
Still, the government is able to boast of having offered $236 billion in direct support, which, at around 10 per cent of GDP, is considerably higher than the G7 average of 6.7 per cent.
The economy was already in a hole, even before the government’s COVID measures. The update reveals that $81.3 billion has been added to the deficit by the slowdown in budgetary revenues – $30 billion from the drop in income tax receipts alone.
Still – the shortfall of $343.2 billion might even make the NDP blanche.
I remember seeing $1 billion in fake $50 bills stacked up on about 10 pallets as part of a protest against government waste. It needed a good sized truck to move it.
The COVID recovery plan takes the national debt over $1 trillion and it is going to be a dead-weight dragging on the aspirations of future generations.
The only redeeming feature is the low cost of borrowing, which, perversely, means the carrying cost of the massive amounts of new debt is $4 billion less than was estimated in last December’s fiscal update, at just one per cent of GDP.
Morneau ruled out the prospect of this generation paying off the COVID bill through increased taxes. “Raising taxes is exactly the wrong response. We have to focus on growth,” he said.
Yet that is precisely what he has failed to do in this fiscal update. It is a snapshot that has no focus.
Copyright Postmedia Network Inc., 2020