A neglected aspect of stimulus

Much of the debate about economic stimulus has been on infrastructure (picture the Hoover Dam, as Stephen Gordon comments). But there is more! One neglected area is around income support, including EI, the CCTB, GST credit and provincial social assistance programs. Below is the quick synopsis from the CCPA’s alternative economic and fiscal update, and thankfully, the Caledon Institute has released a paper that draws essentially the same conclusions and has much more detail for the geekily inclined.

EI benefits are a highly effective stimulus as they quickly replace income for recently unemployed workers, who are very likely to spend the proceeds. The EI program could be strengthened by increasing the number of weeks for which an unemployed worker can collect benefits; increasing the replacement rate from 55% to 70% of earnings, and the ceiling for maximum benefits from $435 per week to $600 (equivalent to the inflation-adjusted maximum back in 1996); and reducing the number of hours of paid work required to qualify for EI benefits.

Other income transfer programs could be expanded, including the GST credit, the Canada Child Tax Benefit and the Guaranteed Income Supplement (for seniors). Each of these transfer programs is already designed to provide the maximum benefit to families with low incomes. Because social assistance is provided by the provinces and funded in part by the Canada Social Transfer, the federal government should also increase
this transfer to bolster provincial income support programs.

7 comments

  • Neglected indeed, and unjustly so. The size of those programs is (sadly) so small that huge amounts of good can be done by multiplying them by an impressively large factor, and it wouldn’t cost all that much, either.

    (I’ll let someone else do the math.)

  • Although in terms of wording, I wouldn’t call this stimulus so much as a modification in our counter-cyclical social insurance infrastructure. When I think stimulus, I think of a cabinet minister being given a budget to put into the broader economy. If we leave things mostly as they are and they cost more because of a recession, I wouldn’t think of it as an initiative. I think we should do both kinds of spending, with the understanding that the money for the counter-cyclical stuff automatically disappears when things get better.

    Now buying thousands of new buses from the big three; that would be a stimulus.

  • Just to be clear, the changes mentioned would be in addition to a status quo deficit driven by macroeconomic factors. So they would be part of a stimulus package in that this is new money. I like the thousands of buses from the big three idea, though.

  • How long would it take to convert Auto-plants to bus plants? Why not just shift auto workers over to Bombardier? There is lots of planning capacity in public transit. And at the same time work up a plan for the restructuring of autos so that when the transit push is exhausted the workers can go back to autos.
    ————

    In the realm of pure fantasy I have been dreaming of a bombardier motorcycle with that beast of a two-stroke 650 they were making for their skidos a decade or so ago.

  • Don’t get me wrong, I think it’s a good idea to improve EI eligibility and payments. But that’s been a good idea all along. I don’t see the connection between recession =>need stimulus =>improve EI. When I think of a stimulus package I think of something you would stop when the recession is over, which I wouldn’t want to do with the EI improvements.

    Unless, that is, you’re thinking of the strategy mustered by those who said we need to cut spending because of the deficit. Take favorite policy A, add crisis B, use B to justify A, then maintain A when B ends. And that ploy worked, so maybe it would work for us too.

    Maybe I’m getting a little too excited about categories. It’s just that during this constitutional crisis we’ve heard all sorts of people lying about what their true goal is, and I think people are really turning off to that.

    I got keen on the bus idea because in my opinion, the best industrial strategy is one where the public sector buys from the private sector something they need for the delivery of public services. Since we have a large backlog of infrastructure needs, the push should be on front-loading maybe a decade’s worth of capital improvements into a tight 6-month period. The buses just happen to dovetail with the auto sector collapse.

  • “I got keen on the bus idea because in my opinion, the best industrial strategy is one where the public sector buys from the private sector something they need for the delivery of public services”.
    Absolutely! I’m assuming your talking about “Made in Canada” products as opposed to things like the “Made in Germany” ferries we have sitting at the dock in Vancouver collecting very expensive dust.

  • Of course there would be a problem with NAFTA’s national preference rules, so industrial policy through procurement requires going down the road of changing that item as well. Or alternatively, we could find a few industrialized countries to split up the procurement contracts with. Like Detroit builds everyone’s buses, Oshawa builds everyone’s subway cars, Germany builds everyone’s solar panels. Divvy it up so that every country gets contracts equal to their procurement budget.

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