Federal Support Package: The Pros, the Cons, and the Next Shoe to Drop

Here are some quick thoughts on the extensive package of emergency measures announced today by Prime Minister Trudeau, Finance Minister Morneau, and Bank of Canada Governor Poloz:

The Pros:

The government has worked quickly and creatively to find ways to deliver support to Canadians, and fast – using the infrastructure of existing benefits, and developing new channels where needed.

The government has recognized the gaping holes in the existing social safety net: in particular, the fact that so many workers (part-time, seasonal, self-employed, and gig) don’t qualify for normal EI benefits. So their two new income supports (the Emergency Care Benefit and the Emergency Support Benefit) will cover all categories of affected workers. That’s an important change, and should be maintained when this crisis is over.

In their commentary, the leaders all indicated clearly that these measures are an initial response – and that there is more to come, as the crisis continues to unfold. Morneau said the government will do “whatever it takes.” Poloz and Trudeau similarly committed there was no limit on their willingness and capacity to intervene. This determination is important and reassuring.

The decision to close the Canada-U.S. border to non-essential traffic seems like a pragmatic compromise. The maintenance of cross-border supply chains will be important to continued work in the retail, manufacturing, and other key sectors. And that should boost confidence among Canadians that we can continue to get food and other essentials, even if the lock-down lasts for several weeks.

The Cons:

While the program is creative and ambitious, it is still inadequate in its scale and its reach.

Describing the package as being worth 3% of GDP (or $82 billion in total) is very misleading. Two-thirds of that total is the tax deferrals (for up to 4 months) for $55 billion worth of personal and business income tax obligations. Those obligations will still be there; the taxes are not being “forgiven” (nor should they). It is worth something, for sure, to defer tax payments – especially for desperate households and businesses who need every dollar of cash flow to survive the coming months. But it shouldn’t be treated like a dollar-for-dollar equivalent to true injections of income support and spending power (such as the employment benefits above).

At a 3% interest rate (more than what the government actually pays right now), deferring a debt for 4 months is “worth” about 1% of the principal (in this case, $550 million). Of course, some fragile businesses and households wouldn’t be able to borrow at any price – so that calculation understates the value of this measure to many affected people. But it’s not remotely equivalent to the $27 billion value of the genuine income supports and other injections (equivalent to around 1.2% of GDP). So those two numbers should not be added together (like adding apples and oranges).

This is relevant for purposes of comparing the size of this package to similar packages being unveiled in other countries. Examples: New Zealand (4% of GDP), Sweden (6%), even America (likely 4-5%, based on discussions so far). This is not a large package, relative either to the need or to what other countries are doing. My concern regarding the inadequate size of the package is eased somewhat by the clearly stated willingness of the government to do more in the future.

Where could the package have been expanded in scale, to more forcefully address the imploding economy and labour market?

  • The temporary increases in GST and CCB payments (well-designed to flow quickly and to the most needy) could have been much larger.
  • The waiting period for EI (and the new EI-like benefits) could have been eliminated.
  • The benefit level for EI and the new EI-like benefits could have been increased, especially for lower-income workers: for example, by specifying a floor level of benefits (eg. covering 100% of pre-layoff earnings up to $350 per week), and then linking it to income.
  • The wage subsidies to small employers (10% of wages for 90 days, up to $1375 per worker or $25,000 per firm) should be larger, and contingent on supported firms not laying off any workers. (I don’t think a 10% subsidy will make much difference to layoffs in small firms in retail, hospitality, transportation, and other sectors whose revenue has evaporated. Denmark and Germany, among others, are offering 60-75% wage subsidies to prevent layoffs.)

I think the federal and provincial governments will also need to make stronger assurances that businesses and households will not be left destitute by this crisis – once we are finally allowed to start going back to our jobs. Major emphasis has been placed on strengthening private credit channels: looser credit rules to allow expanded bank lending, subsidized loans through EDC and BDC, Bank of Canada purchases of mortgage bonds to limit the growth of interest rate spreads, and others. This is fine, but whether that supported credit actually trickles down to the individual firms and households who will need it is not clear: it still depends on the willingness of private lenders to lend, and the willingness and capacity of private borrowers to borrow. And the arm-twisting of bank CEOs by Mr. Morneau to give borrowers some relief (to be determined on a “case by case” basis … forgive me for being skeptical) won’t be sufficient, either.

I would like to see a stronger, blanket pledge to prohibit business and personal bankruptcies period – backed by freezes on any foreclosures and evictions, federal loan guarantees for loans, and direct emergency support. In essence the government itself would become a lender of last resort, to bridge businesses and households through the immediate crisis, until such time as normal lending practices are restored – an idea being advanced by Gabriel Zucman, among others. (Mr. Morneau gave an intriguing hint today of his willingness to move in this direction, by noting the government could support businesses through direct funds from the Canada Account.)

The Next Shoe to Drop

Clearly this terrible situation is going to get worse before it gets better. Expect the April labour force data (to be published in early May … assuming Statistics Canada staff are able to work!) to show a sudden decline in employment of 300,000 or more – by far the biggest one-month drop in Canadian history. That would push the unemployment rate quickly up toward 7%, with more to come. (The March data, based on a phone survey conducted last week, before school closures and other emergency measures were implemented, will capture only the beginning of the downturn.) Knock-on effects from the initial lay-offs (experienced through shocked consumer spending, disrupted supply chains, bankruptcies or closures) will cause those losses to cascade in subsequent months. Assuming the lock-down is extended for some weeks, expect a hit to annualized second quarter GDP in the order of 10% or potentially more, and unemployment to rise to 12-15%.

There is no doubt, then, that more immediate support will be required in many areas, as this crisis continues to unfold. All three leaders today indicated their understanding of this, and their willingness to act, which is encouraging. And apart from a few gratuitous boasts by Mr. Morneau about how Canada’s “strong fiscal position” allows his government to act powerfully, there is almost no discussion of “how will we pay for it.” Of course, no matter how big Canada’s public debt was today, there is still no limit on the federal government’s ability to create purchasing power and mobilize resources. This idea, once heretical, has now been widely accepted, even in polite mainstream company. Even Governor Poloz agreed today that quantitative easing is now a “standard part of the central bank toolkit.” Progressives can push hard to make sure the full capacity of government and the central bank is used ambitiously and fairly – and that it isn’t replaced by knee-jerk austerity once the immediate crisis is over.

And after that immediate health emergency ends, of course (as I argued in my previous post), this crisis will need government to step up with an ambitious, longer-term reconstruction program, centred on public investment and the lasting expansion of public services, to help us repair the damage from this crisis, and address the next ones (including climate change). Preparing for that rebuilding and reorientation of the economy will be the next big challenge.

Jim Stanford is Economist and Director of the Centre for Future Work, and divides his time between Vancouver and Sydney. He tweets at @JimboStanford.


  • The coronavirus will redefine what currency-issuing governments can do – finally

    William Mitchell is Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), University of Newcastle, NSW, Australia


    “The coronavirus comes on top of already growing dissent over the failure of mainstream economic policy. It will redefine what governments can do with their obvious fiscal capacity and will demonstrate once-and-for-all the lies that the mainstream economists tell about deficits, inflation, interest rates, etc. It will categorically demonstrate the capacity of the currency-issuer. All that will lay the foundation for a better future, if we get beyond this current malaise.”


  • Pandemic War Tax on the top 1%
    of 10-25% Industry also taxed. should cover this situation.

  • This analysis allows for some necessary insight into the scope of what needs to be done to protect workers (especially those in the precarious economy) and those who are even more vulnerable (except lack of mention in regard to Indigenous peoples). One thing that should be added to necessary actions is legislation to protect workers’ rights by placing the effects of the pandemic within the framework of health and safety legislation, which guarantees workers protection, along the following lines. We in the left and labour organizations (and especially within the NDP) ought to propose specific statutory amendments at the provincial level that have much wider scope, are legally enforceable and place the onus to fully compensate workers on the employers, not on the public purse. This approach differs because it starts with the unqualified rights of workers not to suffer from a contagion resulting from systemic delay, an eroded healthcare system, inadequate medical infrastructure including testing and ventilators and the conduct of huge corporations who risk the lives of workers who have no choice, by continuing to employ them by the millions in dangerous close proximity without alleviating measures. Here’s the proposal:

    To call on the Ontario NDP to seek the following emergency legislation in dealing with the coronavirus crisis:
    1. That the provisions of the Ontario Health and Safety Act (OHSA) relating to the right to refuse unsafe work be specifically declared applicable where it is invoked in instances relating to exposure to the coronavirus;
    2. That such exposure at the workplace be declared a “workplace hazard” as defined by OHSA;
    3. That such exposure at the workplace be designated as an occupational disease and not an illness under the Workers Safety and Insurance Act and other provincial legislation;
    4. That dependent contractors be presumptively entitled to the same parallel protection set out above as well as full entitlement to earnings and security of position during any period when they are unable to perform their obligations in the precarious economy.

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