To: Bill Morneau, Minister of Finance

Re: Ottawa has the tools to replace the CERB (Parts I & II)

Part I

Canadian governments moved swiftly and massively to provide personal supports to Canadians during the COVID crisis. This Intelligence Memo looks at income from three families in February before the crisis hit, in April when generous federal and provincial supports hit their zenith, and in July when the employers of all of our families have taken advantage of the Canadian Emergency Wage Subsidy (CEWS) and are paying wages accordingly.

The purpose of the exercise is not to criticize what the government has done to date – clearly the government had to react quickly and decisively, and they did, with unanimous support – or to criticize families who received those hastily designed benefits. Rather the purpose is to foster debate around what type of supports the government might consider during the recovery phase – which will be the subject of subsequent Intelligence Memos.

Our first family is Chris and Intisar. Chris works on average 35 hours a week at McDonalds as a shift manager and made $500 per week in February. Intisar teaches piano two evenings a week at a local music store and typically makes $100 per week. Chris and Intisar have two children, ages two and four. Their total family income in February, including federal and Ontario child benefits, Goods and Services Tax Credit (GSTC) and Trillium benefits totalled just under $3,400.

Our second family is Avery and Quinn. Avery is a bartender and made $500 per week in February and Quinn works at the Koodo kiosk at the mall and made $250 per week in February. They have no kids. Their total family income in February was just under $3,100.

Our third family is Sandy and Charlie. Sandy is a restaurant manager at the Keg and makes almost $55,000 and Charlie manages a high-end hair salon and earns just shy of $44,000. They claimed the full $16,000 in childcare expenses for their two children, aged three and five which reduces their federal tax by $3,358 and they get $4,640 in Ontario CARE benefits. Including these amounts, their family income was just shy of $9,500 in February.

All six of these individuals lost their jobs in mid-March and applied for the Canada Emergency Response Benefit (CERB) of $500 per week. Chris managed to keep a few shifts at McDonalds running the drive-thru and averaged $250 per week through April – but remained below the $1,000 threshold at which he would lose his CERB.

In normal times, Employment Insurance (EI) would have paid 55 percent of eligible earnings so Sandy would have received an EI benefit of $2,500 a month, not the $2,000 received on CERB.

The first two families would also receive supplemental GSTC cheques that doubled their current annual benefit. And the two families with kids would see an additional $300 per child. Plus the Ontario Ministry of Educationprovided $200 per child in April.

If we spread these supplemental amounts over March 15 to May 31 then Chris and Intisar saw their family income rise in April to just shy of $7,500 while Avery and Quinn saw a more modest increase to just over $4,300. Sandy and Charlie saw their family income drop to just under $6,000.

The CERB is taxable, so our first two families would see their tax bill rise next April. Our third family would pay less tax – but also save on childcare expenses. But that’s down the road, for now the table reflects the “cash in hand” that these families would see. As such, it assumes no mid-year adjustments to existing supports.

Jump ahead to July. All of the employers of our couples have applied for and received the CEWS that pays 75 percent of the salary bill of Candian firms. All of our family members are now working at their former jobs at 75 percent of their former salary. All other family and sales tax benefits return to what they were in February as these benefits do not change mid-year.

In a companion Intelligence Memo, we examine what kind of programs are needed for this recovery to be sustainable for Canadian families.


Part II

A separate Intelligence Memo summarized the impact on fictional families of the combination of the Canada Emergency Response Benefit (CERB) and the boosts to the Goods and Services Tax Credit and Canada Child Benefit from February to July.

It showed that the CERB is a very blunt instrument that was appropriate for the first phase of the crisis where income replacement, speed of delivery, and a uniform payment were both operationally required and suitable to the situation. While not perfect, the federal government is to be commended for meeting all three goals.

But even with modifications, CERB could be unnecessary and unhelpful for the next phase because Ottawa has better tools at hand. To address a slow recovery will almost certainly require continued supports. Those tools are much more targeted in terms of who receives support and how much they receive.

Two groups of Canadians face particular difficulties – low-income Canadians and families with children.

Low-income Canadians have been hit hardest, as they make up the largest proportion of a service-sector led shutdown. And that sector is unlikely to see a rapid return to pre-COVID levels as phased physical distancing relaxation and anxiety about a second wave hold back a full recovery.

The government’s initial response to the crisis reflected this concern – it pledged $5.5 billion for a one-time addition of the Goods and Services Tax Credit (GSTC) equal to whatever your current total annual benefit was. This provided a one-time income supplement in May of $443 for singles and $580 for couples and $153 per child for those with the lowest incomes based on their 2018 income tax filing.

Instead of extending the CERB, GSTC boosts should be repeated during the next phase of the crisis. And we should allow Canadians to update what they receive based on filing their 2019 tax returns. All Canadians currently receiving CERB payments should be encouraged to file updated returns.

Families with children will be facing the challenges of primary caregivers having school-aged children at home and facing the prospect of cancelled summer camps. This will make it much more difficult for primary caregivers – primarily women – to return to work in the coming months. Further, even if their jobs came back immediately, many of these parents simply wouldn’t be able to return to work. This challenge will be particularly acute due to a reduction in available childcare spaces due to physical distancing rules and the likely bankruptcy of existing childcare providers.

This points to two kinds of required supports – one to assist with childcare expenses and another for families who are not both working full time and are coping with additional children at home.

I consider in another Intelligence Memo the significant challenges facing families who require childcare. In particular, I have proposed a very generous refundable tax credit for up to 75 percent of childcare expenses as a way forward on this issue.

The government’s initial response to the COVID crisis reflected the concern for families by providing a $2 billion one-time boost to the Canada Child Benefit (CCB) of $300 per child in May. And again, these payments could be repeated and Canadians – particularly those on CERB – should be encouraged to update and/or file their returns to receive appropriate benefits.

A low-income family with two adults working would receive all three benefits – a boost to GSTC ($580 plus $153×2), a boosted CCB ($300×2) plus a large annual refundable tax credit (up to $12,000). A single income family – whether by choice, because they cannot find work or childcare or because they are caring for school-aged children – would receive the GSTC boost and the CCB Boost. For many families, these benefits plus their earned income would far exceed what they would get with an extension of the CERB, but in a series of appropriately targeted programs rather than a broad-based one.

The level of economic activity and the pace of the recovery can determine the appropriate level of additional payments to coincide with GSTC payments this November, February 2021, May 2021 etc. Each additional payment of the GSTC and CCB would cost $7.5 billion. So a commitment to continue the full CCB and GSTC amounts to the end of 2021 would cost $15 billion more this year and $30 billion next year.

Extending the CCB and GSTC boosts will allow low-income Canadians and families with children face the post-CERB knowing that they would have the income security they need to face the likelihood of a slow and uncertain recovery.

Ken Boessenkool is an independent public policy economist.–-ottawa-has-tools-replace-cerb-part-ii