By now, it is clear the coronavirus pandemic is a shock to the economy unlike anything we have ever seen. In the past week, nearly one million Canadians filed claims for Employment Insurance – twice as many jobs, proportionately, as were lost in the worst month of the Great Depression. Many more are likely to follow in the weeks to come.
At the same time, this is not – or need not be – the beginning of a years-long cataclysm like the Depression. The contraction we are enduring is not the result of a sudden and mysterious cratering of business and consumer confidence, but rather of a government-imposed shutdown, in response to a public-health emergency. Once the emergency has passed and the shutdown is lifted, economic activity can resume – though it may be many months before it returns to prepandemic levels.
Government cannot do much to stimulate activity at the same time as it is enforcing inactivity. What it can do is try to limit the damage: to put a floor under incomes, yes, but also a ceiling on expenses, sparing individuals and businesses from the sort of large non-discretionary payments they are usually obliged to make, from taxes to mortgages to utility bills to payroll.
In other words, if production is to be paused, so might cash flow: Rather than leave everyone to try to collect from everyone else out of income no one is earning, the government can pick up the tab and add it to the national debt. It can collect from us later.
You can see some of this thinking in the package of measures contained in Bill C-13, the federal COVID-19 Emergency Response Act. Though mercifully stripped, thanks to a timely Opposition display of backbone, of some of the more absurdly overreaching provisions the government inserted in the original draft – which would have allowed ministers to tax, spend or borrow, without Parliament’s approval, for up to two years – the bill as passed is still a massive expansion of state power and ministerial discretion.
For example, it authorizes ministers, in the event of “a public health event of national concern,” to spend “all money required to do anything” to address it. The proverbial blank cheque in its original form, this – like other provisions in the bill – is at least now set to expire on Sept. 30.
Of more immediate impact is the Canada emergency response benefit, or CERB, which will pay $2,000 a month ($1,800 after tax) for four months to every worker who loses income because of the crisis, whether because they are laid off, or forced to self-isolate, or home looking after their school-shuttered children, or simply aren’t being paid. On its own, this is projected to cost $52-billion this year, or roughly half the cost of the overall federal response.
There’s been a flurry of debate about the best method to get help to individuals in this crisis. Should it be delivered by way of targeted income-support programs, such as the CERB? Should the money instead go to employers, in the form of a wage subsidy, enabling them to keep paying their employees, even if they aren’t doing anything? Or should the government just mail everyone a cheque, as the United States is doing, the amount depending on their income – a universal, if temporary, basic income?
Each has its pros and cons. A wage subsidy would keep current employment arrangements intact, sparing workers the trauma of being laid off and the delays and uncertainties of applying for government assistance. But it has great potential for waste and abuse. Many of the workers a company might be subsidized to keep on it might have planned to keep on anyway. Many others might be laid off even after the company had taken the cash. There’s also the question of how, once employers are hooked on the subsidy, to get them off it.
Paying benefits directly to individuals has its own complexities. Target them to workers directly affected by the crisis, who are required to apply to receive them, and you risk delays and people falling through the cracks. Send everyone a cheque, no questions asked, on the other hand, and either you have to reduce the size of the benefit, or the cost of the program escalates – money that’s not available for other, possibly more pressing purposes.
For its part, the government has chosen a mix of each. The CERB is targeted, to an extent, but much less narrowly than the two benefits, announced only the previous week, it replaced: the emergency support benefit and the emergency care benefit, each of which addressed different groups of workers in different situations. (There are also increases to the GST low-income credit, or the Canada Child Benefit.) In addition, the bill contains a provision for a 10-per-cent wage subsidy, aimed at small businesses – far from the 75-per-cent or 80-per-cent subsidy some employer groups are clamouring for, based on programs in Denmark and Britain.
The other half of the federal package, at a cost of $55-billion, takes the form of a tax holiday, sparing individuals and businesses from having to file or pay their income taxes for some months. Rather than pay out money, that is, to see business through the crisis, the government will simply decline to collect from them for the same period. That’s surely helpful, but what about, as the C. D. Howe Institute has proposed, a similar deferral on the GST payments that business must remit to the government?
All of this is in addition to the measures the Bank of Canada and other agencies have unveiled to keep credit flowing to those who need it, while preserving the stability of the financial system. The sums are enormous, requiring a massive increase in government debt and even larger asset purchases by the central bank.
But the sheer size of the operation should not obscure the need to ensure each piece of it is well-considered and every dollar put to its best use. Even in the age of “all money required to do anything,” there are such things as opportunity costs.
https://www.theglobeandmail.com/opinion/article-there-is-no-perfect-economic-response-for-canadas-coronavirus/
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