The latest round-up on economic and policy thinking; plus, which economic and social problems need more action?

Governments are reacting in real time to the largest economic and social crisis since the 1940s. Governments announce, experiment, amend, expand and try again. Unprecedented numbers of anxious Canadians — some of whom had no expectation that they would ever check the Finance Canada website — are following every policy announcement and trying to figure out whether the programs being announced can help with their own situation.

Canadians should continue to go to the official government sites to understand the programs and policies being announced. They remain the most accurate and timely sources of information. The federal government’s response, regularly updated, is here.

Hundreds of policy professionals have written thoughtful analyses and made novel proposals to help Canadians, businesses and community organizations get through the immediate crisis. The Canadian policy community is using its knowledge to help governments make good choices and help Canadians understand the drama that is playing out. Many researchers continue to catalogue initiatives to help make sense of the unfolding clutter:

We will not highlight all good ideas but will draw attention to those proposals that we think hold the most merit. Before we do though, a few brief observations on the evolving policy and program landscape.

The government has been moving toward simpler direct benefits to individuals to stabilize their income. This is a good evolution in real time. The government has been striving for flexibility, which is likewise positive. And as the scale of the economic impact becomes clearer, the size of the package has grown, which responds to a broad consensus across the policy community.

Support for small and medium sized businesses (SMEs) has also become significantly larger. The federal government has listened to businesses that said the wage subsidy had to be much higher than originally announced. This will help stabilize many SMEs. And the government is providing much needed flexibility to business that will allow them to hold onto cash for longer, rather than paying taxes or duties or other monies owing.

The federal government has also been announcing direct new funding to community organizations that deliver services directly to vulnerable Canadians, which is hugely important.

However, there remain questions about the suite of programs announced for business. We would highlight that the programs continue to be heavily dependent on businesses taking on new debt; and there remain real concerns about whether SMEs will be able to pay the rent and things like utilities over the next few months if they remain closed. Some of these issues are being dealt with by provincial governments, and some landlords are showing flexibility. But governments may need to use their powers to ensure that businesses are able to pay the rent through mechanisms like rent abatement and burden sharing between governments, landlords and other creditors, and tenants.

We also remain concerned about new debt that individuals may take on. Canadians were already carrying too much debt. This crisis will exacerbate this. Although governments and banks have been announcing a variety of measures, we think these measures need to be even more aggressive. Deferral may not be sufficient. The Canada Mortgage and Housing Corporation is providing public advice to financial institutions and borrowers. However, the government may need to compel banks to act differently if voluntary measures are not effective. Interest rates on credit card debt and private loans may also need government action.

Many people are at risk of losing their housing. Many others could lose their small businesses. These remain the two gravest economic risks to Canadians — risks that good policy can address and manage.

To reiterate a point we made earlier — the 2008–09 great recession started as a financial crisis. This is a health crisis that has led to a small business and a social crisis. With so much government borrowing and money-printing by the Bank of Canada, the private finance sector may need to contribute more to the solution.

Emergency Income Support

The federal government has introduced the Canadian Emergency Response Benefit for those not eligible for Employment Insurance and has expanded eligibility for EI. This is in addition to topping up many existing benefits, like the Canada Child Benefit and the GST tax credit. Provincial governments have been also providing cash to individuals.

These all achieve the policy goal of getting cash into the hands of Canadians who need it as quickly as possible.

There are improvements that could be undertaken. For example, the Government should clarify that those who have seen significant losses in employment income, but are not fully unemployed, can access the CERB. But in general the policy choices have been well-aligned with the problem and the systemic risks to individuals’ temporary income insecurity.

Successful delivery of these benefits will be the next challenge. Federal IT systems are rickety and the public service is dealing with a surge in demand that is unprecedented. Service Canada offices for in-person service have closed. Personnel have been redeployed to help get benefits out to Canadians quickly but we are a long way from seeing whether we can stick the landing.

There is a legitimate debate about how best to quickly get emergency income assistance into the hands of Canadians who need it. The federal government has opted for existing mechanisms, plus the new CERB for reasons that have been identified by Jen Robson and Kevin Milligan. Others, like Ken Boessenkool, have suggested simply sending cheques to as many Canadians as possible — call it a Crisis Income Benefit — and tax it back or claw it back later through the tax system from Canadians who didn’t need it.

Both approaches are reasonable with clear advantages and disadvantages. The federal government’s current approach can quickly use existing mechanisms and allow those in need to access the CERB through an application. A Crisis Income Benefit, on the other hand, would push more money out the door quickly, but many of those most in need would not get it if they hadn’t filed a tax return last year. Both approaches have merit, and it will be interesting for researchers to follow how different experiments play out in real time and with what impact.

Help for businesses

Many organizations, like the Canadian Federation of Independent Business, made the case that governments were going to need to do more to support Canadian businesses, particularly SMEs. The federal government announced three new initiatives on Thursday, beyond the previously announced initiatives: a wage subsidy of 75% for small and medium-sized businesses (and not-for-profits as well); the Canadian Emergency Business Account (CEBA) offering up to $40,000 in interest-free loans; and the Business Credit Availability Program, which will free up additional capital to viable businesses in need of financing.

These are good initiatives and will help many businesses get through the next few months. However, the CEBA, which is designed to help local small SMEs is heavily tilted toward debt and it may be that some local businesses are unable to pay their bills, even with this program.

Many organizations that serve businesses or specific sectors are also cataloguing potential ideas for actions. The Logic summarizes good ideas here.

Help for the community sector

The community sector has been making the case that it, like small and medium sized business, needs support. While many rely on government grants to fund much of their operations (which will continue) most not-for-profits and charities also rely heavily on donors, fundraising events and fee-for-service models that are all threatened. Some organizations, particularly those that support vulnerable populations, are seeing increased demand for their services.

The federal government helpfully clarified that the not-for-profits will be eligible for the wage subsidy, providing some stabilization for the sector. And they have heard calls from the sector to inject cash quickly into organizations that help the vulnerable and announced some new funding over the week-end. One approach is to directly fund groups such as the United Way — these trusted organizations have granting relationships with other, smaller entities, that get money to those in need more quickly.

The sector itself has put forward a number of recommendations (see Imagine Canada and Future of Good). The advice from the Atkinson Foundation remains valid and others have supported the need for governments to find quick ways of injecting cash into the sector .

The overarching conclusion is that the sector needs funds that are flexible, without onerous accountability or application processes — and fast. A larger stabilization fund will likely be necessary. Governments and philanthropists have strong relationships with the organizations that serve communities and now is the time to get money out the door so that organizations can be stabilized over the next few months and continue to provide services when they are needed most.

One unique idea advanced by Imagine Canada and others that has great merit is to relax the definition of “qualified grantee” so that foundations and others can get money to the not-for-profit best able to deliver services at this time, regardless of whether it has charitable status or not.

The absence of a federal Minister specifically charged with speaking for the sector is a problem felt at times like this. Although there are offices at the Canada Revenue Agency and Employment and Skills Development Canada mandated to focus on charities, there is a risk that the issues facing the sector are not sufficiently identified in on-going policy discussions. We know many Ministers, like Hon. Ahmed Hussen, are trying to fill this hole, but we would urge the sector to continue to loudly articulate its concerns and recommendations.

What are we forgetting?

Details for many of the proposals already announced are still being finalized and some will be released today (Monday, March 30th). The effectiveness of the new programs will depend on their design and their execution.

But there are some issues that we think have not received sufficient attention yet, at least in terms of public commitments from government. We would like to highlight three.

Post-secondary students, those about to become post-secondary students and recent graduates. How we support students, how they acquire debt and how they pay for their studies through part-time and summer employment have all been impacted by the pandemic. These are issues that will need to be addressed because we do not want those in early adulthood to pay a disproportionate price for covid-19. The federal government announced an immediate moratorium on the repayment of Canada Student Loans for six months, without any accrual of interest. This is hugely important, but it is likely only the beginning. Students will need access to jobs programmes that can be run even if social distancing requirements continue.

Renters. We continue to believe that renters — both business and residential — need additional support. Provincial rules to stop evictions and federal emergency income support are important. But there are likely risks that are not being addressed by these initiatives. On the commercial side, there may need to be more burden sharing, whereby government, banks, landlords and renters all bear some of the costs of temporary business closure. And on the residential side, there may be ways to speed up the profile and flow of Canada Housing Benefit funds so that money gets to renters more quickly, without creating new additional long-term funding obligations.

Municipalities. If provincial and municipal governments feel the need to offer their residents reductions or delays on their property tax bill, at a time when municipalities are still running their most expensive services, the federal government may need to use its strong fiscal position and borrowing power to help out municipalities. A top up to the Gas Tax Transfer, which injects cash directly into the budgets of cities, could be considered. More attention will also need to be paid to our public realms, so that main streets and other communal areas can return as places where we gather and consume once social distancing requirements are relaxed.

Matthew Mendelsohn, Karim Bardeesy and Sean Mullin

business support community sector support FPR original housing individual income support