[Canada] Ottawa’s wage subsidy silence unsettling for economy

Canada’s federal government is rapidly nearing a decision day on wage subsidies that will have critical implications for the COVID-19 economic recovery, making its silence on the matter unsettling, Business in Vancouver takes a closer look.

When the coronavirus pandemic hit last March and the country suddenly went into a shutdown, the cash flow for hundreds of thousands of Canadian businesses was turned off. Initially, the federal government response was tepid but then a well-received subsidy system - averting mass layoffs and business failures - was established.

The Canadian Emergency Wage Subsidy (CEWS) reimbursed firms that had experienced substantial year-over-year revenue declines. Companies could retrieve up to 75 per cent of an employee’s wages under CEWS (up to $847 weekly) if their year-on-year revenues had fallen at least 30 per cent. 

The system has since been extended and modified to generally provide smaller subsidies but to a wider range of firms with smaller year-to-year declines. Even in this dilute form, the programme has made a difference for many employers.

However, Business in Vancouver says that what is particularly worrying is not that the program ends in June - a concern for another day - but that the current eligibility criteria end March 13, one payroll from now. The key will be how the mid-March-to-June subsidies are articulated.

CEWS will effectively be worthless if businesses continue any longer to use year-over-year monthly revenue results as the basis of their claims. As we move further into March, certainly April, even the lukewarm 2021 revenues are bound to be better than the disastrous 2020 ones. If not, frankly, it’s likely that the individual business is not salvageable without a significant sectoral boost.

Without a reasonable subsidy, there is a real risk that many companies may rapidly move into a new, painful wave of job cuts. In January the national unemployment rate was 9.4 per cent, indicating a real softening of the recovery. There are big expectations for 2021 of GDP growth of more than 4 per cent that would include bringing back many jobs but such optimism comes way down the calendar and a lot can happen by then. Business in Vancouver offers further analysis.

Canada’s federal government is rapidly nearing a decision day on wage subsidies that will have critical implications for the COVID-19 economic recovery, making its silence on the matter unsettling, Business in Vancouver takes a closer look.

When the coronavirus pandemic hit last March and the country suddenly went into a shutdown, the cash flow for hundreds of thousands of Canadian businesses was turned off. Initially, the federal government response was tepid but then a well-received subsidy system - averting mass layoffs and business failures - was established.

The Canadian Emergency Wage Subsidy (CEWS) reimbursed firms that had experienced substantial year-over-year revenue declines. Companies could retrieve up to 75 per cent of an employee’s wages under CEWS (up to $847 weekly) if their year-on-year revenues had fallen at least 30 per cent. 

The system has since been extended and modified to generally provide smaller subsidies but to a wider range of firms with smaller year-to-year declines. Even in this dilute form, the programme has made a difference for many employers.

However, Business in Vancouver says that what is particularly worrying is not that the program ends in June - a concern for another day - but that the current eligibility criteria end March 13, one payroll from now. The key will be how the mid-March-to-June subsidies are articulated.

CEWS will effectively be worthless if businesses continue any longer to use year-over-year monthly revenue results as the basis of their claims. As we move further into March, certainly April, even the lukewarm 2021 revenues are bound to be better than the disastrous 2020 ones. If not, frankly, it’s likely that the individual business is not salvageable without a significant sectoral boost.

Without a reasonable subsidy, there is a real risk that many companies may rapidly move into a new, painful wave of job cuts. In January the national unemployment rate was 9.4 per cent, indicating a real softening of the recovery. There are big expectations for 2021 of GDP growth of more than 4 per cent that would include bringing back many jobs but such optimism comes way down the calendar and a lot can happen by then. Business in Vancouver offers further analysis.