Ottawa should wind down massive COVID subsidies to businesses

Over the past week, the Globe and Mail has published two analyses of the Canada Emergency Wage Subsidy (CEWS), the largest component of the federal government’s COVID-19 economic response plan. The program gave employers who suffered a revenue decline a subsidy of up to 75 per cent on their payroll costs.

One piece of investigative journalism documented the lack of transparency and accountability surrounding the program, showing just how hard it’s been to get data or clear answers from the government about which companies receive money and how much.

The other shows that in many cases the CEWS subsidy did not just achieve its objective of preventing layoffs—but resulted in windfall profits for recipient firms.

Why?

Because the program has provided subsidies for all employees at eligible firms, not just those whose position would have been vulnerable in the absence of a subsidy. In other words, firms received the per-employee subsidy to help pay the wages of employees who they would have continued to employ anyway if CEWS did not exist.

For this reason and other reasons, the cost of CEWS has been enormous compared to the benefits. The total budgeted program costs for 2020/21 and 2021/22 now stand at $110.6 billion. For context, consider that in 2019/29, the federal government collected $334.1 billion in revenue. That means by the end of this year the government expects CEWS to cost about one-third of all revenue Ottawa collects in a normal year.

Here’s another way to look at it. If all of the money now budgeted CEWS is spent, the total cost of the program will wind up at approximately $5,300 per member of the Canadian workforce.

Moreover, a recent analysis co-authored by myself and University of Toronto economist Michael Smart found that the cost of CEWS has been approximately $188 000 per “job-year” saved (a job-year basically represents one year of work for one person).

The CEWS program is very expensive and the Trudeau government has not yet produced its own analysis of the program’s benefits or shown why it believes the benefits of CEWS meet or exceed program costs. Indeed, as the Globe showed this week it, it’s been difficult to even obtain information about how much CEWS money various businesses receive.

There’s no doubt that the removal of CEWS will be difficult for some companies and some may not survive without government help. This remains a sad but necessary component of a free market economy.

With the economy recovering and an end to the pandemic hopefully in sight, the government should now develop and announce a plan to wind down the CEWS program so firms across Canada can start preparing to succeed without Ottawa subsidizing the cost of their payrolls.