Federal Subsidies during COVID-19
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The COVID-19 pandemic massively impacted the world economy on a scale unseen since the Great Depression of the 1930s. Millions of people suffered the consequences of the recession through job loss and financial instability. While many countries struggled to support their population through this crisis, Canada’s economic recovery policies have been notably effective. The Liberal government offered many subsidy programs across different sectors, both for individuals and businesses, to ensure a full recovery of the Canadian economy.
Throughout the COVID-19 pandemic, the Canadian federal government has spent over 1 trillion dollars to keep the economy afloat. This expenditure includes subsidy and wage support programs to assist individuals and businesses, and safety measures to curb the spread of COVID-19 in Canada. Although it may seem like a steep deficit, these subsidies were essential to recovering the economy during the pandemic.
With the economic downturn causing the loss of more than 3 million jobs at the peak of the COVID-19 pandemic in April 2020, the federal government was forced to create an income support program to sustain its population. To manage the overwhelming amount of unemployment, the federal government created the Canadian Emergency Response Benefit (CERB) and the Canadian Emergency Student Benefit (CESB) programs as intermediary programs to support Canadians throughout the summer of 2020. The combination of these programs was meant to provide a basic income to all Canadians who qualified. However, CERB was only a temporary solution. CERB provided anyone with an income above $5000 in the previous year, with $2000 a month from March to the end of summer. In addition, CESB provided financial compensation to those over the age of 18 who did not qualify for CERB and who were in school or recent graduates, with $1250 per month for the same time period. In the fall of 2020, the federal government came out with the Canada Recovery Benefit (CRB) to supplement the already established Employment Insurance (EI), which is geared towards providing people with a long-term solution to the unemployment crisis. Although EI was already in place, the federal government enacted changes to further help during the pandemic until September 2021. This new EI provides those who lost their job through no fault of their own and who are actively seeking employment with around $500 a week for the extent of the time they apply up to 50 weeks if they have 120 insured hours. The rates of money received can change depending on the amount of insurable earnings someone has contributed and on the province’s unemployment rate the claimant resides in. The CRB is for those directly impacted by COVID-19 who are not eligible for EI. They receive up to $1000 every two weeks for up to 38 weeks from September 27, 2020, to September 25, 2021. Without this crucial assistance, spending would have nearly halted due to subsidies accounting for almost 20% of Canada’s GDP, bringing Canada towards an extremely unfavourable economic position.
Beginning in September 2020, the government of Canada established the Emergency Rent Subsidy (CERS) of up to 65 percent. The CERS is a relief to 70% of people and businesses that the Association of Community Organizations for Reform Now (ACORN) reported to be still struggling to pay rent due to large-scale drops in revenue. The subsidy applies to businesses, non-profits, or charities for a period from September 27, 2020, to June 2021; however, the money is paid directly to qualifying renters and property owners to avoid the need for landlord participation. The combination of this subsidy with CERB was an inventive way to target more Canadians, 27.6 million to be precise, searching to make up for lost revenue in this recession. This subsidy is a great way to provide some aid to renters struggling to pay rent due to job loss or reduced employment hours. The CERS not only tackles the problems individuals have with paying rent during the pandemic, but also the difficulties incurred by businesses, especially in major cities. The subsidy helped many businesses stay open during the recession, which is a major win for Canada in the post-COVID world. It will facilitate the transition from lockdown and the partial openness of businesses to when all Canadians can resume life as normal. While CERB helped individual purchasing power remain as high as possible, the Canada Emergency Rent Subsidy is crucial to maintaining relative regularity in the domestic economy in the hopes that the recession does not affect Canadian purchasing power too drastically.
On top of the individual funding and rent subsidies, the government also introduced wage subsidies for businesses to keep paying their employees while recovering from the huge losses incurred throughout the pandemic. During this pandemic, the Canadian government has supported companies by awarding “up to 75 percent of employee wages during the pandemic” for employee wages under the Canadian Emergency Wage Subsidy (CEWS) program. Under this program, all Canadian employers that experienced a drop in revenue are eligible to receive these benefits during each claim period of four weeks. Specifically targeted during this round of subsidization was Air Canada, Canada’s flag carrier airline. Air Canada collected more than $492 million in public funds through CEWS, the second-highest sum paid to a publicly-traded company in Canada. The provision of so much public funding was necessary to save Canada’s largest airline company and maintain its level of competitiveness in the travel sector. Post-pandemic, this subsidy will ensure that Air Canada is able to resume at full capacity, and therefore bring in more tax money for government spending. This will eventually lead to the full recovery of the Canadian economy by incentivizing consumption through these subsidies.
All these subsidies were necessary actions taken by the Canadian government to solve the problems caused by the COVID-19 pandemic. Although it has resulted in massive deficits for the federal government, these deficits will not significantly affect the country’s economic competitiveness in the long-term since all countries were hit by similar recessions. These subsidies specifically target areas of the Canadian economy that will be major players in the recovery of the economy, such as small businesses. The subsidies will incentivize spending rather than saving with individuals, which will get the economy restarted through the movement of liquidities. By providing people with spending money and wage subsidies, the government is, in essence, trying to dig the country out of a looming recession through the circulation of currency in the market. Without these subsidies, people likely would have saved their money in the hopes that the recession would not hit them very hard. Instead, a large proportion of the population now has more spending money than they usually would, potentially leading to a 4.5% growth of the Canadian economy or more. To conclude, the subsidies provided by the Canadian government were necessary for the short-term recovery of the economy post-COVID; however, a major long-term factor to consider is where governments will slash spending to account for the massive spending during the COVID-19 pandemic.