The Morning Brief – 05.14.20

By Bruce Carson


Economy and Canada’s Health and Social Safety Net

COVID-19 has Exposed Holes in that Safety Net

Can we afford to Mend them—Can we afford Not to?

In May, there have been three releases of economic data indicating that the fiscal effect of COVID-19 and the reactions taken to deal with it, shutting down the economy, come with a substantial dollar cost.

At the beginning of the month the Parliamentary Budget Officer (PBO) released a scenario setting out his office’s view of the financial impact to that date. Then, within days came the jobs report showing a record number of Canadians unemployed and then earlier this week Yves Giroux, the PBO during his appearance before the House of Commons Finance Committee changed some of the numbers revealed at the beginning of the month.

The PBO release at the beginning of May set out a quarterly profile for fiscal years 2019-2020 and 2020-2021. Real GDP was projected in this scenario to decline -20.0% in Q2 in 2020. However, it was assumed that it would rebound modestly in Q3 and Q 4.

The PBO also assumed further job losses in Q2 with the employment rate falling to its lowest level on record.

With regard to the budget deficit the PBO projects a deficit increase to $24.9 billion in 2019-2020 and then it will increase to $252 billion in 2020-21. This means that Canada will experience its largest budgetary deficit on record.

The federal debt to GDP ratio will be 48.4% in 2020-21.

The PBO notes, quite rightly that there may be more fiscal measures but “to date, budgetary measures announced by the government are not intended to be made permanent.” This is a critical observation. In 2008-09, one of the conditions imposed by Prime Minister Harper was that all stimulus measures were to be temporary and they were not to add to program spending.

He believed that everything possible had to be done to ensure all measures were temporary and Canada could return to balance in short order.

It is unclear at this stage, whether the Trudeau government intends for some of its announced spending measures to become permanent.

The second economic shock also came at the beginning of May with release of April’s job numbers. Two million jobs lost in April were added to the one million lost in March. The unemployment rate reached 13%.

So there were three million Canadians out of work and more than 2.5 million more were working approximately half of the hours that they were working before the pandemic. The main story told by these numbers was that this recession is mainly affecting women and particularly women in the service industry.

At this point over 7.7 million Canadians were receiving payments under CERB and more than 45% of Canada’s workforce was receiving some form of federal wage support.

The third part of this fiscal trilogy came earlier this week with PBO Giroux appearing before the House of Commons Finance Committee. During that appearance he was asked by Conservative Party finance critic Pierre Poilievre whether it was possible that Canada’s debt could reach $1 trillion. He responded that such a thing was “not unthinkable.”

He elaborated by saying “possible, yes. Realistic, yes. Certainly not unthinkable.”

With regard to his deficit prediction made only two weeks previously, he said that $252 billion was being optimistic. Also if some measures are extended or made permanent the debt to GDP ratio will continue to rise.

Giroux also added that the government should provide a fiscal update saying “the government probably has in mind a sense of how much it wants to spend on potential stimulus measures –but we don’t have that information.”

The federal debt and deficit situation as dire as it may be, while necessary to address the pandemic, is duplicated in provinces right across the country.

While not quarreling with the amounts of money spent to address the issues created by governments shutting down the economy, the question arises as to whether there is money available to address the health and social safety net shortcomings exposed by COVID-19.

The most troublesome has come with the realization that long term care or seniors homes account for more than 80 % of the deaths resulting from COVID-19. The situation has deteriorated to the point that yesterday the Ontario government issued an emergency order which allows the government to appoint a manager to oversee the response to COVID-19 at long term care homes.

In his weekly column entitled “Urgent, Forget the Expense, screw the profits, Fix long term care” Geoff Stevens states that the fix is not going to be easy or cheap but concludes that “for profit homes are the Achilles heel of long term care in Ontario.” He recommends a “massive infusion of money from Ottawa” or governments “could make long term care part of the public hospital system nationwide.”

Yesterday NDP leader Jagmeet Singh called for the end of ‘for profit’ long term care homes.

Whatever the solution, whatever the cost, the situation in long term care homes including staffing, the pay for support workers, their working conditions and the possible adoption of national standards, regardless of jurisdictional issues, must be considered.

Going back to the April job numbers, Tonda MacCharles points out in a recent article that childcare must become a top policy consideration as women have been hurt most by the economic fallout from the pandemic.

Economist Armine Yalnizyan is quoted as saying “it’s the women who went home” and they won’t come back until it is clear that schools and the child care system are sufficiently staffed. One solution is for the federal government to play a greater role. She adds that “if we don’t do something you are looking at a prolonged recession.”

In relation to mental health, Don Braid, the well-respected Calgary Herald columnist wrote that COVID-19 IS “a serious threat to mental as well as physical health.” He went on to write “there can’t be many people who feel no mental impact at all.” As in “if you can stop worrying about the disease itself, job losses and economic fears are always waiting in line.”

Braid draws a straight line between mental struggles and the rise in domestic violence. And on that subject at least nine women and girls have been killed in domestic homicides in Canada, during the pandemic, from April 15 to May 4, from Nova Scotia to Alberta. And this doesn’t count the women and girls killed in Nova Scotia during the murderous rampage of a couple of weeks ago.

Also with the introduction of CERB,  monthly basic income has seen renewed interest as a way to provide income security for Canadians who need it. As it happens, the British Columbia government commissioned a study on this matter in 2018 and now the panel will add the pandemic experience to its report coming soon. The B.C. Green Party commented that “people need a basic level of security in order to be healthy and well.”

We also need to review and address how the pandemic has affected vulnerable minorities, particularly remote Indigenous communities.

The above list doesn’t even touch the need to deal with supply chains and the need to domestically manufacture Personal Protective Equipment, but it does provide, without costing, a list of health  and social safety net holes that need to be mended.

But can we afford to address these matters or put another way, can we afford not to?

Yesterday, columnist John Ivison wrote that the “debt racked up by the Canadian government to respond to COVID-19 runs a very real risk of ruining the next generation.” Former Prime Minister Stephen Harper writing in the Wall Street Journal makes the case that reality cannot be ignored with the government continuing to spend.

He believes that if spending doesn’t go down as fast as possible, governments could face a debt crisis down the road which will require brutal austerity measures. “Bigger government spending should not be the new norm.”

We are quickly reaching the tipping point with regard to spending, but with the passing of each day, the holes in the health and social safety net grow. It will be for policy makers and those at Finance to determine when the taps should be turned off or spending redirected to fixing the holes that COVID-19 has identified. Some, like long term care for seniors cannot be ignored.

For such a discussion to take place, it is time, as Rex Murphy has recommended on numerous occasions that the House of Commons reconvene so that this vitally important debate can take place.

If as many have said, leadership is about making choices, there are many choices to be made which will demonstrate that leadership.

To Come

  • Virtual signing of the Wet’suwet’en Memorandum of Understanding to take place
  • House of Commons meets virtually
  • Manufacturing numbers for March to be released
  • Financial System Review by the Bank of Canada to be released
May 20
  • CPI numbers for April to be released
May 21
  • Border arrangement between Canada and the U.S. set to expire.
May 22
  • Retail trade numbers for March to be released

The Morning Brief will return after the long weekend on Wednesday, May 20.

– BC