The Morning Brief – 03.31.20

By Bruce Carson


Economy – Federal Government Aid and Stimulus for Canadians. To keep them financially whole during COVID-19. To keep business workers paid.

Last week Bank of Canada Governor Stephen Poloz when he was announcing that the Bank had cut interest rates once again during March, this time down to .25% coined a phrase which he must hope does not come back to haunt him. He said in response to a question on monetary stimulus from the Bank “we’re doing tremendous amount. A firefighter has never been accused of using too much water.”

What Poloz was referring to was the fact that not only had the Bank reduced interest rates to near zero but for the first time in its history would participate in quantitative easing. The Bank is pledging to create billions of dollars in order to buy bonds.

According to Poloz the Bank will begin by buying at least $5 billion worth of government bonds per week until the economy turns around. He said “the intent is to flood fear out of the credit markets by pumping them full of cash.”

On the spending side Toronto Star business writer Heather Scoffield in a column last week concluded that Prime Minister Trudeau through the support programs the government was announcing intended to keep Canadians as financially whole as possible through to the end of COVID-19 and into the recovery period.

Dealing with how much all of this will eventually cost, UBC’s Kevin Milligan is quoted in yesterday’s Globe editorial on building a bridge to the end of COVID-19 as saying that at a 1% interest rate Canada could service $1 trillion in new debt which would cost approximately $10 billion per year to service or about the revenue from 1percentage point on the GST. Who would have thought when this tax was brought in during the second term of the Mulroney government, its revenues might be used to service debt accumulated in order to help Canadians through an unprecedented time in the fight against this killer virus in 2020.

So the consequences of last weeks and yesterday’s announcements from the Trudeau government and on Friday from Governor Poloz are that the Bank is creating cash and the Trudeau government is spending it.

There are three main programs providing aid or support for Canadians; the Canadian Emergency Response Benefit (CERB), the Canadian Emergency Wage Subsidy and the Canada Emergency Business Account. There are other programs dealing with tax deferrals throughout both the aid to persons and the aid to businesses to pay salaries and both EDC and BDC are involved in delivering loans. The criteria for qualification for these loans will be the subject of discussion later this week.

CERB which combines two programs originally announced for Canadians affected by COVID-19 and will provide $2000 per month, which is taxable. The key with this program and what must be a worry for the government is that the portal through which the program is to accessed is to be available on April 6 or possibly before, and money is to flow within 10-14 days either by cheque or into an applicant’s bank account.

Having missed providing cash for the April rent cheque and other expenses, for the government’s credibility, this money must be in the hands of applicants well before May 1.

Last Friday, while the Bank of Canada went first cutting rates and announcing its venture into quantitative easing, the prime minister followed announcing that the government’s program to help pay the salaries of workers would be enriched, as it went from paying 10% to paying 75% of salaries.

The government’s initial venture into helping companies pay salaries was roundly criticized as being completely insufficient and out of step with similar programs in Europe where the norm was for government to pay 75% or more of workers’ salaries.

Yesterday the prime minister added some details and today, Finance Minister Morneau will supply more specifics.

From yesterday’s explanation, the program is to be back dated to March 15, paying 75% of wages of employees for companies, charities and not-for-profits and the main criteria is that the entity experience a revenue drop of 30% since the advent of COVID-19. The size of the company is not material and this applies as well to companies that have shut down because of the virus. It is also not required that employers pay the other 25% of salaries, but if they can, it’s encouraged.

This program will pay up to 75% of $58,700 salary, or $847 per week for three months. The announcement came with a warning from the prime minister that those accessing this benefit, not game the system. It was an odd comment from Trudeau as none of the other programs he has announced came with a similar warning, just this one. It harkened back to statements made by this government during the tax war it waged against small and medium sized businesses in the middle of its first mandate.

The goal of this measure is to keep employees on the payroll and/or bring back employees who have been laid off so that when the recovery comes, businesses will have a running start as they deal with the post-COVID-19 world.

Unlike the CERB initiative, there was no announcement as to when this program would be up and running.

We are told that more details will be coming from Finance Minister Morneau today. Presumably he will provide specifics as how the 30% revenue drop, which qualifies a business for this aid, is to be calculated. Also will there be limits on the amount an employee may receive under this program and will there be an overall cap per employer?

Also how will the money be distributed after the application is made and accepted? Will the money flow directly to the business and through it to employees or will the business access it through it through its bank?

This will be an expensive program, but if administered effectively should achieve its goal of placing businesses, charities and not for profits at least in a somewhat competitive position when the recovery comes.

Trudeau was asked yesterday about specific aid to the energy sector and offered a vague answer in that the wage subsidy program would help employees as the size of the company was not part of the criteria for qualification and then mentioned that three sectors, airlines, tourism and the energy sector were being considered for specific aid.

Rumour has it that aid to the energy sector is coming later this week.

As has been stated here many times, the success or failure of the Trudeau government’s economic response to COVID-19 will be measured by how quickly money from these programs gets into the pockets of Canadians.

To Come

  • Prime Minister Trudeau’s daily media availability
  • Finance Minister Morneau to provide more details on wage subsidy program
  • GDP numbers for January to be released
April 1
  • Federal carbon tax is increased
April 2
  • International trade numbers for February to be released
April 9
  • Job numbers for March to be released
April 15
  • Bank of Canada deals with interest rates and releases its Monetary Policy Update