Demoralized and defanged at the outset of the COVID-19 pandemic, the Employment Insurance (EI) system gave way to a new campaign for supporting Canadians in their time of need. The Canada Emergency Response Benefit (CERB) was designed to serve as a buffer against economic misfortune that would eventually expire. However, with the recent extension of the CERB to early October and Wednesday’s fiscal snapshot predicting a federal deficit of $343 billion for 2020-2021, many have been left with the same two questions: (1) Are emergency measures not meant to be temporary? (2) And, if not, how might the government retool those benefits toward recovery, while stabilizing public finances for the long-term?
In March, the federal government announced the creation of the CERB, which provided workers who lost their income as a result of the pandemic with $2,000 a month for up to four months, as part of a comprehensive sleight of emergency measures meant to offset the impact of the pandemic on the Canadian economy. The taxable benefit was advertised as “a simpler and more accessible combination of the previously announced Emergency Care Benefit and Emergency Support Benefit” and defended by the Minister of Finance, Bill Morneau, as the fastest way to get money into the hands of Canadians.
Now, in July, as the economy gradually reopens, the dust has all but settled. The announcement of the extended CERB has left federal opposition parties, and disconcerted commentators and industry groups wondering just how temporary the CERB program actually is, and calling for the same haste that was seen in the adoption of the CERB applied to retooling the benefit.
It was clear from the outset that the EI system was not designed to muster the kind of support Canadians require during this pandemic. The newly-adopted CERB was quick to roll out and, true to design, appeared to serve the same general goal as EI: to provide temporary reprieve to Canadians facing unexpected economic hardships, due to no fault of their own. However, critics have crested the CERB with a similar badge of infamy as the EI system because of its perceived disincentivizing effect on labour force participation. Though well-intentioned, the CERB has been slated by some for creating a financial incentive that “may restrict Canadians’ willingness to take on work” in provinces where health risks are manageable and the economy is reopening.
For David Macdonald, a senior economist at the Canadian Centre for Policy Alternatives, the solution is to come full-circle and replace the CERB with a “new, modern EI system.” Similarly, NDP Leader Jagmeet Singh has called for “a long-term plan to repair EI so that it is finally designed to continue to support workers that can’t go back to work and still need help.” A proverbial second kick-at-the-can may be a welcome approach after all; now that EI–CERB inefficiencies have been laid bare for all to see, the hope is that structural adjustments can be made to avoid negative impacts on labour force participation in the long-run.
However, for MP Pierre Poilievre and other finance critics, the solution is a gradually phased-out top up of the CERB that would allow Canadians to return to work, albeit working reduced hours, and still accessing the $2,000 benefit. In a letter to federal policymakers published by the CD Howe Institute, Saskatchewan’s former Minister of Finance and Social Services, Janice Mackinnon, says that a phase-out for CERB is not only “the sensible course,” but that “[o]ther programs can provide more targeted assistance, encourage a return to work, reward those in low-wage jobs and provide funding to retrain unemployed or underemployed people.”
There are a host of creative alternatives circulating at the moment, but what remains generally accepted on all sides of the debate is that the CERB is an extraordinarily expensive program. When the CERB was announced, it did not seem likely that the government would venture into the business of turning one-off deficits into permanent structural expenses. In a May report, long before the CERB extension, the CD Howe’s Crisis Working Group raised the risk of making temporary programs permanent: “even after some reopening, economic growth may be sluggish, and what were supposed to be temporary programs may take on more permanence […] Should that be the case, investors will become concerned with fiscal sustainability, Canadian dollar denominated debt will become riskier, and borrowing costs could increase rapidly.”
In Wednesday’s anticipated fiscal snapshot, Morneau declined to outline a long-term plan for unwinding or tweaking the CERB. While business as usual may be a distant target, the long road ahead cannot be an excuse for idle policy formation and nebulous updates. Moving forward, the government needs to be transparent with Canadians concerning its plans to re-calibrate and/or eventually remove its temporary fiscal programs. The latter must take place within a plan to stabilize public finances in the long-term, and through a responsive program that encourages labour force participation (when it is safe to do so).
As a closing thought, it may help to think of retooling government support in the same way that a sailor would react upon discovering a hole in their lifeboat. The moment they notice the hole their initial instinct may be to grab a bucket and start bailing water out of the boat. While in the short term trying to remove the water may seem logical, the sailor will grow tired, and eventually the boat will sink. The response measure that is more likely to keep the lifeboat afloat and help the sailor reach the shoreline is to seal the hole before it is too late. The lesson here: temporary solutions are just that – temporary. Now is the time to decide what adjustments are better suited for the long-term goal: a full-recovery on shore.
Very interesting perspective Jacob! Great read!
One important thing to note is that most nations are currently in the same fiscal mess Canada is (see Japan) with regards to an unprecedented ballooning of their budget deficits and cumulative national debt. However, we will likely soon see a divergence in the fiscal fortunes of governments' around the world, as nations begin to re-open their economies, and take different paths with respect to the "wind down" of their economic response measures to the COVID crisis.
Hopefully Canada will find itself among those governments who responsibly respond to the COVID pandemic, while also keeping an eye on the public purse, and the long-term budgetary future.