The $82 billion assistance package that Ottawa unveiled Wednesday to combat the economic fallout from the global coronavirus pandemic is a good start, but doesn’t go far enough, according to some business groups and economists.
A key criticism is that the plan doesn’t do enough to prevent businesses from laying off staff, raising the risk of permanent closures and an economy that slides into a deep recession — or worse.
“If this (happens) on a large scale, it’s going to be a disaster,” said Luc Vallée, chief operating officer of the Montreal Economic Institute.
Vallée, an economist who weathered several economic crises over a career that included stints as an executive at the Caisse de dépôt et placement du Québec, Canadian National Railways and Laurentian Bank, says cutting or suspending payroll and municipal property taxes would ease the burden of the pandemic on employers.
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At the same time, he said, suspending the GST and provincial sales tax could stimulate spending in the parts of the economy that are continuing to run, such as online retail.
“You want to minimize those closures that are going to be permanent,” he said. “If you have permanent shutdowns, it’s not going to be a recession, it’s going to be a depression.”
What’s different from the dot-com bust in the late 1990s and early 2000s or the financial crisis of 2008 is that the pandemic and response is hitting every sector of the economy and every nation around the globe, Vallée said, adding that while businesses that were already teetering can be expected to go under now, the objective should be to allow others to take the least drastic action possible so they can reopen once restrictions are lifted.
Ottawa’s plan provides for $27 billion in direct aid to workers, such as those forced into quarantine or isolation and the self-employed and those who work part-time. An additional $55 billion targets businesses in the form of wage subsidies for small businesses, and tax deferrals. The full amount represents about three per cent of Canada’s GDP.
Dan Kelly, president of the Canadian Federation of Independent Business, said support measures should focus on avoiding layoffs at companies that are dealing with a deep and immediate drop in sales as a result of the economic effects of self-isolation.
“As of last weekend, 50 per cent of small firms reported they’ve already experienced a drop in sales,” he said Wednesday. “The number is likely to be much higher today (and) one in four businesses report they will not be able to survive a significant drop in income for more than one month.”
He noted that the wage subsidy for small businesses announced by the Canadian government — 10 per cent of wages over the next 90 days, up to $1,375 per employee or $25,000 per employer — is far lower than a similar subsidy made available in other countries.
“Unfortunately, while the measure is a good one, the level of the subsidy needs to be far higher in order to help — closer to the 75 to 90 per cent levels announced in many European countries,” he said.
Still, an executive at the parent company of Canada’s iconic coffee chain Tim Hortons said the wage subsidy is timely assistance as Tim’s adapts to takeout, delivery and drive-through service only.
Duncan Fulton, chief corporate officer of Restaurant Brands International, said 1,500 franchisees across Canada have been “fighting like hell to maintain as many hours as possible” for their employees.
“Honestly, I thought it was really swift leadership from the prime minister and the government,” Fulton said, adding that access to employment insurance will also ease the burden. Restaurant Brands said Tuesday it would commit $40 million to top up EI payments for Tim Hortons employees who lose shifts due to illness or virus-related self-isolation.
Sachin Aggarwal, chief executive of Think Research Corp., a Toronto-based developer of planning software for doctors and other health professionals, said Ottawa’s initial response to the pandemic “allows people to breath a sigh of relief.”
The wage subsidy provides “meaningful support for small business,” Aggarwal said, noting that Business Development Bank and Export Development Canada have been “excellent at picking up the phone.”
That’s important because companies such as Think Research will need access to capital to get through the crisis.
Aggarwal declined to say if he’s seen the cost of credit spike, other than to say that he is “monitoring the situation” and will be looking at whatever programs and backstops the government makes available.
He said BDC and other Crown lenders should lower their rates temporarily and that the government could provide interest-free loans and loan guarantees.
“We need cheap, cheap loans,” he said. “Working capital is going to be really important.”
For makers and exporters of goods, Ottawa’s relief package is viewed “a good start, but … not enough,” particularly as demand from the United States is drying up, said Dennis Darby, president and CEO of the Canadian Manufacturers and Exporters.
He, too, suggested that a payroll tax holiday or similar targeted aid would help, and said he is encouraged by the Canadian government’s continuing talks with the U.S. government.
“Large companies across North America, as their production ramps down, it will affect the supply chain,” Darby said. “And Canada is very much an economy that is part of the supply chain.”
