By Elliott Vavitsas
As of September 27th 2020, Canadians who had lost their jobs due to the Coronavirus pandemic were eligible for payments of C$500 (£294) a week, under a program known as the Canada Recovery Benefit (CRB).
This at first seems in tune with the times. Governments worldwide have adopted different strategies to assist those who have had their employment impacted by the pandemic. From Britain’s furlough scheme to the CARES act passed by congress in the United States, every nation has found a way to at least try and prevent the worst.
In reality, CRB is a program that sets the precedent for spending that is too much, too soon, for the Canadian economy and balance sheet to handle.
Canada’s original program known as the Canada Emergency Response Benefit (CERB) provided up to C$2000 a month depending on an individual’s circumstances and existing benefits. However, this benefit was taxable, and had to be reported as income. Additionally, it was designed in a way that it targeted those who needed it the most, as the first requirement was that individuals receiving CERB must have stopped working due to the pandemic or had exhausted their employment insurance.
In contrast to CERB, the new CRB program appears to take inspiration from the concept of Universal Basic Income (UBI). Between September 27th 2020 and September 25th 2021, it aims to provide a weekly income of C$500 to workers who do not have regular employment insurance or are self employed and have lost 50% of their pre-COVID-19 income. It is more open ended than CERB, meaning more are eligible.
Assuming you meet the principal conditions, depending on your existing income, something known as the “clawback” could potentially kick in. Proportional to an individual’s income, they would receive less or more depending on how much they make annually. Individuals making up to C$38,000 a year would be eligible to keep all of their CRB. Those exceeding the amount have to reimburse C$0.50 on every dollar of net income they make above C$38,000.
There is another catch too. It only lasts for two weeks. You must continue to apply for CRB for each two week period you need it, for up to thirteen two week periods. After this an individual is no longer eligible. Nevertheless, CRB is surprisingly similar to UBI, and can be seen as a step in the direction of implementing it permanently.
More important than the details of the actual program, is now the time for Canada, let alone any nation to be experimenting with UBI and putting itself on the path to implementing UBI? Globally the economies of the world face a crisis of unemployment and underemployment. There are no real policy remedies to this problem, as the workplace is a prime vector of the virus. Governments cannot implement traditional economic policies to get through this rough patch, because never before have humans had to halt work so abruptly while still being fully capable of producing output.
Families still need to eat, bills still need to be paid, and debts still need to be serviced if an economy is to make it through COVID-19. Governments need a reliable tax base if they are to handle the enormous debts they have taken on to prop up what remains of their pre-COVID economies. Canada is in no way exempt from this.
Pre-COVID-19, Canada’s national debt made up about 50% of its GDP. However, during the pandemic the Canadian government has spent C$212 billion on relief. According to Bank of Canada estimates, this will leave the debt to GDP ratio unchanged, but there is bad news in the budgetary deficit. What was expected to be a one time, sustainable C$28 billion deficit has ballooned into an ugly C$343.2 billion deficit. This is the largest deficit the Canadian government has run since the second world war.
What this means is that CRB and any follow up UBI programs that may emerge will need to be financed through tax rises, or debt.
If Canada were to raise taxes however, there could be consequences. Firstly, it would mean raising corporate tax from 26.5% and personal income tax bracket range from 15-33% to something higher, like a 20-49% range. This would hurt those in the bottom brackets the most, and could scare off corporations looking to invest. Additionally, tax rises of any kind could stifle recovery when the pandemic subsides, as entrepreneurship could become less of an attractive option. Not to mention that these are only federal taxes. Provincial taxes still exist and could rise as well, meaning that Canadians will be paying much more across the board to the government. Income is forecasted to stay the same for the time being, so it is hard to counter the effects of a tax rise.
This leaves taking more debt on as the other viable solution, which itself isn’t without flaws. With a deficit already, Canada’s balance sheet doesn’t have room to service more debt. While cuts could be made, the Canadian and global political climate (which the Trudeau government pays great attention to) will not tolerate austerity. Even though interest rates are at an all-time low, it’s possible they could rise considering the slimmer and slimmer chances of a “v shaped” global recovery every passing day.
CRB in its current form is estimated to cost the Canadian government C$22 billion. Assuming CRB sets the precedent for universal basic income in Canada, according to a University of Calgary study it could cost the Canadian government C$420 billion annually. Considering current available national debt statistics, within two years Canada’s debt to GDP ratio would reach 100%. From the same University of Calgary study, this is assuming the federal government raises the top earning tax bracket to 49%.
So what is Canada to do? For the time being, programs like CRB are important and needed in order to prevent further economic malaise and suffering. The outlook for a program like CRB in the future is bleak. It is almost impossible to finance in the current economic climate and could even have political consequences; look no further than the “Wexit” movement that emerged in Alberta after Justin Trudeau won re-election. Out west, fiscally conservative voters are already unhappy about their underrepresentation in Ottawa, and could be further agitated by sweeping changes to the country’s balance sheet.
What could be best is a scenario where the federal government continues stimulus packages like CRB through the worst of the pandemic. As conditions improve, less expensive programs targeted at certain industries and which have shorter time frames could be implemented. For example, a one month program to invest C$300 million in retail. Programs like this would ensure those who need help the most get it, and relief is delivered in a fiscally responsible way. Once on a path to recovery, a high debt ceiling and hopefully a declining deficit could allow for more intense rounds of federal government investment into key items for Canada’s future economy such as infrastructure, telecom, public transit, and green energy. An end result could look like stable growth, emerging and re-emerging economic sectors, and most importantly a budget on its way to being balanced like before. Only then will Canada be able to seriously consider UBI.
The views expressed in this article are the author’s own, and may not reflect the opinions of the St Andrews Economist.