When Ottawa sent billions in taxpayers' money to businesses struggling with the pandemic, nobody envisioned luxury golf courses pocketing million-dollar surpluses as a result. Yet that's an actual thing that happened and it's not the only example of a dubious outcome from entities that took advantage of an emergency pandemic program for businesses known as the Canadian Emergency Wage Subsidy (CEWS).
Foreign airlines that don't have operations in Canada received CEWS. So did the Canadian branch of the state-owned Bank of China. Federal and provincial political parties – which already benefit from generous subsidies not available to other non-profits or charities – got it, too. Ontario-based automotive parts maker Linamar received $108 million in CEWS payments and promptly announced it would be doubling its shareholder dividend. In fact, at least 68 Canadian companies that took CEWS paid out billions in dividends during the pandemic.
When the COVID-19 pandemic first struck, governments the world over scrambled to put emergency measures in place, and Canada was no exception. In addition to the $2,000 per month emergency response benefit for individuals, the Trudeau government also rolled out CEWS, which covered 75 per cent of an employee's salary up to $58,700.
The purpose of CEWS was obvious: to try to save Canadian jobs in the face of an unprecedented economic shutdown by paying employers to keep workers on payroll. Few doubt that without a program like CEWS, job losses would have been significantly greater. But whatever good CEWS has done, it has come at a hefty price. As the examples I've mentioned illustrate, the program needs to be fixed, and quickly.
We are now nearly a year into this crisis and there is a reasonable expectation that the government will continue to refine and adjust its emergency programs in order to prevent massive waste of taxpayer dollars. In the case of CEWS, the potential for further waste is considerable: absent any additional changes, the program will cost $97 billion by June 2021.
There are various ways Ottawa could improve the program. It could gradually raise the eligibility criteria to ensure that only the most hard-hit businesses qualify. It could attach conditions – such as no executive pay increases or payouts of shareholder dividends – to ensure the money is being used for its intended purpose of job preservation.
Alternatively, CEWS could be replaced with a program that doesn't subsidize every job in a company whether or not it's actually at risk of being cut. This is a serious problem with CEWS, which, according to one estimate, costs taxpayers a whopping $175,000 for each job saved.
Canada could follow the example of Germany, which incentivizes companies to reduce employees' hours rather than cut jobs entirely. Employees who lose hours get a temporary subsidy for the difference. Under the German system, employees receive 60 per cent of their pay for lost hours while getting full pay for the hours they do work. That means workers who lost 30 per cent of their hours would only lose 12 per cent of their salary. While this system would see employees taking some pay reductions, it would ensure support is targeted to employees, rather than employers, and would not require taxpayers to subsidize jobs that are not actually at risk.
Any of the above reforms would be an improvement over the status quo. Canadians are understandably upset at the idea of large corporations taking advantage of a program intended to save jobs by instead replenishing their coffers and enriching their shareholders. It's time for the government to retool CEWS to make sure any support goes to the people who need it most and doesn't end up in the pockets of those who don't.
(This column originally appeared in the Financial Post)
