COVID-19: Earnscliffe Update #9

COVID-19: Earnscliffe Update #9

MAJOR NEW SUPPORT FOR SMALL AND MEDIUM ENTERPRISES

In the face of “almost total economic shutdown,” the Prime Minister today announced major improvements to the package of supports for small and medium-sized businesses.  The changes will raise the federal wage subsidy program from the 10 per cent level announced last week to 75 per cent of employee wage costs.  The new program will also be backdated to March 15, 2020. At this point, it is not known whether there is a payroll cap or whether there is a cap on average wage.  There was no information on whether this new program will cover non-profits. Details on the new program are still being developed and will be available as soon as Monday.

The federal government will also launch the Canada Emergency Business Account, which will provide $40,000 loans that will be interest-free for the first year and guaranteed by the government. Under certain circumstances, the first $10,000 will be forgivable.  The government is also adding $12.5 billion through the Business Development Bank and the Export Development Canada to help companies with cash flow through guaranteed loans. At his news conference, Finance Minister Morneau said the improvements to these programs would add $65 billion in available credit to support Canadian businesses.

Finally, the government announced it will defer GST/HST remittances and customs duty payments until June 30, 2020, the equivalent of $30 billion in loans to business. “If you’re struggling to get by right now and you have a payment due at the end of the quarter, we’re going to give you more time. It will also allow you to keep the money that you would have sent to the government and use it instead for your immediate needs,” the PM said.

In her news conference today, Deputy Prime Minister Chrystia Freeland said she hopes the new measures will help employers to avoid laying off staff, and even to hire back those who already have been laid off. They also will give employees a sense of security in knowing that they still have a job to go back to when the current crisis subsides, and the economy comes “roaring back.”

BANK OF CANADA LOWERS INTEREST RATE

The Bank of Canada today lowered its benchmark interest rate to 0.25 per cent and launched a Commercial Paper Purchase Program, that will see the bank take on a type of debt known as “commercial paper” from companies to meet their short-term financing needs.  The bank will also buy up Canadian government debt in the form of bonds, at the rate of $5 billion per week, otherwise known as “quantitative easing.”

LOOKING BEYOND CRISIS MANAGEMENT

The COVID-19 coronavirus pandemic is an equalizing event like no other we have seen. People whose power and privilege normally protect them from life’s risks are suddenly all in the exposure cauldron with the rest of us. Prime Minister Justin Trudeau’s wife, Sophie Grégoire, has tested positive, as have United States senators, British Prime Minister Boris Johnson and that most sheltered of host bodies, Prince Charles.

Surely this is the starting point for considering how the virus will change society as we’ve known it.

Public health has always been the poor cousin in the health care system — nice to have but playing distinctly second fiddle to the critical role acute care plays in curing or at least managing the myriad illnesses and conditions that plague the human body.

While the health care system normally concerns itself with the individual, COVID-19 has brought into sharp relief the value of public health, whose focus is on all of us, and whose objective is our collective health. One critical takeaway from the current situation is that responding to a pandemic requires preparation —a tall order when you don’t know in advance the exact nature of the next threat.

Coronaviruses have been around for a while and they’ll likely be back again, so let’s agree it’s essential to have stockpiles of critical supplies — the masks, gloves and face shields for the protection of front-line health workers, and the reagents for mass testing and respirators needed for treating thousands of people. They need to be mass-produced in advance and stored in a national strategic stockpile that is actively managed and updated.

Major crises often turn out to be watersheds for the role of government. The depression spawned Franklin Delano Roosevelt’s New Deal, which redefined how governments respond to human needs in the U.S. and much of the world. In Britain, in the midst of World War II, the 1942 Beveridge Report tackled “Five giants on the road of reconstruction: Want, Disease, Ignorance, Squalor and Idleness” and created the impetus for building the modern welfare state in western countries.

The ultimate echoes of Beveridge were heard in Canada in the 1960s when Mike Pearson’s government created Medicare, the Canada and Quebec Pension Plans, Canada Student Loans and the Canada Assistance Plan, which standardized support for provincial welfare and social services programs. This essential architecture is the backbone of the modern state in Canada.

When the current crisis passes, there likely will be a re-evaluation of the role of government. The country is turning massively to government to protect people’s health and the economy. The preference some have for minimal government and limiting social programs will likely change, at least for a while. In the immediate future, people are going be looking at how current public systems perform under stress.

For years, experts have warned that the legacy electronic data processing systems that run many of Canada’s social programs —Old Age Security, the Canada Pension Program, Employment Insurance and others — are well past their normal life span and must be renewed. When the government announced the new Canada Emergency Response Benefit this week, they decided it will be delivered through the Canada Revenue Agency (CRA). This was a recognition that CRA computer systems are “more robust” than the EI systems at Employment and Social Development Canada, i.e. less likely to collapse under pressure.

The current crisis will test the government’s electronic delivery systems as never before, and we all must hope and pray that they survive this real-time stress test. A meltdown in any of these platforms would be truly catastrophic. Think millions of OAS or Canada Pension Plan recipients without cheques, and no way for government to distribute them. When things return to normal, these “legacy” systems must be replaced, and hopefully not by  the people who brought us the Phoenix pay fiasco.

At the beginning of the current crisis, some concern was expressed about the fiscal capacity of the federal government to provide wide-scale and substantial help to millions of Canadians. Actually, that’s not a problem; the federal government is correct when it says this country has the lowest debt-to-GDP ratio of the G-7 countries. As Stephen Harper belatedly realized in the 2009 meltdown of world economies, when massive government-fed stimulus is a critical need for millions of people, devotion to balanced budgets quickly becomes irrelevant.

Things are not as rosy at the provincial level. Before the current crisis, Newfoundland and Labrador and New Brunswick were skating towards the edge of insolvency. The impact of the additional spending on COVID-19 will add more stress to the daunting fiscal challenges of these provinces. With a current net debt of $353 billion and annual debt payments of $12.7 billion, Moody’s Investor Services recently described Ontario as “the world’s largest sub-sovereign borrower.” But when things get back to normal, Ontario has the economic strength to right its ship.

Not so in Alberta. The federal government is about to deliver a support package to the energy sector that, by all accounts, will be massive. That’s fine, but Alberta’s economic challenges are not just its own. They are Canada’s too, and the consequences for the federal government’s fiscal situation in the short term at least, are going to be close to dire.

Due to the wealth created by its natural resources, Alberta has long been a huge contributor to Canada’s prosperity and to the fiscal health of the federal government. In a May 2019 study, the Fraser Institute noted that “in 2017, 16.9 percent of all federal revenue came from Alberta, far greater than its share of the national population of 11.6 percent.”

This massive contribution to Canada’s fiscal health has also been fueled by the fact that oil and natural gas have for years been this country’s largest export. All in, energy contributed over 11 percent to Canada’s GDP in 2018.  But with the price for Alberta’s oil falling this week to under $10 per barrel, the supply war between the Saudis and the Russians continuing unabated and world oil demand plummeting, Alberta’s oil storage capacity is reaching its limits.

Like everything else with COVID-19, the challenge is estimating how long the current circumstances will continue, when the recovery will start and what its pace will be. Right now, we can be sure that federal revenues from Alberta and from the energy sector will take a massive hit in 2020. What happens next year is anyone’s guess.

Two final observations on the big picture:

First, the massive turning to government for help that we have seen in this crisis may lead to a change in the way people think of taxes. In recent years we’ve seen a disconnect develop between tax levels and the services they fund. When the bills come due, governments may have to raise taxes to pay for crisis spending and for investment in the economy to rebuild capacity.

Second, Canada is learning some lessons about the vulnerability of being so dependent on others for goods and services because of our focus on trade. This has made sense because many products can be manufactured elsewhere more cheaply, so we don’t produce them here. But the relentless impetus towards globalization has led to diminished domestic capacity and self-sufficiency. When things quiet down, we may need to look at that issue in several key sectors.

As our economies absorb the impact of this unanticipated, unprecedented onslaught, the key will be to learn everything we can about making our governments, and therefore our people, as impervious as possible to future shocks.

UNITED STATES OF AMERICA

On Friday, the House passed a $2.2 trillion stimulus package. It now goes to the White House, where the President should sign by the end of the day. The stimulus package includes both significant supports for Americans and large pots of money for the Department of Treasury to distribute via direct lending, loan guarantees, and other investments to both specific sectors (air carriers, cargo, national security) as well as sub-national governments.

There are 22 states, 84 counties, 17 cities, and one territory under stay-at-home orders, affecting more than half of all Americans. Some states have put in place quarantine measures for all out-of-state arrivals. The situation is increasingly dire in New York, Louisiana, and California. Questions persist about the ability of governments at all levels to secure the medical supplies they require to serve their populations.

The President, while backing off his pledge to open the country back up for business by Easter, has taken up the idea that a more surgical strike-style policy is appropriate. The idea being that as certain areas ‘cool down’ they would come off the more severe containment measures. All discussion on these measures is active and continuing.

Meanwhile, a Department of Homeland Services request for up to 1,000 troops to supplement their Border Patrol and Customs and Border Protection agents on the northern border, created a stir in Ottawa. The request was to support operational capacity for the already-depleted workforce on the northern border, where both New York and Washington are hot-spots of the virus. The White House has taken back the concern of militarizing the border as expressed by the Canadian government and is looking for other alternatives.

BRITISH COLUMBIA

Thursday marked eight weeks since the first case of COVID-19 was identified in British Columbia. Premier Horgan and Minister of Public Safety and Solicitor General Farnworth announced the next steps they are taking with respect to the provincial state of emergency, which was declared just over a week ago.

The announcement was multi-pronged, including a number of detailed ministerial orders issued by Solicitor General Farnworth under the province’s Emergency Program Act, as well as the release of a definition and list of “essential services”. 

Read more.

ALBERTA

Alberta escalated health measures Friday, now limiting group gatherings to 15. All non-essential businesses will be closed with a list expected to be published shortly though the premier previously noted that it would be broad by design. “Our list will be more expansive than others in areas like energy production, but I think it will probably end up being quite similar to that of Ontario or say Massachusetts,” Premier Kenney said.

The Alberta legislature will sit on Tuesday to pass the necessary COVID-19 measures.

SASKATCHEWAN

Saskatchewan announced their list of essential services this week, joining BC, Ontario and Quebec.

ONTARIO

The main focus of the Ontario government this week was the rollout of its $17 billion COVID-19 response package and its fiscal update, presented on March 25th in lieu of a full provincial budget. While Ontario’s fiscal update is just one in an ongoing series of rolling relief measures, it focused on two major priorities:  bolstering the fight against COVID-19 on the healthcare front line and providing relief to families and business to mitigate the impact of increasingly restrictive measures to contain the virus’s spread.

The $17 billion dollar package includes: $7 billion in direct supports (including $3.3 billion for frontline healthcare) and $10 billion in business and other tax deferrals.  The pandemic is expected to punch a $5.8-billion hole in provincial revenue projections, and with the province going deeper into the red to combat COVID-19.  As a result, the forecasted deficit in 2020-2021 is now $20.5 billion – a more in-depth analysis of Ontario’s response can be found HERE.

While the fiscal update was the big ticket item this week, the Premier didn’t shy away from addressing the little things that matter to people, signalling coming measures to help combat pandemic-profiteering. In response to a news story about Toronto luxury food outlet Pusateri selling Lysol wipes for almost $30 a piece, Premier Ford promised to crack down on price-gouging on essential goods; the province’s Emergency Management Act prohibits charging “unconscionable prices” for necessary goods, services and resources.

QUEBEC

The Government of Quebec closed out the week announcing that it would enhance the federal government’s GST measure by allowing businesses to defer QST returns and remittances until June 30, without interest or penalties. This new $8-billion liquidity measure for businesses is on top of earlier moves, for a grand total of $18 billion, equivalent to 4% of Quebec GDP.

The number of COVID-19 cases has increased considerably in recent days in Quebec and the city of Montreal has become the epicentre. The Director of Public Health reiterated that the situation is in line with the predictions of epidemiologists, and that it is largely due to Quebec’s early spring break. Premier Legault indicated that he will respond to calls from people who continue to work but earn less than $2,000 a month, and has asked the Minister of Finance to respond next week.

REACH OUT. WE’RE IN THIS TOGETHER

We know there is much uncertainty in a rapidly evolving and complex landscape. It’s times like these where we know how important it is to make the right decisions in order to help mitigate the impact of this global crisis on your organization, your employees and respond to a shifting public policy environment. We are tracking funding at all levels of government so please reach out if we can help you navigate the new reality.

As one of Canada’s most experienced teams of government relations, public opinion research and strategic communications advisors, we’re acutely aware you are navigating rapidly changing circumstances and we want you to know, we’re here to help. We can act as a sounding board, help you design specific strategies and adapt to new ways of doing business and emerging public policy.

Consistent, accurate and regular communication is essential. The team at Earnscliffe regularly works with our clients on how best to engage with their communities – whether in business as usual circumstances, in community engagement and community-building processes, or in crisis scenarios. If you have emerging needs in any of these areas, please don’t hesitate to reach out.

The current situation presents a strikingly more complex crisis environment than we have seen in our lifetimes.   Earnscliffe has the tools to safely, responsibly, respectfully and reliably conduct opinion research and give you a sense of the public mood. At this time, there is no reason to make decisions in the dark if opinion research can shed valuable light to develop strategies and test tactics.

Reach out. We’re in this together.

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