• Mar 30, 2020
  • Insights

Post-crisis management: passing the COVID-19 policy stress test

Written by Geoff Norquay for Policy Magazine. Click here to read the original.

As governments scramble to mitigate the emergency public health and economic impacts of COVID-19, there are long-term lessons to be learned.

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, 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 IBM, 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 G7 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.

Contributing Writer Geoff Norquay, a principal of the Earnscliffe Strategy Group, is a former social policy adviser to Prime Minister Brian Mulroney and communications director to Stephen Harper in opposition.

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