Morneau facing pressure to unwind massive COVID-19 support programs ahead of fiscal update


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OTTAWA - Finance Minister Bill Morneau is facing calls to begin unwinding key COVID-19 support programs in his fiscal update on Wednesday, as businesses warn that unrestrained extensions of financial aid could crimp an eventual economic recovery.

Federal opposition parties, academics, and industry groups have been urging Ottawa for months to tweak its two major aid programs, the Canada Emergency Response Benefit (CERB) and the Canada Emergency Wage Subsidy (CEWS), saying the Liberal government needs to begin shifting its tone toward incentivizing Canadians to return t work.

Morneau will table a fiscal "snapshot" on Wednesday, providing the first glimpse of the government's outlook for the economy since the pandemic struck in late February. The finance minister has not yet tabled his annual budget, citing economic uncertainty from COVID-19, but has since decided to put forward a more limited fiscal update.

Many observers hope Ottawa will provide clarity around its plans the CERB and the CEWS, which were originally designed as temporary measures to hold over businesses and workers as the economy was put into lockdown. The fiscal snapshot will be tabled Wednesday around 2 p.m. ET.

"The government needs to signal that those programs were for a crisis period that is now behind us," said Goldy Hyder, chief executive of the Business Council of Canada. "They were for a health emergency. The health emergency has ended."

Hyder said Ottawa needs to transition toward a position of "coexisting with COVID," in which Canada is able to manage successive outbreaks of the virus without fully shutting down the economy.

"The previous model is unsustainable, where you are incentivized to stay home," he said. "The programs were designed to ensure that Canadians complied with health guidelines that have now changed."

The Liberal government already extended the CERB until Oct. 4 as part of an agreement with the NDP.

Ottawa has now spent $53 billion on the program, which provides monthly payments of $2,000 to people who lost their jobs due to COVID-19. It has spent $18 billion on the CEWS, which pays companies 75 per cent of employee wages.

The Parliamentary Budget Officer has warned the Liberal government against allowing the two main programs to become permanent or semi-permanent, saying it could lead to "structural deficits" at a time when public revenues have plummeted. The PBO currently estimates the deficit to top $250 billion in 2021.

Conservative finance critic Pierre Poilievre said on Monday that the CERB in its current form would "punish" Canadians as they gradually return to work.

Anyone making over $1,000 per month is currently ineligible for the CERB, which observers say has created a disincentive to return to the workplace. Some businesses like restaurants, for example, have reopened but are operating at a reduced capacity, which could put employees above the $1,000 threshold but below a livable wage.

"This is penalizing people for doing the right thing," Poilievre said.

He has proposed instead a gradually phased-out top up of the CERB, where people working reduced hours could continue to make the $2,000 income through a monthly top-up mechanism.

That approach appears to run counter to the recommendations from the NDP, who have supported the extension of CERB in its current form.

Emergency COVID-19 bill, upping $27 billion in direct support to $52 billion, gets royal assent CERB benefit extended by eight weeks; Canada-U.S. border restrictions to last another 30 days

NDP finance critic Peter Julian called on Ottawa to provide a "roadmap" for the government's key financial support programs, and urged the Liberals to continue extending assistance to ensure that "no one is left behind."

"In the United States we can see that the second is even worse than the first wave," he said. "And in all likelihood there may be a third or maybe even a fourth wave by the end of the year."

Dan Kelly, chief executive of the Canadian Federation of Independent Business (CFIB), said it is unlikely businesses will return to full capacity any time soon.

"We're really, really far from business as usual," he said.

He said programs like CERB nonetheless need to be "retooled toward recovery" as provincial governments continue to gradually reopen the economy.

Only 24 per cent of CFIB members are generating equal revenues compared to before the pandemic, according to a recent internal survey. Only 57 per cent of companies surveyed are open even in a limited way.

Kelly said businesses will need clarity on CERB and particularly on CEWS, which he said has not been updated to meet government promises. Prime Minister Justin Trudeau said in May he would extend CEWS through August; the government later promised to lower a threshold that forced applicants to prove that their revenues had fallen 30 per cent compared with the previous year. Those changes still haven't been formally introduced, Kelly said.

"Employers are back into panic mode, because they don't know what the future of these supports are."

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