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Like everything else in the pandemic plan, Morneau’s economic package is chasing a moving target

Prime Minister Justin Trudeau has called the federal government’s response to the COVID-19 pandemic “unprecedented” and “the largest economic program in Canada’s history.”

But he was far less conclusive Wednesday when asked just how long his government expects this package of wage subsidies and income support will be needed.

Trudeau told reporters attending his daily briefing that the government is preparing for the possibility that the pandemic lasts weeks or months. He did not describe how his government would respond to those vastly different timelines, or how they might change the cost or delivery of the very programs Finance Minister Bill Morneau described later in the day.

“We have been open and transparent with Canadians on the facts,” the prime minister said, “and I’ve said from the very beginning that there are a wide range of scenarios that we have been looking for, that we are planning for, that we are trying to work towards as a government, as a country.”

Prime Minister Justin Trudeau says physical distancing measures to combat COVID-19 could continue for months. 2:06

A three-month timeline — for now

Trudeau has gone to great lengths to assure Canadians that the government is determined to protect their health and their incomes both — no matter what. So it was telling that he didn’t respond to the “what if” questions that came his way on Wednesday.

Right now, the planning horizon seems to be three months. That’s the timeline set out in Bill C-13, the emergency aid package passed last week that creates the wage subsidy and the Canada Emergency Response Benefit (CERB) — financial lifelines that stretch across the country, across different sectors of the economy and into every community.

With the government telling millions of Canadians to go home and stay home, with employers in non-essential industries being told to close up and stay closed to halt the spread of COVID-19, designing and delivering financial aid as quickly as possible became the imperative.

One third of small businesses may never reopen: CFIB

Consider the numbers. More than 2.1 million people have applied for employment insurance in just the past two weeks. About 430,000 of those applications have been processed.

A survey released Wednesday by the Canadian Federation of Independent Business suggested a third of the small businesses that have shut down will never re-open.

“My message to Canadian employers is this: get ready to rehire people,” said Morneau today. He estimates the total cost of the wage subsidy at $71 billion and the emergency response benefit at another $24 billion.

“These are very, very significant expenditures.”

A man wears a mask as he takes a break in front of a closed business in Toronto on Tuesday March 24, 2020. (Frank Gunn/The Canadian Press)

Neither program has been problem-free. The scale of the effort, the multi-billion-dollar price tag and the need for urgency precluded painstaking policy design.

The initial wage subsidy package was dramatically modified to raise the wage subsidy for small businesses and non-profit organizations from an initial 10 per cent to 75 per cent in response to pressure from the opposition parties.

Finance Minister Bill Morneau says government programs that would normally take about 2 years to develop are being built in short order due to the COVID-19 crisis. 1:29

Parliament will be recalled to approve the details of the program, a demand made earlier in the day by Conservative Leader Andrew Scheer who argued the details of the wage subsidy don’t match what was proposed in Bill C-13 introduced a week earlier.

Lean weeks to come

The money to businesses won’t flow for an estimated six weeks, Morneau said. People applying for CERB won’t see any cash for a week or more — even though, by that point, many will have been without any income for a month.

And small businesses with no revenues, and no prospect of re-opening during the pandemic, still have to pay expenses such as the monthly rent, now due.

Scheer wants Morneau to do even more. He’s calling on the government to refund all GST submissions from the past six months, not just to defer future instalments until June, and to backstop low-interest loans that banks extend to small business.

Perrin Beatty, president of the Canadian Chamber of Commerce, knows the country will be taking on an enormous amount of debt because of these measures. He worries it will be difficult to retire that debt once the economy is back on its feet.

Still, he told CBC News, “it’s better to wake up with a headache than to not wake up at all.”

‘Your business will come back’

Economist Glenn Hodgson is a senior fellow with the CD Howe Institute. He said that the combination of the wage subsidy and CERB means the federal government has effectively become the payroll department for the country.

“The federal government is stepping in to become the financial backstop for every shut down company. It’s the only solution. It’s the critical thing to do to keep the economy functioning at a minimum level,” he said.

“As long as you haven’t broken the relationship with your bankers and your employees, your business will come back.”

The C.D. Howe Institute released a report last week that said the COVID-19 crisis is putting “a massive percentage of private-sector employers” at risk.

“In the present circumstances, the government must leverage creative (and imperfect) means of getting support directly to employers and households within a matter of days,” the report said. “The necessary measures can only be analogized to wartime mobilization.”

Pay now, punish later

Beatty said the speed needed to respond to the economic impact of the pandemic means controls have to be sacrificed.

Verification, as the prime minister repeated on Wednesday, will come later. Anyone caught gaming the system will face severe penalties.

“The federal government is doing what needs to be done,” Beatty said.  “We are in a crisis situation.”

Government officials who spoke on background described the underlying policy goals as maintaining confidence in the economy and creating the conditions to allow companies to gear up quickly once the health crisis has passed.

Underlying it all is one premise: restarting the economy quickly means seeing it isn’t dismantled in the meantime. That means ensuring as many people as possible continue working, no matter what industry they’re in or what type of job they do.

“Looking down Main Street in any town today and seeing all those darkened doorways of the local business — well, many of them would not be putting the lights back on when this crisis is over without this help,” said Beatty.

See you in September

Of course all of this — the timelines, the length of the pandemic, the number of Canadians who ultimately contract COVID-19 — depends on people following the experts’ advice by embracing physical distancing and self-isolation and giving up non-essential travel.

Hodgson, for one, said he believes the economic shutdown could last into the fall, delaying any economic rebound.

“These programs are not designed to be a year long. Keeping companies afloat. Keeping the economy moving. That will be the challenge.”

Hodgson said he worries the ban on non-essential travel across the Canada-U.S. border will be extended — and the longer it’s in place, the more difficult it will be to lift.

Beatty said the fates of the oil and gas, tourism and transportation industries require special attention and support, something the Trudeau government is promising to address.

And he said he believes the future of global supply chains needs to be re-thought, that companies will need to increase inventories as part of a move away from “just in time” to “just-in-case” delivery.

“We will have to have that conversation about lessons learned when this is over,” he said. “So we know what to do when the next pandemic, or next global challenge, emerges.”

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