Nearly half a billion to Air Canada and $120 million to Imperial Oil from CEWS received scant attention. And paying out dividends by long-term care operators while their residents were dying of COVID-19 didn’t quite elevate to the level of a political foofaraw. But maybe the circa-million dollar wage subsidy windfall for the Royal Ottawa Golf Club will do it.
Last week, as the Prime Minister was trying with soothing words to un-ruin the holiday season for 441,000 audit-exposed recipients of the Canada Emergency Relief Benefit (CERB), it was revealed that thanks to CEWS – the Canada Emergency Wage Subsidy – the golf club catering to the National Capital’s political and bureaucratic elite has had a very good year indeed.
As reported by Jonathon Gatehouse of CBC News, the Royal Ottawa received $1.019 million from CEWS, most of which made its way to the club’s bottom line in the form of an operating surplus for the year of $825,000, 19 times larger than the previous year. The club is celebrating its hole-in-one by stashing it away as “a cushion against unanticipated future expenses.”
Gatehouse’s expose, based on financial statements and a recording of the club’s annual meeting, is part of a series the CBC is calling the Big Spend “Tracking the not-so-clear trail of $240 billion in COVID-19 spending.”
CERB and other help for individual Canadians totals about $106 billion of the $240 billion so far. And as of Nov. 20, $118 billion in subsidies and loans was directed to corporations, including $49 billion to CEWS, a program now projected to cost as much as $97 billion by its scheduled wrap-up next June.
The government had yet to name individual companies benefitting from CEWS, but the CBC project identified more than 400 publicly traded firms whose regulatory filings disclosed receipt of assistance from CEWS or some other emergency program. The CBC investigative team built upon earlier revelations. As discussed here several months ago, the Toronto Star reported that even as residents died in the pandemic, nursing home giant Extendicare claimed the wage subsidy and paid dividends to its shareholders.
Air Canada tops
As egregious as that was, it was the tip of the iceberg. According to CBC’s updated information, Extendicare and another company, Sienna Senior Living, received more than $157 million in federal and provincial COVID-19 relief while paying out $74 million in shareholder dividends. Meanwhile, 480 residents and staff died at homes operated by the two companies.
Extendicare ranked only number five on the list of CEWS beneficiaries compiled by CBC, collecting $82.2 million in wage subsidies. Topping the list is Air Canada, way out in front with $492 million. Air Canada doesn’t appear to have paid recent dividends, but despite the subsidy it laid-off over half of its staff and is sitting on more than $2 billion in revenue from ticket sales on cancelled flights while seeking more federal assistance.
A distant second to Air Canada is Imperial Oil, 70 percent owned by ExxonMobil, one of the world’s largest oil companies. Imperial claimed $120 million in wage subsidies, while paying dividends worth about $320 million. The subsidy to Imperial Oil amounted to nearly 10 percent of wage subsidies paid to Canada’s entire oil, gas and mining sector.
As an aside, I’ve had my doubts about CEWS from the get go. The goal was supposedly to maintain the relationship between employers and employees thrown out of work by the pandemic. But it also freezes everything, making it harder to transition workers into high demand jobs like nursing, child care and personal care and away from industries like fossil fuel production and airline travel that need to decline if we are to reduce greenhouse gas emissions.
Mainstream media coverage of CEWS hasn’t ventured into that territory, but reports on dividend payments and other corporate shenanigans have led to a few opposition questions in Ottawa – rare because from the outset CEWS has received all-party support. So far, the Finance minister’s response has been to say that the wage subsidy can only be used to pay workers, not to enrich shareholders. But that defence ignores what’s actually going on and fails to acknowledge flaws in the design of the program.
As my previous post pointed out, the main problem with CEWS is that subsidies amounting to 75 per cent of wages are available not only to furloughed employees, but also to those continuing to work. University of Toronto economist Michael Smart has done macro-level analysis here showing that “most jobs funded by CEWS would still exist in the absence of the subsidy.” The U. of T. economist calculates that CEWS subsidies cost the government $14,500 for each job saved over a four-week period, or about $188,000 per job/year. “If CEWS funds are not saving many jobs, that means they end up in business profits.”
On the micro-level, Smart points to Leon’s as one example. The furniture company saw its revenue drop sharply in April and May, but thanks to $29.5 million from CEWS and a revenue rebound in June the second quarter of 2020 was a bonanza. April through June reportedly turned out to be the second most profitable quarter in Leon’s 101 year history, allowing the company to both increase dividends and launch an aggressive share repurchase.
The Leon’s story, detailed in the Toronto Star, points to another factor – when some businesses re-open pent-up demand leads to a revenue surge. That seems to be the case with Leon’s, which according to the Star report, ended up the second quarter with revenue that was no worse than “flat to the prior year’s quarter.” When revenues dropped for two months Ottawa rushed in with the wage subsidy. But when the third month surge restored revenues, there was no obligation to pay back the government. So the excess cash went to shareholders and stock buybacks.
CERB not golf
It seems something similar happened at the non-profit Royal Ottawa Golf Club. According to the CBC report, revenue dropped when the club closed the dining room and pro shop from March through mid-May, but business boomed later on in spring and summer as people pursued physically distant outdoor activities. The club even added 77 new members. All of this activity, combined with the wage subsidy, led to the windfall surplus. And this rosy outcome is one that, according to the club treasurer, the Royal Ottawa shares with many other golf clubs in Ontario and Quebec that received the wage subsidy and ended up with unexpected operating surpluses.
As Michael Smart has argued, the wage subsidy is expensive and poorly targeted and should be phased out starting now. Such action would not only be politically wiser, but much fairer and a great deal more fiscally responsible than going after the CERB recipients who have been in the news because of “education letters” from the Canada Revenue Agency. The alarming missives sent to 441,000 CERB recipients advise them they may have to repay benefits because CRA can’t confirm they made at least the $5,000 in net income necessary for eligibility.
If the government decides to play hardball on CERB it will not only appear mean, it will look fiscally foolish. In the unlikely event that every one of the “unconfirmed” recipients paid back their CERB, only about $6 billion would come into government coffers – peanuts compared with what could be saved by phasing out the CEWS which still had about $45 billion unspent as of a month ago.
On its own, going after those whose 2019 income left them far below the poverty line does not look good. Knowing how the other big subsidy program has enabled the rich to become richer or more comfortable in their leisure pursuits makes it look even worse. And when the latter is on display at the Royal Ottawa Golf Club, a 12-minute drive from Parliament Hill, images that have come down to us from revolutionary France just won’t go away.
“Let them cake,” Marie Antoinette is alleged to have said when told the poor people of France were without bread. If they want assured access to pandemic relief funds, “let them play golf” is the message being sent to today’s “sans-culotte.”