Massive sums of COVID-19 economic benefits going astray was in the news last week, with Canada’s Auditor-General raising the possibility that as much as 15 percent of $210 billion in federal pandemic relief was misdirected.
Much of the media attention turned to CERB – the Canadian Emergency Relief Benefit – designed to give $500 a week to individuals who lost work or hours as a result of the pandemic. CERB and related programs for individuals paid out a total of $110 billion to over eight million Canadians between March 2020 and October 2021.
Although they were buried in the report, the Auditor mentioned in passing a few of the misfires that fuelled criticism of COVID relief at the time. There were the 1,522 CERB payments, worth $6.1 million, sent to people who were incarcerated and $1.2 million to 391 who were deceased – relative peanuts, pure gold to the critics.
But despite such titillating tidbits, prevailing opinion in the wake of Auditor-General Karen Hogan’s review is that we shouldn’t become too worked up about the sloppiness.
As the report noted, the Trudeau government’s priority was to get money to those whose livelihoods were hit by the pandemic first, and ask questions about eligibility and overpayments later. And in the A-G’s view, the overall plan succeeded.
We found that the COVID-19 programs achieved their objective to help Canada avoid a more severe contraction of the economy and the social consequences of…a significant increase in poverty. This financial support allowed the economy to rebound and return to its pre-pandemic level.
Mind you, all was not sweetness and light. The A-G was critical of the effort the government is putting into getting back overpayments. There is also disagreement between the Auditor and the government about the amount of questionable payments to businesses through CEWS, the Canada Emergency Wage Subsidy. And more significantly, the Auditor was unable to determine whether CEWS, which handed out $100.7 billion between March 2020 and October 2021, accomplished the goals set for it. More on that later, but first, to the spending details.
Follow the money
The report indicates about $32 billion in payments – incidentally enough to run Nova Scotia’s health care system for over five years – are questionable. That includes $4.6 billion in overpayments to about 2.5 million individual recipients and another $27 million that, in the Auditor’s opinion, should be investigated further. A little over $12 million of that amount involved programs such as CERB, directed to individuals. The remaining chunk that the auditor says needs further investigation is the $15.5 billion handed out to businesses through the Canada Emergency Wage Subsidy (CEWS).
The CEWS program subsidized 75 percent of employee wages for companies experiencing a revenue drop of at least 30 percent. The $15.5 billion in payouts the auditor says should be further investigated involved businesses which, based on sales tax filings, did not appear to experience the 30 percent revenue drop. As well, the Auditor suggests the Canada Revenue Agency (CRA) should look for businesses inaccurately reporting the number and wage levels of employees, and employees who were also claiming individual benefits in addition to being paid by their employer through CEWS. To quote the report:
Our analysis identified 51,049 employers that received $9.87 billion in Canada Emergency Wage Subsidy payments whose monthly GST/HST filings did not demonstrate a sufficient revenue drop to be eligible for the subsidy. Based on monthly GST/HST data alone, this represents 15.37% of payments made to monthly filers. It follows logically that if this estimated potential ineligibility rate were applied to the full population, this would amount to $15.5 billion of payments that represent a risk of being ineligible…Our analysis of Canada Emergency Wage Subsidy payments that should be investigated further based on GST/HST revenue decline is an estimate. Actual ineligible amounts will only be determinable once comprehensive post-payment verifications are completed.
CRA officials have disputed the $15.5 billion estimate – they calculate an ineligibility rate that would amount to about $7 billion. But whatever the final number, the Auditor’s report on CEWs is the latest blemish on a program that has been criticized from the outset for its poor design, as discussed previously here, here and here.
By subsidizing 75% of wages up to $847 weekly the government wanted to keep workers on the payroll rather than lay them off, but the subsidy was available to all workers, even those who didn’t face the prospect of layoff.
University of Toronto economist Michael Smart argued that “most jobs funded by CEWS would still exist in the absence of the subsidy.” The U of T economist calculated that CEWS subsidies cost the government $14,500 for each job saved over a four-week period, or about $188,000 per job/year. Smart explained that “If CEWS funds are not saving many jobs, that means they end up in business profits.” And that’s what happened in many cases.
Yachts over have-nots
Over the 18 months of the CEWS program’s existence there were numerous examples of CEWS-receiving businesses feathering their own nests, including:
- Extendicare, Ontario-based operator of nursing homes which received at least $21 million from CEWS while paying out shareholder dividends, even as dozens of seniors in their care were dying from COVID;
- Imperial Oil, receiving $120 million from CEWS while paying out $320 million in dividends;
- Linamar, maker of car parts, which doubled dividend payments while collecting $108 million from CEWS;
- And the piece de resistance, over $1 million to the Royal Ottawa Golf Club, enabling the club catering to the National Capital’s political and bureaucratic elite to improve its bottom line 19-fold.
This may be the first and last time I do this, but the final word on this aspect of the CEWS story goes to Conservative leader Pierre Poilievre in Question Period.
Mr. Speaker, we already knew that the government paid billions of dollars in wage subsidies to profitable corporations that were able to pay out dividends to their wealthy executives. Now we know they also paid $15 billion to companies that did not have a significant revenue drop, so they were able to pocket the cash at the expense of the Canadian people. This is the same government that gave money to Loblaws and other wealthy corporations, always at the expense of the working class.Why do they always take from the have-nots and give to the have-yachts?
Sometimes it’s the song, not the singer.
It should be noted that the Auditor did not question the program design for CEWs that seems to have delivered benefits to so many who already had much. Her job was to find out whether the program met the objective of keeping workers attached to their jobs during the economic downturn resulting from the pandemic. As discussed above, the A-G couldn’t say whether the $100.7 billion outlay achieved the goals set for it.
CEWs had an “unclear impact on business resilience,” according to the Auditor. Because there was no requirement for companies to provide employees’ Social Insurance number, the A-G’s investigators could not accurately determine the exact number of employees who benefitted from the CEWs, whether they continued working for the same employers or whether laid off workers were ever rehired.
To quote the report “it was difficult to assess the impact of the program and how effectively the program met its objectives because of the limited information employers were required to provide upon application.”
As for CERB and related programs, the A-G’s report had no trouble identifying the benefits. Not only did payments prevent poverty from going up, the official poverty rate in 2020 fell from 10.3 to 6.4 percent, meaning that 1.4 million Canadians escaped from poverty (if only briefly).
For families with the lowest level of income, their combined income from employment, private pensions, and investments—known as market income—decreased on average by $700 (or 18%) between 2019 and 2020. However, when we combined this income with government transfers (cash benefits such as child benefits, tax credits, as well as emergency response and recovery benefits for 2020)…we saw an annual income increase of $2,900 (or 16%) in the same period. Although individuals from all income groups observed a growth of this income, the increase was substantial for lower‐income families… We found that individuals from the groups most impacted by the pandemic were able to benefit from the programs. Women, visible minorities, Indigenous groups, and youth aged 15–24 accessed programs at slightly higher rates than other groups did.
So there it is. CERB and related programs achieved the goals set out and helped economically marginalized Canadians in significant ways. CEWS may or may not have achieved its goals, while enriching large corporations and their shareholders. But despite this reality, we regularly see stories in the media about CRA efforts to extract repayment from recipients of CERB and related programs. Unless they want to permanently cede the political high road on this issue to Poilievre, the Liberals would be advised to switch the focus to getting back some of the $15.5 billion in CEWS money that has gone to enhance corporate bottom lines.