Much stronger conditions needed on federal wage subsidy program

by
Toby Sanger
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The federal government has announced it is prepared to pay wages subsidies of up to 75% of employee wages for all private businesses and other employers, including non-profits, partnerships and charities that expect a 30% drop in revenues, up to a maximum of $847/worker per week and $11,011 over the three months.  The previously announced 10% wage subsidy was only available for smaller employers. 

There’s no question about it: this is a massive commitment that is likely to be the most expensive measure announced so far, and one of the most expensive federal government programs ever. 

The CD Howe estimated that a 75% wage subsidy for private employers would cost $6.3 billion a week, which works out to about $80 billion over three months.  This amount works out to over $2,000 for each and every Canadian and is more than the federal government’s total major transfers to provinces, territories and municipalities for health care, social assistance, equalization and many other areas, which were projected to be just below $79 billion—and that’s for the whole year, not three months.  

As an example, Suncor Corp, which recorded $13.5 billion in profits in the five years from 2014-18, could receive a subsidy of $140 million from the federal government under this program, for its approx. 13,000 employees. Many other profitable and large corporations could also receive very large wage subsidies from the federal government. 

Many private companies, including property owners, banks and many others, are allowing their tenants and customers to defer their rent and other payments for a few months, and pay it later.  If they have a temporary 30% decline in revenues because of this, but with those payments to be made later, would they still qualify for this large public wage subsidy?  

With the 75% wage subsidy, employers could receive more from the government than they suffer with a 30% revenue decline.  And there seems to be no condition that the companies pay their employees the other 25% of their wages, so the federal government could effectively take over the entire payroll costs for these employers.

In effect the federal government is offering to become paymaster for a large segment of the private sector for three months. This would amount to socializing workers pay, but not production or profits. 

Canada’s program is similar to programs announced by New Zealand and Ireland, but it will be far larger in magnitude because we’re about seven times their size, and it is more generous.  Total payouts per worker in Canada max out at $11,011 compared to NZ$7,030 (equal to C$5,975) and €4,920 (or C$7,675) per qualifying employee in Ireland.

This has the potential to become one of the biggest and most expensive boondoggles in Canadian history unless strong conditions are included.  We should be concerned not just about the large cost, but also because wasteful programs undermine confidence in government, and in government programs. 

Given the massive magnitude of money involved and the opportunities for abuse, it is essential there be strong conditions to prevent abuse, and to prevent and recover funds from going to those who don’t need it. 

·       As we argued previously, broad wage subsidy programs like this should be limited to small and medium-sized employers. Large employers may require similar support but that can and should be worked out on a case by case basis with those employers.

·       Employers should also be required to pay the other 25% of worker’s pay, maintain other benefits and collective bargaining agreements. 

·       Employers should be required to demonstrate that without this subsidy they are unable to pay normal wages as Ireland’s program requires, and report what their cash reserves are. 

·       Employers should at least be required to demonstrate that the revenue decline is in relation to COVID19 and not in relation to other factors, such as the previous oil price decline or other unrelated factors, and that the revenue decline isn’t in relation to deferred payments. 

·       Recipients of this wage subsidy must be required to provide detailed payroll information for each employee for each pay periodthroughout the year in their end-of-the-year reporting. 

·       To ensure this funding isn’t used to pad private profits, the federal government must include provisions to recover and tax back amounts from businesses that ultimately didn’t need it.  This could take the form of an excess profits tax for all the subsidy provided for any corporate profits above 5%. 

·       To help prevent abuse, all applications, details and amounts of funding provided to employers should be published and publicly available as soon as possible, within a month maximum. 

·       To help prevent corruption funding shouldn’t be provided to any numbered or anonymous companiesthat don’t publicly disclose their ultimate beneficial owners, nor should it be available to those with overseas ownership or affiliates in tax and secrecy havens. Large corporations receiving federal funding should be required to disclose their finances on a country-by-country basis. Anti-corruption and clawback clauses should also be includedin all contracts.  

·       Companies receiving this pay shouldn’t use it to reward executives and shareholders, and there should be a prohibition on stock buyback, executive bonuses, golden parachutes and shareholder dividend payouts for at least a year afterwards.  Any companies that receive subsidies through this should limit total executive compensation for any manager or executive to $1 million.

We’ve waited decades for the federal government to introduce important social programs including affordable childcare, affordable post-secondary tuition, universal pharmacare, and many other programs that would cost far less than this. 

It’s vitally important that the federal government help prevent job loss as a result of the COVID crisis, but we absolutely need to ensure that this wage subsidy program doesn’t become a massive boondoggle that pads the profits of private companies with public funds that the rest of us will ultimately have to pay for.