There were few fireworks on July 31, when Prime Minister Justin Trudeau announced that out-of-work Canadians who have been receiving the Canada Emergency Response Benefit due to COVID-19-related job disruption would be transitioned to the country’s employment insurance program this fall.
CERB is set to expire on September 26, but anyone who began receiving payments once the program got underway in March could see their benefits run out as early as August 29.The $2,000 per month payout has been instrumental in keeping Canadians housed and fed, but it has also come under considerable fire for potentially disincentivizing the return to work among low-wage earners who saw their overall pay increase under the program.
That criticism is unlikely to hold up once the EI system kicks in, a minor win for Trudeau’s Liberals, but that impending $2,000 hole where CERB used to be has many unemployed Canadians wondering if they’ll have enough in their bank accounts to get through the month.
Will it be enough?
In comments made during a virtual press conference last Thursday, David Macdonald, senior economist at the Canadian Centre for Policy Alternatives, said Canadians should prepare to receive far smaller payments from EI.
CERB was never tied to the amount of money recipients were earning prior to COVID-19, but employment insurance is. Unless changes are made to the percentage of lost income provided by EI, recipients will receive 55 percent of their average insurable earnings. Those max out at $573 a week.
According to the Workers Action Centre, an advocacy group for low-wage workers, many of the people in line for these refreshed EI payments would receive between $600 and $1,000 a month, a far cry from today’s CERB levels.
Macdonald said the government should consider raising EI’s wage replacement rate to a level closer to the 75 percent included in the federal wage subsidy program. It’s a move Michael Gregory, managing director and deputy chief economist at BMO, is anticipating.
“Millions of Canadians don’t even qualify for EI as it exists right now, so that’s why they’re talking about modifying it,” Gregory says, adding that the transition will have to be gradual, with some sort of provisional system in place to ensure the gap between when CERB ends and enhanced EI begins doesn’t leave those still out of work with no income to speak of.
“We don’t want to go cold turkey,” he says.“The program has to change to catch the people – and we’re talking about millions of Canadians – that won’t qualify once CERB ends.”
One twist Gregory hopes to see is that, as gig workers and the self-employed are brought into the EI fold, these new recipients will be asked to contribute to the program by paying EI premiums. Although the government hasn’t signalled whether they’ll be charging EI premiums to this cohort of workers, Gregory’s thinking is that anyone benefiting from the program should be also contributing to its long-term financial health.
Such a demand on the part of the government would help lower, at least to some extent, the cost of the new program. With CERB projected to cost $80 billion, and the federal government expecting a deficit of $343 billion for 2020, reducing the cost of the Liberals’ COVID-19 support measures will be a growing concern, particularly when it comes time to face the long-term consequences of keeping a nation’s economy on life support for the better part of a year.
Gregory, who has seen worse debt crises, isn’t panicking. The country’s debt load was actually higher during the economic tumult of the 1990s, which he describes as “a very lean time for the Canadian economy,”one that also required a years-long rebound.
Still, this year’s towering deficit will need to be addressed at some point once the Canadian economy is on firmer footing. Gregory envisions a combination of decreased government spending and some form of higher taxes making up the government’s attempt to regain the mountain of fiscal ground lost in 2020.
“Fortunately, interest rates are going to remain very low, so that’s going to help the government finance that debt,” he says, adding that the return of economic growth and the end of other costly aid programs like CEWS and CECRA will all do their part to ease Canada’s debt burden.
“We’ll get back to more steady growth, and the unemployment rate will come down, maybe not all the way to where it was before,” he says. “Are people going to be hard up? Some probably will, but people will presumably be getting their jobs back, too. That’s going to help lower the overall cost for the government at the same time.”
- Bank of Canada to allow June consumer activity to define interest rate trajectory
- Lifting the veil on the new Canada-Ontario Housing Benefit
- As deferral programs end, a reverse mortgage can help
- Windsor’s average property price has increased by more than $80,000 since last November
- Government lays out fine print of new CMHC program that could contribute 10% to price of first home