Wage subsidy: A good plan gone astray?

In March, 2020, when lockdowns cratered the economy and threw millions of Canadians out of work, Ottawa’s first proposal to help small businesses keep workers on their payrolls was lambasted as insufficient. The Trudeau government rushed back to the drawing board and came up with a much more generous program, the Canada Emergency Wage Subsidy (CEWS). It would funnel money to all businesses, big and small, hurt by the pandemic. On April 11, 2020, Bill C-14 sped from first reading in the House of Commons to royal assent.

The intention was good. Ottawa wanted to help businesses keep their workers on the payroll during the worst of the pandemic. The CEWS was to run three months. Ottawa would cover three-quarters of workers’ salaries to a set limit, if a company’s revenue had tumbled at least 30 per cent.

The program, however, quickly expanded and morphed into one of the most expensive in Canadian history – $110.6billion in 2020-21 and 2021-22. A margin of error in a program drawn up with incredible haste was to be expected. But a Globe and Mail investigation has found that millions of CEWS dollars flowed to large companies that didn’t need the cash.

Two main issues have emerged. First, the program was designed with an overly broad focus rather than being targeted to businesses truly in need. Second, with the doors to the federal treasury wide open, it was easy for companies that were briefly hit by the downturn, but swiftly recovered, to grab some government cash.

A full accounting of the CEWS is now necessary. The Liberals have resisted a such a reckoning. Only general information is public.

The program, at its peak last summer, supported more than five million Canadians. Some 97 per cent of approved applications were for less than $100,000, so much of the money probably went to small businesses. But details are lacking. The CEWS is shielded from access to information. A browsable list of corporate beneficiaries was released online and then hidden. How much money went where is secret. The companies have also been secretive.

In The Globe’s work to tally data from a variety of sources, it found $3.6-billion went to 389 publicly traded companies or their subsidiaries as of late January. Some companies, without doubt, were ailing, such as Air Canada. Yet others, such as hedge funds and large money managers, also received CEWS payments. Taxpayer cash went to companies that were healthy enough to make acquisitions and pay more money to shareholders.

The Globe’s analysis found that a significant number of these companies actually did better during the pandemic than the year before. But with the CEWS, they had to show a loss of revenue for just a short window, and could apply for aid after their difficulties had passed. The CEWS had no mechanism to gauge whether companies reaching for the public purse had the capacity to make it through on their own.

Peter Julian, NDP finance critic, has sought answers – and received none. He is right to argue that companies that increased dividends, paid executives more, or even laid off workers, while taking CEWS money, were “breaking the spirit of why CEWS was put into place.”

In the federal budget last month, the Liberals made a small nod to the problems. In future, companies listed on the stock market that pay executives more this year than before the pandemic will have CEWS money clawed back. But this only kicks in next month, and it doesn’t apply to payments already doled out.

The goal of the CEWS is not in question – “to preserve and protect Canadians’ jobs,” in the words of the budget. The statistics suggest the program supported more than 400,000 small businesses. But The Globe investigation demonstrates significant sums went to larger companies that didn’t need it.

And there’s still a lot of money at stake. As of May 2, $77.3billion had been handed out under the CEWS. Ottawa has budgeted another $33.3-billion – a figure larger than the entire planned spending on the proposed national child care program in the years ahead.

The Liberals need to ensure that the specifics of CEWS spending are assessed. Doing so can help inform programs in the future. The CEWS was created in a storm, its design was imperfect and overall it was a success. But its mistakes have to be considered, and more can be done to examine whether some of the payments should be returned.