Wage subsidies won’t stave off job losses, business groups say

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The federal government plans to spend $3.8-billion to subsidize wages at small businesses over the next three months, but business groups say the measures will not stave off significant job losses as the fight against the coronavirus devastates the economy.

The wage subsidies are aimed at preventing workers from being laid off, Finance Minister Bill Morneau said as he briefed reporters on a $27-billion aid package the government introduced on Wednesday.

But Ottawa’s subsidy program falls short, business groups said. The government will pay 10 per cent of wages for small businesses over the next three months, up to a maximum of $1,375 per employee and a cap of $25,000 per business. Larger businesses are excluded.

Even for those eligible, the payments from Ottawa pale next to the size of losses small employers will see as social distancing punctures consumer spending.

And Ottawa’s assistance for business is dwarfed by steps taken or being contemplated elsewhere. In Denmark, the government is providing subsidies of 75 per cent of wages, with the maximum payout per employee 10 times higher than the amount in Canada. Wage subsidies are the biggest component of the spending package that New Zealand rolled out last week, with a maximum subsidy per employee four times higher than Canada’s and a maximum subsidy paid to each employer five times higher.

When pressed on that imbalance, Mr. Morneau said Ottawa is not ruling out further action.

Nina Malik says she has seen revenue at Gags N’ Giggles, her 17-year-old souvenir business in Niagara Falls, Ont., plummet by a stunning 90 per cent as the coronavirus froze the tourist trade during during March break, usually a peak sales season. Now, the closing of the border with the United States has turned Niagara Falls into a ghost town. So far, Ms. Malik has avoided laying off any of her four full-time employees and has instead cut her operating hours in half. That won’t last long -- and Ottawa’s subsidy program won’t make a difference, she says. “That 10 per cent would not bring anything to anybody’s table.”

Dan Kelly, president and chief executive officer of the Canadian Federation of Independent Business, said he welcomed the subsidy program as a first step, but that he is urging government to increase the outlays to levels approaching those of other governments. “It’s the right measure, but the wrong amount.”

But he praised the structure of the program, including that employers were receiving cash and would be able to quickly benefit. The subsidies apply for wages paid from Wednesday through to June 20. Any employee, including family members, is eligible, and the program includes non-profit organizations and registered charities. To be eligible, corporations must have had a payroll account with the Canada Revenue Agency as of March 18, and have had less than $15-million in taxable capital employed in Canada in 2019.

Lindsay Tedds, an associate professor of economics at the University of Calgary, said Ottawa’s fiscal response is relatively small, and that the subsidy program would allow companies to retain only a handful of workers. “We need much bolder action,” she said, adding that it is a positive that the federal government has moved relatively quickly to launch economic stimulus.

In a statement, Canadian Manufacturers and Exporters said it is pleased the government has taken steps to support businesses, including subsidies for small and medium sized companies. But the group said Ottawa needs to do more, including reducing payroll taxes for all businesses and direct support for distressed companies.

Kevin Milligan, professor of economics in the Vancouver School of Economics at the University of British Columbia, argued that the wage subsidies cannot be viewed in isolation. The federal government is also expanding Employment Insurance payments, allowing for work sharing and increasing the availability of loans, he noted. The bigger concern for the economy, Mr. Milligan said, is ensuring that families remain solvent. No one should expect that layoffs can be avoided, he added. “This is about a survival package for the economy.”

The parent company of Tim Hortons, Restaurant Brands International, said the subsidy program, along with other measures announced by Ottawa, will help its franchisees keep workers employed as the chain retools its business to respond to the coronavirus, including shutting down in-store dining.

“The 10-per-cent wage subsidy for small business owners, like Tim Hortons [franchisees], is a strong incentive for small business owners to fight like hell to protect every shift and protect as many jobs as they possibly can during this time,” said Duncan Fulton, chief corporate officer of Tim Hortons parent company Restaurant Brands International. On Tuesday, the company announced a C$40-million fund that will supplement government payments and provide full pay for missed shifts up to 14 days, for hourly employees who are sick and need to stay home. Half of the funding is being provided by RBI and half by its 1,500 restaurant owners.

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Larger businesses that aren’t eligible for the subsidy program are also girding for significant job losses. Sophie Boulanger, chief executive officer of Montreal-based eyewear retailer BonLook, had more than 430 employees, until Tuesday when she had to temporarily lay off more than 300. “It’s really a liquidity crisis,” she said. “...Having all the stores closed, and our revenues almost to zero, there’s no way we can support all of those salaries.”

Even with the ability to sell products online, Ms. Boulanger said her company has had to cut costs, including fees for software services, and orders from suppliers. “The retail industry, we’re really the backbone of the economy. ... It’s going to have a huge ripple effect,” she said.​

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