Canada deploys large fiscal stimulus, more to come
March 18, 2020
The Government of Canada today announced a large and broad set of fiscal stimulus measures aimed at stabilizing and supporting the Canadian economy affected by the COVID-19 pandemic and related containment efforts. The package includes $27 billion in direct support for consumers and businesses. It also provides $55 billion to enable the deferral of tax payments from firms and individuals as well as liquidity support for businesses. The total value of the new measures is approximately $82 billion, or some 3.5 percent of GDP.
These new measures come just five days after a $10 billion package that included the waiving of the EI waiting period, introduction of a workshare program, providing liquidity and credit support through the Business Credit Availability Program (BCAP), as well as lowering OSFI’s Domestic Stability Buffer for chartered banks by 1.25% to encourage continued lending.
The measures in today’s announcement are slightly larger than we had anticipated. They will not be able to fully offset extent of the economic weakness that we expect to be concentrated in the second quarter, but this does not diminish their importance, as they will critically limit the degree of economic contraction. Moreover, the government’s actions should help temper the amount of fear and worry present in the current environment.
The focus of the fiscal measures is on the right areas. Our greatest economic concerns are the disruption to personal income and business liquidity (cash flows and financial balances) in a period of social distancing, lower business revenues, and weak global demand. After telling Canadians to stay home during the outbreak, today’s measures will provide necessary support for Canadians who have income problems because of the pandemic. Similarly, the business measures are aimed at helping firms stay liquid and afloat until the economic climate stabilizes.
While today’s package is enormous by historical standards, more is likely to come in the weeks or months ahead. In particular, this morning’s announcement lacked specifics as far as support for hardest hit industries and/or regions. Moreover, the federal stimulus announcement sets the stage for provincial governments to launch programs aimed more directly at most affected regions.
Let’s run through the main measures announced today.
For individuals, the government is launching an Emergency Care Benefit ($10bn) for people that fell ill or are quarantined, self-isolating, or taking care of ill dependents, which will pay $900 bi-weekly for a maximum of 15 weeks. The government will also have an Emergency Support Benefit ($5bn) for people who were laid off or those who are self-employed and cannot work due to COVID. Individuals will also benefit from a boost to the GST Credit (GSTC) by as much as $400 per person and $600 for couples as well as an increase in the Canada Child Benefit (CCB) by $300 per child on average. The two measures will inject $5.5bn and $1.9bn into the economy, respectively. The announcement also included additional measures aimed at specific groups:
- ($305M) Additional money for Indigenous Community Support
- ($190M) Six-month interest-free moratorium on Canada Student Loans
- ($495M) Reducing RRIF minimum withdrawals by 25% for 2020
- ($158M) Increasing the Reaching Home initiative
- ($50M) Additional support for women’s shelters and sexual assault centres
- Deferral of income tax payments until August 31
- Six month payment deferral for mortgages and other credit products for individuals affected by COVID-19
- ($50bn) CMHC’s Mortgage default management tools (deferrals, re-amortization, etc.)
The remaining measures are aimed at businesses. They consist of a wage subsidy program, costing $3.8bn, to encourage small and medium-sized business to keep employees on payrolls. The program is planned to run for three months and will subsidize as much 10% of wages for a maximum of $1,375 per employee and $25,000 per employer. Business will also benefit from a reduction in their remittances of withheld income tax.
Firms will be allowed to defer, until after August 31, 2020, the payment of any income tax amounts that become owing on or after today and before September 2020. This relief would apply to tax balances due, as well as instalments. Building on measures previously announced, Export Development Canada will be providing additional support for affected exporters through the Canada Account while Business Development Canada will have more capacity to help small and medium size firms with more funding for Farm Credit Canada.
Although there were not announcement about support for specific sectors, the government is currently in consultations with industry leaders and stakeholders, with specific measures expected in the coming days or weeks.
The Government of Canada’s stimulus package outlined today is a second set of measures in less than a week. The measures are flexible and elastic, designed to adjust to the underlying need. Having said that, additional fiscal measures are likely. Despite the presence of Governor Poloz, today’s announcement contained little in the way of monetary stimulus. In particular, the Bank of Canada decided to not follow the Federal Reserve in cutting rates to rock-bottom or restarting the bond-buying program just yet. The Governor signaled that a bond-buying program, or QE, is not out of the question and is considered a standard monetary policy tool. While we don’t anticipate the Bank of Canada to engage in QE at this point, we do expect another 50 basis point cut at the next Fixed Announcement Date, on April 15th, alongside its updated outlook.
For more on the economic outlook, please see our latest forecast released today.