• Prime Minister Trudeau held a press conference this morning to announce new measures to support Canadians and Canadian businesses who have been impacted by the COVID-19 pandemic. Finance Minister Morneau followed this up with his own press conference that provided further details. The measures announced total $82bn (roughly 3.6% of GDP). These appear to be in addition to the previously-announced measures, bringing the value of total announcements to date to nearly 4% of GDP.
  • Of the $82bn, $27bn (about 1.2% of GDP) is in the form of direct supports for Canadians. Among the key measures announced:
    • An Emergency Care Benefit that provides up to $900 bi-weekly to individuals impacted either directly or indirectly (i.e. caring for a sick family member, or forced to stay home with children) and who do not qualify for EI sickness benefits, such as the self-employed. Applications for the benefit will be available in April.
    • An Emergency Support Benefit of up to $5bn in total for those who lose their job or have their hours reduced as a result of COVID-19. Details on this benefit were limited at time of writing.
    • A doubling of the GST tax credit, for the current benefit year. This will total roughly $5.5bn and be delivered via a one-time special payment in early May. Similarly, the Canada Child Benefit (CCB) maximum payment will also be doubled for this year – the government estimates that those families receiving this benefit will get an increase of $550 on average, delivered as part of the May payment. The CCB change is estimated to cost $2bn.
    • A slew of smaller measures aimed at Indigenous communities, those with student loans, retirees, as well as the homeless and other vulnerable groups.
  • Also announced was the deferral of tax payments to September, with the individual return filing due date pushed back to June. This measure is expected to provide $55bn in liquidity as this money remains in firm and household’s accounts for a few additional months.
  • Other measures intended to support business included:
    • A temporary wage subsidy of 10% (up to $1375 per worker and $25,000 per employer) intended to help prevent layoffs, delivered via reduced income tax remittances by qualifying businesses.
    • Changes to the Canada Account to increase limits. This account is run by EDC to support exporters in the national interest, and this adjustment should provide additional support via loans, guarantees and/or insurance policies.
  • Some measures, including the CCB change, and Emergency Support Benefit, will require a special session of Parliament for approval. The government indicated this would occur quickly.
  • Further announcements are likely coming; Minister Morneau mentioned an Orphan Well Remediation program and several other initiatives for which details and costings are not yet available.

Key Implications

  • Another move in the right direction. It may be tempting to think about today’s announcements as stimulus, but the more apt metaphor may be building a bridge. The Canadian economy is facing the possibility of falling into a sharp valley as spending dries up in the wake of necessary COVID-19 behavioural response measures, such as the closing of the Canada-U.S. border to non-essential travel announced earlier this morning. What today’s and other announced/forthcoming measures should do is help provide a stopgap for businesses and households until the return to a more normal environment.
  • What building a bridge means in practice is quickly mitigating the near-term impacts of economic standstills in key industries on employees and their families. Today’s announcements will help those who are unable to work, and goes a long way in meeting our concerns around those who do not qualify for EI. On the speed front, while a two week wait is a long time in the midst of a health crisis, given the challenges of putting new measures into existing systems, this is probably about as quick as can be reasonably expected.
  • From a growth perspective, the roughly 1.7% of GDP stimulus announced to date should help mitigate the near-term economic downside (we consider the $55bn in tax deferrals more a liquidity measure than stimulus). These are welcome developments, but more can be done. In particular, the 10% wage subsidy for small businesses may have a limited impact given the scale of the shock many of these businesses are facing. By comparison, several European economies are providing top-up of 75% or higher. While such measures are costly, we should remember the bridge analogy – such actions will by definition be temporary.
  • To this point, Minister Morneau made it clear that further announcements will be forthcoming – specifically saying that “there will be more to come”. Both language and actions to date suggest that the government stands ready to adjust policies and respond to developments as events unfold.
  • The Bank of Canada has so far been encouragingly proactive in delivering rate cuts and liquidity measures to help keep the financial system in good working order and encourage economic activity (see our summary). This made it somewhat surprising that although Governor Poloz joined Minister Morneau at this morning’s announcement, he did not announce any new measures. Although there have been many policies put in place, the backup in yields late yesterday (such as the key five year government bond yield) suggests that more may need to be done. It likely won’t be too long before we hear from Governor Poloz again.

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