December 1, 2020

Your CFA Update on COVID-19

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Federal Economic Update

On Monday afternoon, Minister of Finance Chrystia Freeland released Supporting Canadians and Fighting COVID-19: Fall Economic Statement 2020. 

The Statement offers a first glimpse of the Government’s medium-term fiscal outlook. Here is what you need to know:

• Federal deficits will continue for the foreseeable future: The Government projects deficits of $381.6 billion in 2020-21, $121.2 billion in 2021-22, and $50.7 billion in 2022-23. Note that those figures do not include the impact of a fiscal stimulus program for the recovery from COVID-19, totalling 3-4% of GDP over three years, that the Government is proposing.
• Debt to GDP ratio to peak at around 50%: The Government released updated debt to GDP figures that reflect increased expenditures to date on responding to COVID-19. The Federal debt to GDP ratio is projected to rise from 31.2% in 2019-20, to 50.7% in 2020-21, 52.6% in 2021-22, and 52.1% in 2022-23. The Government emphasizes that, while the debt to GDP ratio is increasing, debt servicing costs are projected to remain low.
• New COVID-19 spending: The Statement announced a number of new measures to help individuals and businesses that have been impacted by COVID-19. Most notably for businesses, the Government announced that the maximum benefit under the Canada Emergency Wage Subsidy will be increased to 75% and that a Highly Affected Sectors Credit Availability Program will be launched to support the hardest hit sectors of the economy.
• Targeted recovery spending: The Government announced a select few programs aimed at spurring a green, sustainable and equitable long-term recovery from COVID-19, including a new program to provide grants to retrofit residential homes, funds to begin work towards a Canada Wide Early Learning and Child Care System, and additional fiscal transfers to the Provinces for skills and employment training.
• Long-term stimulus program: The Government announced plans for a targeted stimulus program in Budget 2021, with some early “down payments” on that plan included in the Fall Economic Statement. The Government plans to spend between 3-4% of GDP over the next three fiscal years through the stimulus program.

A Deeper Dive into the Federal Fall Economic Statement (FES)

The FES is consistent with the Speech from the Throne in September and Minister Freeland’s speech to the Toronto Economic Forum in October, in that it maintains the Government’s commitment to record-shattering Federal spending in response to COVID-19. As with both of those aforementioned speeches, the Government communicated in the FES that it believes that this spending is affordable, especially due to very low interest rates.

Business Supports

To support business in overcoming the economic impacts of COVID-19, the FES commits to:

• Creating a Highly Affected Sectors Credit Availability Program to offer 100 percent government-guaranteed loans of up to $1 million for the sectors most impacted by COVID-19 (e.g. tourism and hospitality, hotels, and arts and entertainment).
• Increasing the maximum subsidy rate of the Canada Emergency Wage Subsidy to 75 percent, beginning December 20 until March 13, 2021.
• Extending until March 13, 2021, the current subsidy rates under the Canada Emergency Rent Subsidy and the Lockdown Support Program.
• Targeted rent relief and capital and operational support for airlines and airports.
• Disbursing an additional $500 million to the Regional Development Agencies and the Community Futures Network of Canada and imposing a rule that 25 percent of those programs’ spending must be for tourism sector initiatives.

Note that the Wage and Rent program changes will require legislative changes and, as such, the support of at least one other party in the minority Parliament.

Social Security

The FES commits the Government to augmenting its signature Canada Child Benefit program with temporary support of $1,200 in 2021 for each child under the age of 6 in low- and middle-income families. Meanwhile, an allocation of $20 million over 5 years, starting in 2021-22, will support work – including the founding of a Federal Secretariat on Early Learning and Child Care – to begin developing a national daycare policy.

Long-Term Recovery

While the FES was overwhelmingly focused on the response to COVID-19, Minister Freeland took pains to underline the Government’s ongoing commitment to creating a greener and more inclusive economy – long the central tenets of the Liberal Party’s fiscal policy. To that end, the FES commits the Government to:

• Allocate $2.6 billion over 7 years, starting in 2020-21, to provide up to 700,000 grants of up to $5,000 to homeowners for energy-efficient home improvements; and
• Allocate $150 million over 3 years, starting in 2021-22, for investments in infrastructure for zero-emission vehicles, such as charging stations.

Along with the priorly-announced top-up of $1.5 billion for employment skills training programs administered by the Provinces, those announcements were portrayed as the government’s down payment on more significant spending on green, high-tech, and inclusivity initiatives for economic growth in Budget 2021. Many progressives may view that as a muted commitment to those causes, but the FES states that the Government feels such spending must wait until the threat of further outbreaks of COVID-19 subsides.

Opposition Reaction

The Conservative Party released a statement from Erin O’Toole characterizing the Liberal response to the pandemic as “erratic and confused” and demanding that the Government release a plan for vaccine distribution, as a cornerstone of economic recovery.

Both Bloc Quebecois Leader Yves-François Blanchet and NDP Leader Jagmeet Singh likewise called for more details about the Federal plan to vaccinate Canadians, while Mr. Singh also called for the Government to increase taxes on wealthy individuals and corporations to fund Federal supports for individuals.

What’s Next

The most substantial outcome of the FES for most stakeholders was the announcement of the planned $100 billion fiscal stimulus program. The Government is still determining how that program will be structured and is committed to public consultations on what the stimulus should be spent on. That presents a substantial opportunity for stakeholders to inform Federal spending for the recovery from COVID-19 and thereafter. With Departmental submissions to the Finance Canada budget development process due imminently, stakeholders should seek to engage policymakers as soon as possible.

On December 10, the Prime Minister and the Premiers will hold a First Ministers meeting about long-term funding of the Canada Health Transfer, which will dictate a big portion of long-term Federal spending. The FES appears to set an adversarial basis for the Federal government’s approach to those negotiations, noting that $8 out of every $10 dollars spent on the response to COVID-19 have been Federal funds and that Federal health supports to the provinces already increased 23 percent this year.

Finally, the sole overt reference to the recent U.S. Election in the FES bears monitoring. The Government is exploring the idea of imposing border carbon adjustments and will discuss doing so with international partners. Border carbon adjustments – the imposition of an import levy on goods that are manufactured in countries that do not price carbon pollution in some way – were an element of President-elect Joe Biden’s election policy platform and are also being explored by the European Union.

CFA Webinar on Government Programs Update

The CFA will be going in depth on the new business supports at a Webinar on December 2, 2020 at 2:00 p.m. with David Black, Director, Government Relations & Public Policy; Bryan Walters, MNP Canada; Scott Munnoch, Temple Scott Associates and Paul daSilva, RBC Royal Bank. Click here to register

Statistics Canada says economy grew at a record pace in Q3 of 2020

Statistics Canada says the economy grew at a record annualized pace of 40.5 per cent in the third quarter as businesses came out of COVID-19 lockdowns. The previous record for quarterly growth in real gross domestic product was 13.2 per cent in the first quarter 1965, the agency says.

As historic as the rebound was, it fell short of expectations.

Financial data firm Refinitiv says the average economist estimate was for an annualized growth rate of 47.6 per cent for the quarter. The rebound over July, August and September was a sharp turnaround from the preceding three-month stretch which saw a record drop.

Driving the bounce-back were the further rolling back of public health restrictions that allowed businesses to reopen. Statistics Canada also says there was a substantial increase in the housing market owing to low interest rates and household spending on goods like cars.

Despite the overall increase, the national statistics office says real gross domestic product still remains shy of where it was before the pandemic.

The third quarter ended with the fifth consecutive monthly increase in real GDP after the steepest monthly drops on record in March and April when widespread lockdowns were instituted to slow the spread of COVID-19.

September saw a 0.8 per cent increase in real GDP, Statistics Canada says, a slight slowing from the 0.9 per cent recorded in August.

The agency also provided a preliminary estimate for October's figures, saying early indicators point to a 0.2 per cent increase in the month. The figure will be finalized at the end of this month.

CRA Hosting Session on the New Canada Emergency Rent Subsidy (CERS)

The CRA has launched CERS webpages, an online CERS calculator, and CERS infographics (Take a look at the new Canada Emergency Rent Subsidy, The Canada Emergency Rent Subsidy has got you covered, and We’re here to help) to assist organizations in preparing their applications.
 
To complement these resources, the CRA will host a series of interactive question and answer sessions for eligible organizations.

English language sessions
Friday, December 4, 2020 @1:00 pm – 2:00 pm EST
Wednesday, December 9, 2020 @1:00 pm – 2:00 pm EST
 
French language sessions
Monday, December 7, 2020 @1:00 pm – 2:00 pm EST
Friday, December 11, 2020 @1:00 pm - 2:00 pm EST 

If there are no more sessions available, please add your name to the waitlist.

New BC landowner registry starting Monday

The B.C. government has launched a new land registry that it says will help combat money laundering and make the real estate market more transparent. Starting Monday, any corporation, trustee or partnership that buys land in B.C. must disclose the interest holders of that land through the Land Owner Transparency Registry. Existing registered landowners have one year to register and disclose their interest holders.

The government says in a news release the information provided may be used by tax and law authorities to investigate and crack down on illegal activity. It says the registry was formed after an expert panel on real estate said the disclosure of beneficial ownership is the "single most important measure" that can be taken to address money laundering. The panel's 2019 report estimated that $7.4 billion was laundered through B.C. in 2018, including $5 billion through real estate.

Saskatchewan reports lower deficit, touts recovering economy in mid-year report

The provincial government released its mid-year report today and projected a deficit almost $400 million lower than expected. 

Earlier this year, the provincial government forecasted a $2.4 billion deficit but today's report showed that to be sitting around $2 billion, an improvement of $381.5 million from this year's budget.

Revenue projections also saw an increase, to the tune of $503.5 million, or 3.7 per cent from the provincial budget announcement.

Tax revenues were projected to decrease by $41.2 million as a reduction in the small business tax rate was factored in. Other tax and own-source revenue forecasts were unchanged from the budget.

Expenses were forecasted to be $16.2 billion, an increase of $122 million, or 0.8 per cent. The increase covered money for the health, education, municipal and tourism sectors and was partly offset by lower-than-budgeted pension expenses and crop insurance claims expenses.

The mid-year forecast included the impacts of the government's election commitments, totalling $91.7 million.

Finance Minister Donna Harpauer said $260 million was set aside as contingency, which she said is a substantial cushion that's built in for the remaining six months of the year. She said data from the first six months of the year will help guide the province through the remainder of the year

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COVID-19's impact on the world is creating waves across all sectors and industries.

Every member of the CFA community is dealing with an issue that is affecting the world, our industries, our communities, our businesses, and our people.

We would like to hear from you if you have any topics, issues or questions to navigate turbulent times in order to support you further: 

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