Morneau Tweaks and Extends Wage Subsidy

Brian DePratto, Senior Economist | 416-944-5069

Date Published: July 17, 2020

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Emergency Wage Subsidy Extended to December, With Sliding Scales for Qualification And Payments

  • Federal Finance Minister Morneau today announced revisions to the Canadian Emergency Wage Subsidy (CEWS). CEWS has officially been extended to the end of this year, and the qualification criteria have been eased.
  • The subsidy itself will be on a sliding scale, with the maximum weekly pay used to calculate the per-employee subsidy set at $1,129. For firms that have revenue drops of less than 50%, the subsidy rate will be 1.2 times that revenue drop (i.e. a 20% revenue drop implies a 24% base CEWS rate, per the government's backgrounder). Revenue drops of 50% or over will receive a 60% top-up. In the immediate period and the next one, any firm that would have been better off under the prior design (i.e. 75% wage top up for revenue declines of 30% or more) will receive it. Firms with extreme revenue drops (more than 50%) will receive a top-up of up to an additional 25%.
  • Payments under the system will continue to be based on financial performance within given periods (such as July 5 – August 1, August 2 – August 29, etc.). As these periods go on, the subsidy rate will decline. The maximum weekly benefit per employee (including the additional top-up) is set to fall from $960 in the current period, to $508 by the end of the program. The final qualification period will be October 25 – November 21, although the press release noted "the intent to provide further support until December 19, 2020". Excluding the top-up, the maximums are $677 in the current period, falling to $226 in the final period.
  • Eligible remuneration has been left unchanged as, in effect, any pay for which the firm would typically withhold tax. A number of small tweaks were included in this update – in some cases asset sales will be included in the calculation of qualifying revenues. Although the last qualifying period end in November, the application period has been extended to 31 January – like the initial rollout, retroactive applications for the subsidy are allowed.
  • The cost of the program has grown slightly, to $83.6bn this fiscal year, a bit higher than the $82.3bn estimate in last week's fiscal snapshot. This makes it the single largest direct spending measure of the government's COVID-19 response so far. As of July 13th, CEWS has paid out roughly $20bn in subsidies. This is a bit less than one third the amount paid out in Canada Emergency Response Benefits (CERB) – recall that CERB was designed to support those that had lost their job or a significant portion of their income due to the pandemic.

Key Implications

  • Today's well-telegraphed changes are a welcome announcement along many dimensions. An extension is logical given pandemic effects that are likely to linger at least until the end of the year. More flexibility in terms of subsidy qualification, rather than a fixed line measure of revenue decline makes sense, and helps answer the calls of many industry groups. The expanded CEWS may carry a significant price tag, but it comes in response to significant damage done to Canadian firms. 
  • Looking forward, this change should provide a boost to employment, helping support household incomes, particularly as the earliest CERB recipients' payments stop in the late summer (assuming they have not returned to work). Some sectors may take longer to recover, but this extension should help change the hiring calculus for many firms – particularly if we can keep the infection curve bent downwards.