COVID-19 has forced countries around the world to scramble together massive relief measures to protect their individual economies. If you include loans, credit guarantees, and direct aid, Spain is spending €200 billion on mitigation packages. France another €300 billion. The United Kingdom unveiled £330 billion. President Donald Trump is asking Congress for $850 billion to over $1 trillion USD. Canada’s package is soon to be announced and will build on the $10 billion CAD already announced.
These are staggering figures that tell you just how serious the impact to the economy really is. In Ontario, the Premier has stated the government will spare no expense to help and replaced the March 25 Budget with a one-year fiscal update.
The thing about dominoes is once they start falling, they fall fast. Be it before or after Premier Doug Ford’s extremely appropriate declaration of a State of Emergency many businesses were being forced to shut down, either by a lack of patrons or now from a government edict.
When those businesses shut down, they stop paying their employees. Those employees stop paying for non-essential goods and focus on rent, utilities, and food. Disposable income suddenly becomes non-disposable.
Just look at the movie business for an example. Cineplex, the movie theatre conglomerate, opened at nearly $30 a share on March 11th before the World Health Organization declared COVID-19 a global pandemic. By the time trading halted on March 17th – less than a week later – the stock was $9 a share. A nearly 70% drop.
Now it is faced with closures for several weeks, if not months. It’s enough to bankrupt a company that has 164 theatres across the country and employs more than 13,000 Canadians. There are two sets of dominoes here that the Cineplex example illustrates. The first set are the employees.
The Federal government is expected to provide some form of direct financial assistance to Canadians either laid off or financially hit by economic changes and COVID-19 containment efforts. This could be in the form of delayed tax filings, adjusted schedules of income tax and Employment Insurance collection, or even direct financial aid with a means-tested tax claw back next year as suggested by scholar Ken Boessenkool.
Whether or not the deadline for tax filings is moved, Canadians who receive benefits from the government should file online instead of by paper. If they do so, they will receive their various benefits six weeks earlier. That means quicker tax returns, Canada Child Benefit cheques, and Guaranteed Income Supplements from the Federal government. It also means quicker processing of Ontario based credits like the new Ontario Child Care Tax Credit (CARE) for families and the new Low-Income Individuals and Families Tax Credit (LIFT) for individual workers with incomes below $38,500/yr or families with less than $68,500/yr.
Many part-time workers that are the most susceptible to job and income loss, would qualify for these benefits. Both levels of government should do what they can to move the more than 3.6 million Canadians who filed their taxes by paper last year to the various free online filing mechanisms.
The next set of dominoes are the businesses – in the Cineplex example, it’s the theatres themselves drawing the literal curtains. The Federal Government has already announced $10 billion of business relief with much more to come. The Provincial Government should not sit idly by.
Most taxes in Ontario are federally controlled and collected, but a few are fully provincial jurisdiction. One of those taxes is the Employer Health Tax (EHT), a payroll tax charged on renumeration to employees. Private businesses are already exempt from paying EHT on the first $490,000 of salaries so long as their total salary obligation is not over $5 million annually – essentially, small to medium sized businesses get a bit of a break.
Taxing a business for paying employees is always a bit counter-intuitive, but at a time like this it is downright illogical. The Ontario government can use its powers under the Employer Health Tax Act to exempt certain classes of businesses, exempt EHT obligations for classes of workers like part-time workers, or at the very least delay payments. Even better, it can do so by regulation and does not need to risk sitting the Legislature any further.
The EHT was supposed to bring in just over $6.8 billion this fiscal year. Any changes mean a financial hit, but if government wants to help businesses and affected workers, adjusting the EHT would do so directly and encourage companies – like Cineplex – to keep at-risk staff on payroll just a little bit longer.
Next, Ontario should seriously consider covering property taxes for any businesses that have to close due to the provincial State of Emergency. If a business is closed, they won’t pay any business income taxes since they have no revenue. However, the property tax system offers no relief for a shuttered business.
Many of these businesses are in prime downtown retail locations and will still be fully assessed by the property tax system at highest and best use – even if that usage is closed by government edict. That means big bills will still come due with no income to offset them. This could accelerate permanent closures and bankruptcies unnecessarily.
Even worse, if the companies themselves cannot pay, it is municipalities who will feel the impact of that decision. The same municipalities that are providing water, garbage collection services, and already losing money after shuttering many revenue making services like camps and arenas.
By picking up some of the property tax tab on a temporary basis for shuttered businesses, the Ontario government could target benefit directly to those who need it most while protecting municipal cash flow. No government wants to have to bail out anything but being able to support businesses and municipalities at the same time with just one financial mechanism is a win-win.
The government should be looking at ways to encourage online tax filing, provide relief from the Employer Health Tax, and pick up some of the property tax tab. By doing so, Premier Ford can target those impacted most, do so largely by regulation, and do so immediately – if not retroactively to day one of the emergency declaration.
The Premier has shown Ontarians he is taking COVID-19 seriously. He’s been decisive, at times reassuring, and has even gotten all party support for his measures to date. Now, he needs to go further and take real, concrete steps to protect the economy. The Premier has long touted Ontario is “Open for Business”, he’ll need to act swiftly to keep it that way.