March 27 Update: Second Wave of Federal Support for Businesses

Prime Minister Justin Trudeau announced additional supports to Canadian businesses and workers under the COVID-19 Economic Response Plan, providing up to an additional $65 billion in direct support, and an additional $30 billion in deferred taxes and duties.

The federal government will be increasing the small business wage subsidy from 10% to 75% for qualifying businesses, backdated to March 15. The government has not finalized the cost or the details for the rollout and delivery of the program. These are anticipated to be released early next week.

In addition, the Prime Minister announced additional investments to support business, including:

• New loan programs for businesses:
  • Canada Emergency Business Account, a $25 billion program providing interest-free loans of up to $40,000 to small businesses and not-for-profits (total payroll between $50,000 and $1 million in 2019). 25% of the loan will be forgiven if the balance is paid on or before December 31, 2022.
  • $20 billion loan guarantee program for SMEs, with EDC guaranteeing new operating credit and cash flow term loans that financial institutions can extend, up to $6.25 million.
  • $20 billion Co-Lending Program bringing the Business Development Bank of Canada together with financial institutions to co-lend term loans to SMEs for their operational cash flow requirements; eligible businesses can receive up to $6.25 million, with BDC’s portion up to $5 million maximum per loan.
• Deferring GST/HST payments and customs duty remittances until June 30, 2020, providing up to $30 billion in cash flow over the next three months.
• Additional measures from the Canada Revenue Agency for individuals and businesses, including additional deadline extensions and suspending audit activities and collections on new debt.
  • For charities, the filing deadline for all charities to complete and submit a Form T3010, Registered Charity Information Return, has been extended to December 31, 2020.

The measures are intended to help small and medium-sized businesses keep employees on payroll while remaining liquid. Minister Morneau has also been in discussion with banks regarding individual access to credit, saying that discussions continue.

Beyond today’s measures, Finance Minister Bill Morneau stated that the federal government has worked with both the airline and the energy sectors and will have more details on support to these sectors “soon”. He noted that both sectors have been particularly affected and have urgent need for credit.

The Prime Minister’s announcement was preceded by the Bank of Canada lowering the overnight rate to 0.25%. The Bank announced it would start buying a minimum of $5 billion a week in government securities, as well as short-term debt issued by companies, in order ensure the financial systems continues providing credit and to lay the foundation for the economy to return to normal.

While the Governor of the Bank of Canada, Stephen Poloz, has been hesitant to call the Bank’s program quantitative easing, The Bank is taking unprecedented actions to ensure that the financial system remains functional.  As Poloz said in his announcement, “Some may suggest this is using a lot of firepower, but I think a firefighter has never been criticized for using too much water.”

Rapidly Changing Conditions are the “New Normal”

Today’s announcements mark an elevation of the federal government’s response to the economic impact of the COVID-19 emergency, providing the second wave of direct support. At 9:00 am, the Parliamentary Budget Officer released a report, estimating the impact of the pandemic along with oil price shocks.  Based on federal measures announced as of March 23, the PBO estimated real GDP growth at -5.1% for 2020 and the federal deficit at $26.7 billion for 2019-20 and $112.7 billion in 2020-21.

But as quickly as that report was released, it was out of date. Today has demonstrated that the pandemic changes hour to hour. Information about the pandemic is changing constantly, as are the political decisions to support them. The need to for governments to act with speed is becoming paramount and the details supporting them are often scarce and subject to change.

Looking to next week, in addition to details on the wage subsidy, it will also be the first time that the Minister of Finance provides a report to the Standing Committee on Finance. Additional details on support to the aviation and oil and gas sector are also expected. On April 1, the new fiscal year begins for governments, as uncertainty about not only the duration but deep cost of the pandemic persists.

Additional Federal Developments:

• The Canada Emergency Response Benefit, a $2000 per month benefit, will not have income tax deducted at the source.
• All in-person Service Canada centres have been closed, with Canadians advised to access benefits online or over the phone. This may have knock-on effects in terms of the government being to deliver supports to Canadians.
• Federal, provincial and territorial health ministers met by teleconference yesterday, and the federal government has directed the Canadian Centre for Occupational Health and Safety (CCOHS) to draw up new guidelines, focusing on safety measures for truck drivers and those working in food processing.
• In a statement, the President of the Canadian Border Services Agency outlined measures begin taken at all points of entry into Canada, including assurance that essential travel continues unimpeded.