Finance Minister Freeland's first spending announcement came just two days after her appointment.
Speaking with Employment Minister Qualtrough yesterday, she addressed uncertainty about whether income supports would continue in the coming weeks, announcing a 4 week extension of CERB and proposing new EI parameters and income supports. The one-year reforms to EI will make benefits more generous and easier to come by, and three new programs lengthen income supports for CERB claimants not eligible for EI. New income supports total $37 billion, and $2 billion in forgone EI premium hikes take the total spending announced up to $39 billion.
The government is tweaking EI rules to reduce the number of hours required to qualify for EI by almost 70% (for regular benefits), and increasing the minimum payout to align more closely with CERB. Canadians who have worked 120 insurable hours in the last year will qualify for at least $400 per week for 26 weeks. Unemployed Canadians who worked for most of the previous year could qualify for up to 45 weeks of benefits, and the edits level the playing field across the country by removing most of the variation in the length of benefits by regional unemployment rates.
Increasing the minimum EI benefit will support mainly lower income Canadians, who have made up the bulk of COVID-related job losses, as industries hard-hit by lockdowns tend to pay lower wages. For the average employee in the food service industry, the changes to EI’s generosity mean weekly cheques will be $400 rather than $275. While benefits will decrease relative to CERB, the tweak means more money for those who are suffering most from the present downturn.
A new Canada Recovery Benefit (CRB) will cover self-employed Canadians who lose their jobs and those working reduced hours, who would otherwise not qualify for EI. It, too, will pay slightly less than CERB: $400 per week for a maximum of 26 weeks. It also pays the CERB rate of $500 per week for those off work because of COVID-19 (for up to two weeks) or off work to care for loved ones due to school closures or illness (for up to 26 weeks). Collectively, these three programs are expected to cover those who would not qualify for EI and would otherwise lose CERB benefits in a few weeks.
The CRB will significantly improve back-to-work incentives for non-EI claimants, by clawing back 50% of any earnings over about $3,100 per month (CERB is clawed back if claimants earn over $1000). We expect that allowing Canadians to work part time will help employers looking for part time staff in response to reduced hours or limited capacity due to social distancing requirements.
The lion’s share of the new money announced, $22 billion, comes from expanding EI eligibility via the CRB. An extra month of CERB will cost $8 billion, and increasing the generosity of EI claims that would otherwise have occurred will add $7 billion. In addition to these $37 billion in program changes, the government will spend $2 billion on a 2-year freeze of EI premium rates, which would otherwise have increased to fund the new benefits. It’s not clear how the $10 billion the government already penciled in for EI in the fiscal snapshot will adjust to these new measures.
Taken together, these measures assuage worries that the end of CERB would deteriorate household incomes and worsen the already significant impact COVID-19 has had on the Canadian economy. They are sizable additional expenses for a government that has already spent about $70 billion on CERB thus far, and whose budget deficit for the year totals $343 billion. Since some of the spending announced yesterday will occur next year, yesterday’s announcement could bring the deficit for 2020/2021 up to $375 billion (16.9% of GDP).
However, the bigger question remains whether these changes to EI will really remain temporary. The government has frozen EI premium rates or temporarily increased how long EI claims lasted during the last two downturns, but to our knowledge this is the first recession in which the generosity of regular EI benefits has been increased. With these larger changes, and the Prime Minister’s own ambitions for a “21st century” EI system, we wonder if a higher replacement rate or expanded coverage for self-employed or gig workers may yet be forthcoming. The implications for payroll taxes could be significant, but we’re encouraged that the government has put off increases for the next two years, at least.
Colin Guldimann is an economist at RBC. He works primarily on issues related to housing markets, energy, and climate change. Prior to joining RBC, Colin worked on housing policy and macroeconomic research at the Department of Finance in Ottawa.
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