Changes to the federal government’s wage subsidy program will provide a boost to employment and support household incomes as the Canada Emergency Response Benefit (CERB) winds down, a report from TD Economics says.
On Friday, the federal government detailed changes to the Canada Emergency Wage Subsidy (CEWS), as the program is extended and qualifications for employers are eased.
The move comes as fewer workers access the CERB because businesses are starting to reopen. In May, 1.2 million fewer people received CERB, the government said.
The new CEWS rules extend the program to Dec. 19 (from a previous extension to Aug. 29), and make the subsidy proportional to revenue declines. The maximum pay used to calculate the per-employee subsidy will be $1,129 per week.
Employers were previously subject to a 30% revenue decline test, which made them eligible for a payroll subsidy of 75% (to a weekly maximum of $847).
The CEWS now consists of two parts (effective for the current period):
- a base subsidy available to all eligible employers experiencing a decline in revenues, with the subsidy amount varying depending on the scale of revenue decline; and
- a top-up subsidy of up to an additional 25% for employers most adversely affected by Covid-19 (those with more than a 50% revenue drop).
Examples of these subsidy calculations are provided online.
For example, for firms with revenue drops of less than 50%, the base subsidy rate will be 1.2 times that 50% revenue drop. Revenue drops of 50% or more will receive a 60% top-up. These rates will be gradually reduced starting in Period 7 (Aug. 30 to Sept. 26).
For the current period (July 5 to Aug. 1) and the next one (Aug. 2 to Aug. 29), a safe harbour provision allows for a business that would have been better off under the prior rules (i.e., 75% wage top-up for revenue declines of 30% or more) to receive that prior subsidy amount.
Given that the subsidy rate declines as the CEWS periods pass, the maximum weekly benefit per employee is set to fall from $960 in the current period to $508 in the final one (Oct. 25 to Nov 21).
Excluding the top-up, the maximums are $677 in the current period and $226 in the final one.
Although the last qualifying period ends in November, the application period has been extended to Jan. 31. “Like the initial rollout, retroactive applications for the subsidy are allowed,” said TD Economics in a report outlining the CEWS changes.
The TD report noted that eligible remuneration has been left unchanged — in effect, remuneration is any pay for which the business would typically withhold tax.
There are, however, a number of “small tweaks” included in the changes, the report said. For example, in some cases, asset sales will be included in the calculation of qualifying revenues.
To align with the changes, the subsidy’s budget was increased to $83.6 billion from $45 billion. “This makes it the single largest direct spending measure of the government’s Covid-19 response so far,” the TD report said.
While that’s a hefty price tag, “it comes in response to significant damage done to Canadian firms,” it said.
In its latest online survey, the Canadian Federation of Independent Business found that the additional debt incurred by Canadian business owners since Covid-19 was on average $141,942, with a median (midpoint figure) of $50,000.
TD Economics expects the changes will 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).”
As of July 13, CEWS had paid out about $20 billion in subsidies.
The proposed CEWS changes will be debated in the House of Commons this week.