Exposing the Fraud of the Canada Emergency Wage Subsidy Program

University of Toronto economist Michael Smart has done a preliminary analysis of the $50.6 billion the federal government has spent so far under the Canada Emergency Wage Subsidy program (CEWS). Right off the bat, Smart points out, "It's important to understand that these payments are not going to individual workers. They're going to the companies. And I don't believe that they're saving a large number of jobs. That means the payments are going to business profits."

A CBC investigation reveals that many of the larger companies that have received millions under the program have spent lavishly for non-payroll items such as dividend payments to shareholders, share buybacks, share options for executive compensation etc.; all of which are allowed under CEWS.

Businesses, Smart explains, use the subsidy to offset wages paid to employees. The money ends up subsidizing all employees on the payroll, not only those in danger of being laid off because of the pandemic. As a result the government has ended up paying $14,500 per month to businesses for every job that is reportedly saved over a four-week period, or about $188,000 per job per year. Exactly how many jobs have really been saved is impossible to pinpoint because governments and businesses refuse to be accountable. The CBC and others say that digging out information from companies and the government as to what specific jobs and how many have really been saved is impossible as a wall of silence shields all information. Even though the programs and schemes use public funds, the governments doling out the money and the oligarchs receiving it brandish the right of private property to keep their affairs secret to stop any investigation and exposure of what is really happening.

Smart doubts that the reported jobs "saved" through the program, at least with the larger firms, would have disappeared without the subsidies. "The problem is that CEWS payments are paid for all workers at affected businesses, not just those facing the prospect of earnings losses," he writes. "For this reason, CEWS is an expensive way of protecting vulnerable workers. Most of the jobs funded by CEWS would still exist in the absence of the subsidy."

As proof of CEWS having little impact on employment Smart analyzed the reductions in subsidy rates which began in September but were subsequently abandoned. "While the September reforms resulted in a substantial decline in the average subsidy per worker," he writes, "there was no sharp drop in the number of firms applying or workers assisted. This evidence suggests the CEWS subsidy is not in fact saving many jobs and that the cost per job saved is therefore high."

Smart argues, "If the subsidies play a significant role in preventing job loss, then the September cuts should have led to an increase in layoffs at assisted firms, and a resulting decline in the number of workers supported by the program beginning in September. But that is not what the aggregate data suggest."

His study of the September reforms reveals that "a 10 per cent increase in the subsidy rate leads to just a 1.1 per cent increase in employment at affected firms. Because the estimated impact of the subsidy on employment is small, most jobs subsidized through CEWS would still exist if the subsidy rate were reduced further.

He then criticizes the government for "backing away from those reforms, freezing subsidy rates and extending the program in 2021. The decision to back away from the September reforms was a mistake and a gradual phaseout of subsidies should start again now."

With the extension well into next year, "CEWS is now the largest component of Ottawa's pandemic response, outstripping even the Canada Emergency Response Benefit (CERB) and its successors. [...] CEWS is a subsidy of up to 75 per cent for eligible payroll expenses of virtually all Canadian businesses that have experienced a revenue decline since the beginning of 2020. The program has paid out over $50 billion to 350,000 different businesses so far, and current spending is running around $1.2 billion per week."

It should be noted that a "revenue decline" can be for one subsidiary of a large company or even one department while the rest of the company continues to operate and expropriate added-value from the value its workers produce.

Smart writes, "If CEWS funds are not saving many jobs, that means they end up in business profits. [...] We learned of one large retailer that in effect used its CEWS payments to fund a special dividend to shareholders this year." Smart is referring to a November 23 article in the Toronto Star with the headline, "Leon's received almost $30 million in government handouts -- now it's posting record profits and boosting the amount it pays to shareholders."

Smart's assessment of CEWS is that "it was not targeted to the jobs that were most at risk during the lockdown." This is putting it mildly to say the least.

(Michael Smart's complete analysis is available here; News about CEWS -- Finances of the Nation; CBC "The Big Spend" is here)

This article was published in

Volume 50 Number 49 - December 19, 2020

Article Link:
Exposing the Fraud of the Canada Emergency Wage Subsidy Program


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