Federal Government Wage Subsidies Expand Profits of Big Companies During Pandemic

The Canada Emergency Wage Subsidy (CEWS) gives employers up to 75 per cent of what they pay to workers for their capacity to work. This government payroll rebate goes to companies while they presumably still receive whatever realized new value the workers produce. Profit derives from the portion of new value workers produce that employers expropriate. A payroll rebate in many circumstances would expand profit.

The CEWS scheme means that companies not only expropriate added-value from the new value workers produce but receive an additional amount of the reproduced-value that workers claim from the value they produce. The Trudeau government and its Finance Minister Freeland excuse this sleight of hand on the supposition that the workers may not be needed during the pandemic. The government says payment of most of workers' wages encourages companies to keep them at work whether they are needed or not.

The government dismisses the fact out of hand that workers who are not needed and not working could, or rather should, be directly given social assistance during the period they are not working without handing public funds to companies, in particular the large ones with huge resources. It says the CEWS is designed to encourage companies to bring workers back to work under the presumption that workers will generate realized revenue of at least 25 per cent of their wages. It has done far more than that for many big companies. The program has become yet another source of corruption, with big companies using it to fatten their profits and, in some cases, to attack workers during lockouts and strikes by having CEWS payments go towards the hiring of scabs.

The excerpts below in quotation marks are from a Globe and Mail report on big companies abusing the CEWS program. The May 8 article available online is headlined: "Wage subsidies were meant to preserve jobs. In many cases, the $110.6 billion response padded bottom lines." The item includes examples of big companies using the CEWS wage subsidies to boost profits and otherwise serve their private interests.

The pandemic has further exposed the current direction of the economy as a failure in all respects. The health emergency presents the working class with the necessity to discuss, organize and forge a new direction that puts the well-being and security of working people, society and the social and natural environment at the centre of all considerations. The challenge for the working class is to overcome the obstruction of the global oligarchs and their ferocious defence of the present direction of the failed economy despite its anarchy, recurring crises, insecurity and wars.

The Globe writes, "With an estimated two-year price tag of $110.6 billion, Ottawa will spend more on CEWS than it does on child benefits, health care transfers, equalization payments or pandemic benefits for individuals."

The CEWS program has greatly increased the federal deficit, prompting the government to borrow vast sums from global private moneylenders. According to existing arrangements these sums will have to be repaid with interest to these moneylenders. The servicing of this debt will become another excuse to attack the people with reductions in spending on social programs. The vast majority of public funds to service government debt come from individual taxation and user fees that working people are forced to pay.

The Globe research into financial statements of big companies traded on the stock markets of the oligarchs reveal that many workers in the CEWS program continued to produce considerable new value for those companies while the government paid 75 per cent of their wages. Many companies expropriated added-value from the realized value workers produced while at the same time pocketing the CEWS payments thereby fattening their profits.

If CEWS were an unemployment benefit for workers then it would have been paid directly to laid-off workers who were and are not working and therefore not producing revenue for a company. As a pay-the-rich scheme, CEWS became yet another factor padding the profits of big companies, as the investigation reveals. As far as saving the existence of small and medium-sized companies in crisis, an alternative could be found to turn them into human-centred public enterprises with the current owners and managers justly compensated and given positions in the newly-formed public companies if they wish. The practice of governments doling out public funds to save privately-owned companies in distress must cease and a new direction be found that serves the common good.

The Example of TFI International Inc.

The Globe writes, "TFI International Inc. has had a great pandemic. Revenue at the Montreal-based trucking conglomerate, excluding fuel surcharges, rose in 2020. Net income jumped by double digits....

"The company made a string of 13 acquisitions during the year. And after COVID-19 first gripped Canada last March, the company paid a higher (stock ownership) dividend in every quarter compared with the same period a year earlier.

"Along the way, TFI and its subsidiaries also collected nearly $75 million in payments under the Canada Emergency Wage Subsidy program, making it one of the biggest recipients in what is by far the single largest spending initiative in the federal government's history....

"If the intersection of a growing bottom line and a government bailout seems disconcerting, it shouldn't. There's no indication that TFI did not legitimately qualify for payments. The fact that a company posted solid results, paid out higher dividends, had money to spare for acquisitions, and laid off workers to contain costs, is no barrier at all to receiving CEWS payments -- despite sporadic rhetorical feints to the contrary by the Liberal government.

"And if TFI's experience seems unusual, it isn't. TFI has lots of company, according to a Globe and Mail analysis that married Ottawa's list of thousands of CEWS recipients to the Statistics Canada database on Canadian corporate parents and subsidiaries, and then cross-referenced that to the companies listed on either the Toronto Stock Exchange or the TSX Venture Exchange, according to S&P Global Market Intelligence.

"The result: a database showing that 389 publicly traded companies (or their wholly owned subsidiaries) received more than $3.6 billion in CEWS payments as of late January 2021 (when the Canada Revenue Agency took down the federal government's online listing of companies). Some of the biggest names in corporate Canada are on that list, including Air Canada, BCE Inc., Canadian National Railway Co., Onex Corp., Power Corp., SNC-Lavalin Group Inc. and Suncor Energy Inc. Taken together, those 389 companies account for 14 per cent of the combined listings on the TSX and TSX-V. Citing privacy restrictions protecting tax filers, Ottawa has refused to release a full accounting of CEWS subsidies paid....

"Several companies did not disclose the subsidy amounts they received. And companies such as Bombardier Inc., which reported in securities filings it had received payments, had no direct name matches for itself or any of its wholly owned subsidiaries in Ottawa's online listing, and were excluded by our methodology."

The Globe investigation found that many of the 389 big companies it investigated "weathered the pandemic with relative ease, despite qualifying for assistance under CEWS." In fact despite qualifying for CEWS and receiving government payments, half of the big companies suffered no loss of revenue (gross realized income) during the second quarter of 2020 compared to the same period in 2019 with one quarter of the companies having higher revenue. The investigation showed that the third quarter was even better for many of these big companies with only a third suffering any kind of decline in gross income.

The Globe writes, "The picture was similar for profits. Income from continuing operations in the second and third quarters grew for a large minority of public companies receiving CEWS payments. Only a bare majority of companies saw profits slip compared to the same periods in 2019, even as the country suffered its sharpest downturn since the Great Depression.

"The industrial products and services sector topped the list of publicly traded CEWS recipients, accounting for 22 per cent of them; that category includes TFI. Technology companies made up 16 per cent, even though some benefited greatly from a surge in e-commerce during the pandemic. Oil and gas companies, already suffering before the coronavirus struck, accounted for another 15 per cent of recipients. The remainder -- including mining, life sciences, consumer products and services, and many more -- were under 10 per cent.

"Ottawa's public-facing data fail to give a full picture of how companies with subsidiaries have accessed the program. The 389 public companies in the Globe database accounted for 1,542 separate subsidies, reflecting payments to their wholly owned subsidiaries. But those subsidiaries were not linked to their parent in the searchable list that the government has since taken offline. Now, there is only a limited search function that allows users to input a specific company name to see if it has received CEWS funds.

"Clearly, wage subsidies flowed not just to companies that were struggling but to many that were strong enough to withstand the pandemic downturn on their own. Without a full public accounting from Ottawa, it's impossible to determine how many billions of dollars were needlessly spent. But it is certain that the cost of CEWS has climbed far higher than first anticipated."

This raises a question that working people should discuss. Should governments "save" struggling private companies and their owners? Has that become the role of governments in the imperialist economy using excuses such as saving jobs and rescuing the economy from recurring crises? Should public resources be marshalled to save the private interests of the rich instead of finding an alternative that solves longstanding problems and serves the common good and not the narrow private interests of a tiny minority who in fact exploit the majority?

The Globe suggests a design flaw in CEWS meant that it could be exploited by big companies that used it to pad their bottom line. It writes, "Ottawa chose not to limit CEWS to small businesses. Nor did the government only pay subsidies for workers whose jobs were at risk of being eliminated. If a company qualified, salaries for all its work force -- even in the executive suite -- were at least partly subsidized. And CEWS allowed subsidiaries to qualify, without taking into account the resources or financial performance of their broader corporate entity."

The Globe writes, "The wage subsidy program -- which, to be more accurate, is really a payroll rebate program -- was Ottawa's second attempt at a bailout of businesses threatened by the combined economic blows of the pandemic and the resulting lockdowns."

CEWS expanded who could apply for subsidies. "Not only small businesses with limited cash flows would be supported, but companies of any size could get in line....

"There was no corporate equivalent of a needs test. The ability of companies to absorb a temporary downturn was not incorporated into the determination of subsidies.... [Nor was] the ability of large companies to tap capital markets, or to simply redeploy cash from profitable subsidiaries to struggling ones....

"CEWS did not place any limits on how companies used the funds.... Ottawa declined to impose such rules and restrictions, even as it revised, expanded and extended CEWS several times past its original 12-week lifespan. But that didn't keep Chrystia Freeland ... from implying that the Liberals had done so.... She doubled down in March, saying, 'It is important for companies to understand that, legally, the wage subsidy can only be used to pay employees. It can't be used for any other purposes.'"

"In fact, there are no such rules in the legislation implementing CEWS. Indeed, the structure of the program doesn't even make such a scenario possible."... 

"[CEWS] reimbursement claims don't have to be made immediately. Under the rules of the program, companies could have waited until early February 2021, to submit applications for the initial reimbursement period in May 2020. Whether they hired or laid off workers in the intervening eight months was irrelevant. [...]

"Beyond the issue of including large companies, the program did not distinguish between stand-alone operations and wholly owned subsidiaries of conglomerates. In the case of TFI, the trucking conglomerate, the company's package and courier business was allowed to collect subsidies in the third quarter even though its logistics business revenue rose, in part, from the explosive growth in e-commerce during the pandemic. All told, 20 different corporate entities wholly owned by TFI received CEWS payments. TFI declined a request for comment.

"But TFI barely cracked the list of the top 20 companies with the most subsidiaries accessing CEWS. Corus Entertainment Inc. headed that list, with the parent company and 79 of its wholly owned corporate entities receiving a total of $40.2 million in subsidies in 2020. BCE was second, with 63 wholly owned subsidiaries; together, the parent and its subsidiaries received $122.9-million. (The company only disclosed that figure in a lobbying registry filing, saying that the subsidy amount was not large enough to merit a mention in its financial filings.)

"Another flaw that has become evident in hindsight is the ability of companies to make subsidy claims for what turned out to be extremely limited downturns in their business. A case in point: Montreal payment processing company Lightspeed POS Inc., whose stock market value grew by more than $9 billion during the pandemic, as independent retailers and restaurants signed up in droves for its payment software that allows clients to process sales online.

"Lightspeed collected U.S.$7.26 million in CEWS payments, largely because of a fleeting decline in revenue from March to June, 2020. It was the only quarterly revenue drop the company suffered during the pandemic -- a meagre decrease of U.S.$100,000. The wage subsidy it claimed was, in effect, 70 times greater than the shortfall.

"Overall, Lightspeed's revenue surged by 79 per cent in 2020. And it became one of the best performing Canadian tech companies in 2020 because of the pandemic. The company also listed on the New York Stock Exchange last September, a blockbuster debut that garnered it U.S.$332 million in gross proceeds."

Surge in Corporate Profits During Pandemic

The Globe writes, "Beyond those anecdotes, [University of Toronto economist Michael Smart] points to the surge in corporate profits in the third quarter of 2020 as proof that CEWS overcompensated businesses. Corporate profits normally take a severe hit in a recession, declining by as much as half, he says.

"Not so during the pandemic. In the third quarter, aggregate corporate profits on a seasonally adjusted basis as counted by Statistics Canada's quarterly national accounts were $12.1 billion higher than in the fourth quarter of 2019, the last full pre-pandemic quarter. By the end of the third quarter, the economy was rebounding sharply from its freefall in the spring, with GDP just five per cent below the pre-pandemic levels of February -- although that recovery was uneven between sectors.

"Government subsidies to business, including CEWS payments, were $22.6 billion. A separate tally of CEWS by the government pegged the third-quarter costs of the program at $21.3 billion.

"Prof. Smart says that means that about half the subsidies paid to businesses amounted to overcompensation, since they increased corporate profits beyond pre-pandemic levels.

"The same pattern emerged in the fourth quarter when, according to Statscan, total corporate profits were $10.9 billion higher, with subsidies slightly lower at $10 billion. That meant profits had recovered almost entirely to pre-pandemic levels, and subsidies simply bulked up the bottom line. 'There's exactly one explanation for it: CEWS,' Prof. Smart says."

CEWS Paying For Scabs

Co-op Refinery workers rally, January 7, 2020. The refinery used CEWS money to pay for scabs to replace the locked out workers.

Another egregious example does not appear in the Globe report but in PressProgress. CEWS money was used to finance scab mercenaries to replace workers who had been locked out at the Co-op Refinery in Regina, Saskatchewan. CEWS money went to pay for scabs, many of whom were being brought into the refinery by helicopter and housed there to operate it in place of the 750 locked-out workers. This struggle went on for seven months during the pandemic. The company lockout of workers reduced production and therefore its revenue, which made it eligible for public money from CEWS to pay the professional strikebreaking and labour-trafficking companies that supplied the scabs.

PressProgress quotes Amir Mawani, a York University business professor currently researching CEWS who said Canadian unions are right to be concerned about these forms of company subsidies. "You would not have to explain why your revenues went down," Mawani said. "It could be COVID, it could be a picket line, it could be oil prices going down. That should be the labour union's concern: that the very act of a lockout is making [the employer] eligible, which perhaps without the lockout, they would not be eligible."

Mawani explained that companies traded on the stock market do not have to include CEWS income in quarterly reports if the amount of money is deemed "immaterial," or insignificant in relation to the overall budget. Non-traded companies do not have to release public reports at all. "CEWS is not really a wage subsidy, it's a business expense subsidy," Mawani said.

PressProgress reports that the refinery in Regina was not the only one that used CEWS money to attack its workforce during a strike or lockout. It writes, "Federated Co-operatives Limited and several of the contracting companies it employed during the lockout appear in the CEWS database" -- along with many other employers who had labour disputes in 2020. The Canada Revenue Agency has received 1,200 complaints about companies misusing CEWS.

 Workers were locked out at CESSCO Ltd., an Edmonton metal fabrication shop, in June 2020 in an effort to force them to accept deep cuts to their wages and pensions. The company used replacement workers during the lockout at the same time as it received assistance from the CEWS program.

"University of Saskatchewan political science professor Charles Smith says this 'scab loophole' is one of many methods the wage subsidy allows employers to prioritize profits over their own workers."

The Trudeau government's CEWS program has for its aim to preserve the power, social wealth and class privilege of the ruling oligarchs and block any discussion or momentum towards a new direction for the economy. It proves yet again that nation-building in the twenty-first century is the social responsibility of the working class in opposition to the control and rule of the global oligarchy and its governments. A first step in this new direction is to organize the forces of the working people in a broad movement to stop paying the rich, increase investments in social programs and make Canada a zone for peace with an anti-war government.

(Photos: Unifor, Boilermakers 146)

This article was published in

Volume 51 Number 6 - June 6, 2021

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