Although the CEWS is billed as a wage subsidy program, in reality it’s a payroll subsidy that is poorly targeted and has spent billions of dollars unnecessarily

Thousands of companies that are part of large corporate groups with deep pockets have tapped into the Canada Emergency Wage Subsidy program, demonstrating that the coronavirus aid program is poorly targeted and has spent billions of dollars unnecessarily, says an analysis of recipient data.
The federal government has pointed to the CEWS program as a keystone in its effort to buoy employment during the pandemic, saying it preserves the connections between workers and their employers, and minimizes economic disruption.
Although it is billed as a wage subsidy program, CEWS is in reality a payroll subsidy: The government pays a recipient company up to 75 per cent of the salary of its employees. The CEWS program has been widely accessed since it launched in early May, with $55.42-billion disbursed as of Dec. 20 to more than 330,000 companies, according to a registry set up last month.
Story continues below advertisement
Those companies range from the smallest businesses in Canada to some of the largest, and span all parts of the economy. What they have in common is that they are able to demonstrate that their revenue declines met the evolving thresholds for qualifying. There is no need for companies to demonstrate that they need the cash to continue to operate, and no requirement that they forswear layoffs (although they would not receive subsidies for those eliminated jobs) and no restrictions on how they use the subsidy funds.
Its that issue of targeted subsidies, or the lack thereof, that University of Toronto economist Michael Smart, along with researcher Nick Mahoney, examined in their analysis of the registry data, published on The official database simply lists the operating and incorporated names of recipients, with no information on their corporate relationships.
However, Prof. Smart and Mr. Mahoney correlated the government CEWS registry with a Statistics Canada database on corporate registrations, discovering that 4,170 companies about 1 per cent of all recipients are part of large corporate groups with at least $600-million in assets.
Those companies include publicly traded corporations such as Suncor Energy Inc., SNC-Lavalin Inc. and Rogers Communications Inc. Also among those 4,170 recipients are the Canadian subsidiaries of multinational companies, including 11 entities wholly or partly owned by Berkshire Hathaway Inc., Warren Buffets famed investing company. And the list includes companies owned by some of Canadas most wealthy families, including the Irving, Péladeau and Thomson families. (The Globe and Mail is owned by the Thomson family holding company, Woodbridge Co. Ltd.)
The government has not released the subsidy amounts for individual recipients, although Prof. Smart and others have urged it to do so. However, he estimated that roughly $20-billion in CEWS payments were made to companies with more than 250 employees.
Ottawa did not restrict access to CEWS on the basis of corporate size and did not exclude multinational subsidiaries, meaning large companies, and their corporate components, were able to access the CEWS program.
The government defended its broad approach to eligibility, saying its goal was to protect the jobs of Canadians, no matter the corporate composition of their employers. The program, which has helped four million Canadians stay on payroll, applies to businesses of all sizes and across all sectors, to ensure that no worker falls through the cracks, Katherine Cuplinskas, a spokesperson for Finance Minister Chrystia Freeland, said in a statement.
Story continues below advertisement
Prof. Smart said it is understandable that Ottawa took a broad approach in the early days of the CEWS program, but that it should take steps now to narrow eligibility. The question I want to ask is if the rules need to be tightened for the money to be spent better.
He argued that large companies and their subsidiaries are able to weather the coronavirus on their own and that wage subsidies too often flow through into dividends, or share repurchases. Other CEWS recipients, such as foreign-owned airlines, have received subsidies in Canada even though their parent companies have been the beneficiaries of bailouts in their home countries.
But there is a targeting issue even for small and medium-sized companies, Prof. Smart said. Thats because the CEWS program subsidizes all jobs in a qualifying company, not just the ones at risk of being lost. He said the vast majority of jobs being subsidized were not at risk of being lost, even if there were no CEWS program.
That means that the overall cost of subsidies is much higher than if the program was limited to at-risk jobs. Prof. Smart has estimated that it costs the government $14,500 to save one workers employment for a month because of the lack of targeting.
He noted that wage subsidies in some European countries are triggered only when a workers hours are reduced, and flow to the employee.
He said the government could increase subsidies for more vulnerable businesses in coming months if it focused the program on smaller corporations until its planned expiry at the end of June. But he warned of the perils of extending the program beyond that point, with the danger growing that Ottawa will be become a permanent guarantor against business bankruptcies and job losses. (The government has pointed to the drop in bankruptcies during the coronavirus crisis as proof of the success of its economic support programs.)
Story continues below advertisement
It might seem like a good thing to avoid the personal traumas of layoffs and bankruptcies. But artificially limiting those traumas would slow the flow of capital and workers from underperforming companies to innovators and stultify economic growth, said University of Waterloo economics professor Joel Blit. To some extent, its what refreshes the economy.
Productivity in the United States rose sharply in the aftermath of the Great Recession, he said, partly as a result of companies responding to economic stress by investing in labour-saving technology. But the CEWS program makes labour artificially cheap, Prof. Blit said, discouraging any such investment. That worry may not be much of a danger in the midst of a pandemic, but he said it should be a consideration as Ottawa evaluates the future of the program.
And he pointed to a broader concern. Theres a danger that we start to believe that its a governments job [that] there should never be another recession.
Tax and Spend examines the intricacies and oddities of taxation and government spending.