As the COVID-19 crisis continues to unfold, a dilemma is emerging around the measures which should be taken to limit job loss, and rescue businesses at risk.
The federal Parliamentary Budget Officer predicts the economy could shrink by 25% between April and June, hopefully recovering later in the year. Part of this is caused by business shutdowns imposed to slow the outbreak. Part is due to a collapse in crude oil prices.
A 25% shrinkage would be three times the greatest previous contraction on record.
The PBO is also forecasting that the unemployment rate will reach 15% by late summer, the highest level since the Great Depression.
The dilemma revolves around how far Ottawa and the provinces can, and should go, to minimize the damage. If they under-respond, two million Canadians may lose their jobs in the coming months, and it is impossible to say how long this will last.
If they over-reach, they risk putting the country’s financial health in jeopardy. Public-sector efforts to prop up the economy can only go so far.
Between them, Ottawa and the provinces have pledged an estimated $175 billion in wage subsidies and other benefits. Ideally, if these measures prove inadequate, additional commitments would be made as the year progresses.
But as it is, the federal deficit is projected to grow from an earlier estimate of $28 billion in the current year, to somewhere in the range of $140 billion. That is not sustainable in the long term, meaning further cash injections, if they are required, might strain the country’s financial resources past the point of safety.
Adding to this uncertainty, there is also the reality that once major new subsidies are introduced, it may be politically difficult to withdraw them after the crisis is over. Both families and businesses will have come to count on this assistance.
A parallel of sorts exists. In the late 1960s, as the main social safety net programs were being put in place, governments at all levels went heavily into debt to sustain them. By the mid-1990s, when borrowing had reached stratospheric levels, the public purse was strained to breaking point.
But political leaders of all parties found it impossible to face the level of criticism that would have come with ending some of these initiatives.
Instead, a process of slow strangulation was imposed across the public sector. That process continues to this day, as our struggling health-care system shows.
This is the real challenge in coping with the economic consequences of the pandemic. Once you are heavily and visibly invested, it becomes politically difficult to get out.
In addition, we’re dealing with threatened levels of economic carnage that are unprecedented. Our politicians face enormous pressure to act quickly, before things get any worse, and yet there is no pre-existing playbook to read from.
The solution, if there is one, must be that the prime minister and his provincial counterparts make clear now, at the outset, how they intend to manage through this pandemic. For it’s likely that after the disease peaks, and hopefully declines, we’ll continue to see new cases, perhaps throughout the summer.
Indeed, in the worst-case scenario, as B.C.’s provincial health officer, Dr. Bonnie Henry, is warning, the outbreak may return in the fall. Then what?
We need to hear a longer-term strategy than our political leaders have so far articulated. Making things up on a day-to-day basis is a recipe for trouble down the road.
In the midst of a crisis, knowing how to respond is no easy task. We understand that.
Yet, Canadians are a resilient people. If our politicians level with us, we’ll get by just fine.
