In the current crisis, it is important to put a “financial floor” under individuals to prevent avoidable hardship and to protect the health of vulnerable Canadians who are at greatest risk from COVID-19. The Canada Emergency Response Benefit (CERB) and other emergency relief measures have largely done a good job in this respect, but some Canadians still need help to access this relief. Many households that have lost jobs and income also need help to avoid taking on new debt they will have trouble repaying later and to build a financial plan so they, too, can participate in Canada’s post-COVID recovery and build their resilience against future shocks.
Canada’s governments have responded with extraordinary speed, focus and unanimity of purpose to mobilize an extraordinary range of measures to financially stabilize households, jobs and businesses and to address the needs of vulnerable Canadians. But for these programs to work, we need to ensure they are reaching the Canadians who need them. This means making sure there is information and help available to tax file and to navigate new benefits, as well as retain existing ones.
We also need to make sure that people can get the financial help they need to build a budget and financial plan to get them through the crisis and build their financial health post-recovery. These steps will help ensure that Canadians are financially able to stay home safely now and have the financial confidence they need to participate fully in Canada’s economic recovery when the time is right.
Economic recoveries depend on the confidence of consumers, and their willingness to resume spending, which fuels broader economic growth. One of the reasons for their historically slow recovery from the Great Recession, according to the US Federal Reserve, was high household debt going into the recession and the subsequent race to pay it down after the crash, which acted as a brake on consumption and recovery efforts. Canadian household debt-to-income levels currently exceed those of US households on the eve of the Great Recession, with delinquencies trending upward even prior to the pandemic. Without help to get household debt under control, there is a risk that Canadians, too, will postpone spending to pay down their debts and prolong the current downturn.
Over one-third of Canada’s labour force affected
April 2020 saw Canada’s largest ever recorded monthly loss of jobs at just under 2 million and over one-third (36.7 percent) of the potential labour force did not work or worked less than half of their usual hours. While employment losses have affected both full- and part-time workers, the greatest impact has been on part-time workers, who saw a 29.6 percent cumulative decline in jobs in February through April versus 12.5 percent for full-time workers.
Low-wage workers have been disproportionately impacted. In March and April, employees earning under two-thirds of the 2019 annual median wage saw a 38.1 percent drop in employment compared with a 12.7 percent drop for all other employees.
While May saw a rebound in the labour market, with 10.6 percent lost employment and work absences recovered, as of June 21, over 8.6 million Canadians had applied for the CERB to replace employment income lost to COVID-19. By early April, three in 10 (29 percent of) Canadians were also reporting that the crisis was having a moderate or major impact on their ability to meet financial obligations or essential needs, such as rent or mortgage payments, utilities and groceries.
Many Canadians were already financially vulnerable pre-crisis, with 43 percent of Canadians living paycheque-to-paycheque, just under half of Canadians (48.8 percent) lacking enough savings to stay above the poverty line for three months, average household debt at 175.9 percent of annual income, total household debt exceeding Canada’s GDP at 101.7 percent, and personal insolvencies at their highest level in a decade and rising.
Getting benefits and financial help to Canadians who need them
So, what can be done to help Canadians financially weather COVID-19 and participate in the post-pandemic recovery?
Making sure the emergency benefits provided to affected Canadians are reaching and helping them as they are intended should be a primary consideration. We also need to ensure that Canadians with low incomes continue to receive the benefits they relied on prior to the pandemic. However, systemic and personal barriers mean that many people need help to navigate tax filing and benefit processes – help they used to get from community services that are now shuttered or operating at a reduced level.
According to the Canada Revenue Agency (CRA), 200,000 low-income Canadians who rely on community tax clinics have not yet e-filed their 2019 taxes. Many of these individuals may be at risk of losing important government benefits if they do not file by September 1.
For Canadians with low incomes, tax filing is a direct gateway to many income and tax benefits or the means by which they establish eligibility for other non-tax subsidies and in-kind supports that enable them to make ends meet each month. According to the Canada Revenue Agency (CRA), 200,000 low-income Canadians who rely on community tax clinics have not yet e-filed their 2019 taxes. Many of these individuals may be at risk of losing important government benefits if they do not file by September 1. The CRA has rapidly approved new virtual tax filing rules for community tax clinics, but reports that only about 250 of 3,500 community tax clinic providers are currently operating. Consequently, it is likely some individuals will not find the help they need to file.
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The federal government has announced that recipients of Old Age Security, Guaranteed Income Supplement, Canada Child Benefit, and Goods and Services Tax Credit who have not yet filed will still receive their benefits until later this fall but need to file as soon as possible. However, it is not clear whether provincial/territorial governments have made comparable contingency plans for their programs that require beneficiaries to file taxes to sustain eligibility or to determine their benefit amount. Many provinces offer a wide range of such programs, many of which automatically terminate payments if updated income data is not submitted on time. Federal leadership in urging provinces and territories to make contingency provisions for those who need more time to tax file is imperative.
The federal government should also invest in the development of toolkits and training to quickly scale up delivery of the new virtual tax clinic model so that community organizations can once again deliver CRA’s Community Volunteer Income Tax Program safely and securely to the growing number of Canadians who need it.
As well, the federal government should invest in the development, delivery and promotion of similarly virtual (phone and online) benefit navigation and financial counselling services. These services would help Canadians access emergency benefits and relief, avoid taking on unnecessary debt, and build a financial plan to weather the current crisis and participate in the recovery. Investments in leading nonprofit financial empowerment organizations with an established track record in providing quality financial help services could help to get these services up and running quickly, with the potential to scale province-wide in some cases. Funding for additional organizations targeting underserved regions and groups could help to ensure services are equally accessible to everyone.
Maintenance and promotion of a one-stop online information portal for all COVID-19 emergency benefits and relief measures should also be a priority, to make it easier for Canadians to find and access benefits and relief offered by federal, provincial and territorial governments and major banks, credit unions, utilities, and telephone and internet service providers. For many people this information will be all they need. For those who need more help, though, the portal should direct them to nearby or virtual help services to help them get to the finish line.
Maintenance and promotion of a one-stop online information portal for all COVID-19 emergency benefits and relief measures should also be a priority, to make it easier for Canadians to find and access benefits and relief offered by federal, provincial and territorial governments and major banks, credit unions, utilities, and telephone and internet service providers.
The federal government should also engage provincial/territorial governments and encourage them to resist the temptation to claw back all or part of CERB payments under provincial income benefit, tax credit, and in-kind service programs during the crisis. Few people participate in just one provincial program, and cumulative clawbacks across multiple programs can come close to or even exceed the total CERB amount, leaving beneficiaries little better or worse off and potentially lead to destabilizing events such as steep rental increases in rent-geared-to-income housing or loss of drug insurance coverage or childcare subsidies. The goal – and effect – must always be to help individuals and households to achieve stability and reduce their need to leave home to seek services or to go to work when this might place lives at risk.
To be credible, though, the federal government must lead by example, by exempting CERB from clawbacks under the federal Guaranteed Income Supplement program for low-income seniors, just as some provinces have already done with social assistance at the federal government’s request.
Importantly, the federal government should also pursue innovations to make tax filing easier for low-income Canadians.
They should work with nonprofit, business and provincial government partners to pilot options like assisted self-filing to teach people how to file their own taxes, or automatic filing by CRA of taxes for people with no earned income enrolled in social assistance or provincial disability support programs. These types of solutions would make life more manageable for vulnerable people and free up community resources to support low-income tax filers with more complex tax situations.
Finally, the federal government should support the expansion of tax filing, benefit navigation and financial counselling services in communities across Canada to ensure that people have the help they need through recovery and on an ongoing basis, similar to the approaches taken by governments in the UK, Australia and New Zealand, which are well ahead of us in building the financial health and resilience of their citizens.
These actions are needed to help Canadians navigate the current crisis and to support the recovery to follow, but they will also be important over the longer term. They are an early step in building a stronger safety net to support Canadians and build their financial resilience against future emergencies and economic shocks.
Enhancing the financial security of vulnerable Canadians now is the best buffer against future uncertainty for Canadians and Canada and a wise investment in everyone’s future.
This article is part of the The Coronavirus Pandemic: Canada’s Response special feature.