Trudeau’s Covid-19 Spending Was Tilted to High-Earning Canadians

(Bloomberg) -- Canada’s highest-earning families were the biggest beneficiaries of Prime Minister Justin Trudeau’s pandemic aid, potentially opening his government to criticism that its programs were wasteful.

The top 20% of income-earning families received an average of C$6,728 ($5,577) from emergency Covid-19 assistance programs, according to data provided to Bloomberg by Statistics Canada. The lowest-earning households got C$4,097 in aid, on average.

All told, the bottom 20% of earners got just 14% of the C$95.2 billion in direct government transfers related to Covid-19 last year, data from the statistical agency show. The numbers may fuel concerns that Canada’s pandemic support -- among the world’s most generous, and financed with hundreds of billions in new debt -- was indiscriminate as officials funneled cash to dozens of different groups, and ended up being hoarded in bank accounts.

“These data are suggesting that, perhaps inadvertently, some of those emergency benefits ended up supplementing those excess savings of higher-income households,” said Jennifer Robson, a professor of political management at Carleton University in Ottawa who has advised the Trudeau government.

Government officials and many economists have brushed off criticism that Canada’s programs were too expensive, saying Trudeau’s top ministers didn’t have the luxury of precision last year when they rushed to prevent a depression. The disproportionately small share going to low-income earners also raises questions about the progressivity of the spending, potentially troublesome for a government focused on reducing income inequality.

Speed ‘Critical’

The government’s focus was on lost income and most economists give the prime minister high marks for acting quickly, even if it provided cash to households that didn’t need it. One of the key policies was the Canada Emergency Response Benefit, or CERB, which gave C$2,000 a month to those who lost income because of the virus. Another measure gave students C$1,250 a month if they were unable to find work.

“Speed was critical. Paying people to stay home from work was the public-policy objective,” Trevor Tombe, an economics professor at the University of Calgary, said by phone. “CERB was there not to achieve equity and distributional goals, but to achieve public-health objectives.”

Finance Minister Chrystia Freeland’s office declined to comment on the data.

As a share of their income, lower-earning families did see large benefits. Thanks to the government aid, the lowest earning families recorded an 18% increase in disposable income last year -- the highest among all income groups. The poorest households also recorded the biggest increase in net worth, though still small in absolute terms. A C$500 weekly check means more to a poor household than it does a rich once.

But the spending was financed by massive increases in debt, an argument against also handing out cash to well-off recipients. For one, Canadians have largely hoarded the handouts, particularly among high-income earners.

The average top-earning families saved C$58,429 last year, according to Statistics Canada, an increase of nearly C$18,000 from the previous year. Those households received $21 billion in total pandemic relief from the federal government during 2020, a windfall alongside the cash-piles they built up by not being able to spend on tourism or services.

The coronavirus crisis will cost Canada half a trillion dollars between 2020 and 2022, pushing federal government debt as a share of total output to 50%, up from about 30% before the pandemic.

Business Subsidies

The same questions are being asked about assistance to business. Many companies, too, are hoarding transfers sent from the state.

Trudeau’s government has faced criticism for making its marquee wage-subsidy program too generous. Questions on the aid prompted the heads of both the Canadian Chamber of Commerce and the Canadian Labour Congress to pen a joint editorial defending the program.

The data provided by Statistics Canada are part experimental estimates of income, consumption, saving and wealth and their sub-components by various household distributions for 2020. The transfers include the bulk of Covid-19 related programs, including CERB, which was given to nearly 9 million people.

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The upward-tilted breakdown of Covid supports is a bit unexpected since the bulk of job losses occurred in low-wage employment in high-contact service positions. One explanation for the higher take-up among the top quintile of income earners is that some of the cash was sent to secondary earners in those households, such as students or lower-earning spouses.

Lower income families also might not have qualified for some of the pandemic related programs if they were on government assistance, or didn’t lose income associated with the pandemic.

Canada’s employment insurance program is not counted in the spending tally, and many CERB recipients phased into that program in the fourth quarter of 2020, the agency said.

“Relief ought to be mirroring the trends that you see in the labor force data” Robson said. “That’s not at all what we see.”

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