Too much, too soon? The politics of pandemic spending

Chrystia Freeland seemed only too happy on Wednesday to mention some recent grumbling about the Liberal government's pandemic spending over last year.

For most of 2020, the government was faced with questions about whether it was delivering financial supports fast enough and broadly enough. Now, some are wondering aloud whether the government spent too much.

"I've been surprised to read some commentary suggesting that Canadians may be doing too well for their own good," the finance minister said. "Some have pointed to rising household disposable income in the first nine months of last year as evidence that our government acted too swiftly and too effectively to support Canadians."

It will not surprise you to learn that Freeland disagrees with that take.

And if Freeland is eager to note that criticism, surely it's because she and the government know how difficult it might be for any of their political opponents to campaign against any of the specific measures the Liberals took to support Canadian households over the past 12 months.

But it remains to be seen how all that spending — and the historic deficit that resulted from it — will frame the political debate going forward.

On Monday, Statistics Canada released estimates that suggest Canadian households ended up with more disposable income through the third quarter of 2020 because of the unprecedented sums the federal government transferred to individuals through various support programs.

"Although households did experience notable declines both in wages and salaries and in self-employment income in the second quarter, the value of COVID-19 support measures provided by governments more than compensated for those losses," StatsCan said.

The gains were highest in the second quarter and proportionally larger for those with the lowest amount of disposable income in 2019.

Before April 2020 and June 2020, StatsCan estimates, the households that had less than $26,500 in disposable income for 2019 saw their disposable income increase by 33.6 per cent. For those households with more than $64,900 in disposable income in 2019, the increase in disposable income in the second quarter of 2020 is estimated at 7.1 per cent.

As of October 3, 2020, the federal government had paid out $81.6 billion through the Canada Emergency Response Benefit, which provided $2,000 per month to those who lost their jobs as a result of COVID-19 lockdowns. Beyond the CERB, the federal government also moved forward with a number of other supports, including a new student benefit (estimated to cost $3 billion) and a series of measures aimed at "vulnerable Canadians" (at an estimated cost of $14.9 billion).

More analysis is needed to fully understand the distribution and impact of government spending last year, but the basic finding — that support exceeded income losses — has been put forward before.

Tammy Schirle, a professor of economics at Wilfrid Laurier University, notes that some of those in the bottom quintile would not have been making money before the pandemic began — and so wouldn't have lost any income — but they still would have benefited from increases in the Canada Child Benefit and the GST credit, which could have helped with extra expenses.

An 'acceptable compromise'

Research conducted by Schirle and three co-authors also estimated that nearly half of the job losses that occurred between February and April 2020 were suffered by those in the lowest quarter of earners.

"Generally, there was criticism at the time that some workers with the lowest earnings would have received more income than was lost," Schirle said in an email this week, referring to the CERB.

"However, in the context that Canadians needed something rolled out quickly, and our current infrastructure for [employment insurance] would not suffice, this was an acceptable compromise in my view."

In a global emergency, too much help is likely better than too little. But the federal government may have faced a choice between moving fast and moving with precision — between making sure that people who would need money got it quickly and making sure that people only got as much money as they absolutely needed.

Social policy in a hurry

"CERB payments were flat amounts because the government did not have the capacity [in information and technology] to income-test the benefit," said Jennifer Robson, a professor of political management at Carleton who has been consulted by the government on EI reform (full disclosure: Robson is a friend).

"The choice was 'automatic' or 'income-tested.' But until and unless we build serious back-of-house capacity in our social programs, you can't have both for a crisis of this scale."

Robson also suggested that if the CERB did end up overcompensating people, the question could be flipped around to ask whether that proves too many people in this country were being paid unreasonably low wages in the first place.

The Liberal government has since transitioned away from the CERB and StatsCan's estimates show that the disposable income increases dropped off significantly in the third quarter.

John Lester, a fellow at the University of Calgary's school of public policy and a former analyst at the Department of Finance, argued in December that the government should have been quicker to deal with the issue of "overcompensation."

The threat of inflation

In her fall economic statement, Freeland suggested that increased disposable income and savings could act as "preloaded stimulus" to spur economic growth once the Canadian economy reopens.

Mikal Skuterud, a professor of economics at the University of Waterloo, said the risk is that excessive stimulus could trigger inflation, though he argues that the actual severity of that risk is a "million-dollar question that nobody knows the answer to."

For now, the political criticism is muted.

The Conservative Party has criticized the size of the deficit and Conservative Leader Erin O'Toole has noted that the Trudeau government spent more per capita than comparable countries. The Conservatives also have argued that the government should have moved faster to deliver a wage subsidy and have criticized the fact that some large, profitable companies were able to access the wage subsidy.

But they do not seem eager to make the case that Canadians got more money than they deserved or truly needed — presumably because they know how well that would go over with those Canadians who received federal support.

Ahead of a federal budget — and possibly a federal election — the larger question is how the spectre of a significant deficit will affect both fiscal policy and the political debate going forward.

Canadians might be thankful for all the support that the federal government has provided, but will they come out of this pandemic with new worries about government debt? And if so, are Conservatives interested in trying to connect with that anxiety to build support for a much more fiscally restrained approach?