Liberals and Tories wrestle over legacy of pandemic spending

This is an excerpt from Minority Report, a weekly bulletin on federal politics. If you are not yet a subscriber, you can do so by clicking on here.

One of the most impressive accounts of government activities ever produced can be found on page 254 of the Spring Budget — Table A1.13, under the heading “Canada’s Economic Response Plan to COVID-19” .

According to this table, the federal government has committed about $352.2 billion to respond to the pandemic, with almost all of it distributed over the past three fiscal years. A significant portion of that spending — $69.4 billion — was spent on health and safety measures. But the largest share — $282.8 billion — covers tax support measures for individuals and businesses.

It is, by any measure, an incredible amount of money. By comparison, the federal government spent a total of $314.6 billion on all of its many programs and initiatives in 2018-19, the last COVID-free fiscal year.

Much of that pandemic spending went to programs that were designed on the fly and implemented in weeks — programs like the Emergency Response Benefit and the Wage Subsidy. And a lot of that money was spent very quickly – $209.7 billion was doled out in the 2020-21 fiscal year.

The Liberal government made the conscious choice to prioritize speed over accuracy. Given the circumstances, he decided it was more important to help Canadians than to ensure that every dollar went only to those who absolutely needed it. Verification of beneficiary eligibility would come next.

So it’s no surprise that at least some of that support ended up in the hands of people and business owners who technically didn’t deserve it.

But last week’s report from the auditor general is always an important part of a meaningful debate about the legacy of extraordinary government actions during an extraordinary emergency.

The mixed results of the AG

This report was not a complete repudiation. In fact, the report summary starts on a rather positive note for the government.

“With its response to the COVID-19 pandemic, the Government of Canada has set itself the goal of helping Canadians as quickly as possible. The COVID-19 emergency programs we audited achieved this goal,” Karen Hogan wrote.

“They quickly offered financial relief to individuals and employers, prevented an increase in poverty, eased income inequality and helped the economy recover from the effects of the pandemic.”

That’s essentially the government’s argument – that the support eased hardship and allowed the economy to rebound quickly from the forced pandemic shutdowns. While alimony payments have made it easier for people to stay at home, these programs have likely also reduced the number of people infected with COVID-19.

But after reviewing $210.7 billion of total spending, the auditor general also found that at least $4.6 billion went to people and businesses who weren’t entitled to it. She flagged an additional $27.4 billion that requires further investigation. The government has so far recovered about $2.3 billion from ineligible recipients, but the auditor questioned whether the Canada Revenue Agency’s plan to review the payments was good enough.

These are the conclusions the Tories understandably seized on this week – Conservative Leader Pierre Poilievre used the word “waste” nine times in the space of four questions in the House of Commons on Tuesday.

Much of the “waste” issue hinges on how much more of that $32 billion the federal government ultimately claws back. But the Auditor General’s report is more valuable to Poilievre as part of a larger argument – ​​that the government overspent and thus triggered the inflation that is currently raising the cost of living for Canadians.

For conservatives, this argument has three potential advantages. He both blames the government for what is currently causing stress to Canadians and undermines the government’s argument that it has done a good job in responding to the pandemic. It also advances Poilievre’s main political idea – that government does more harm than good whenever it actively tries to do something.

The Rhetoric and Reality of Inflation

When it comes to inflation, the picture is more complicated than Poilievre’s attacks suggest, though not as straightforward as liberals would like.

New analysis from Scotiabank’s chief economist suggests that global factors explain 85% of the inflation experienced by Canadians. But the federal support – which may have been too generous – likely contributed to “excess demand” and thus forced the Bank of Canada to raise interest rates a bit more than it otherwise would have.

There is always a counterfactual to consider. If so, according to a Statistics Canada estimate, Canada’s poverty rate would have risen to 11.6% in 2020 without government support. Instead, it was 6.4%. Untold long-term economic damage would have occurred had the government not acted.

The Conservatives would probably answer that they would have done nothing — they would have simply spent less. But how much less? And how? What would be the economic and inflationary consequences of this imagined alternative? There are almost always compromises. Under a Conservative government that placed more emphasis on accuracy, speed of delivery could have suffered.

And anyone doing post-expenditure analysis must also admit that they are dealing with a perfect setback that was unavailable to government officials in 2020 and 2021 when the country faced a truly unprecedented crisis.

These finer details and nuances could be lost as the debate boils down to one side screaming “reckless spending!” while the other chants “Supporting Canadians!” But a true calculation of the federal government’s extraordinary spending during the pandemic would also deal with the practicalities of how and why those benefits unfolded the way they did.

The Inglorious Work of Better Government

The Canadian Emergency Response Benefit (CERB) was needed, not just because of pandemic-era shutdowns, but because the EI system was unable to quickly and effectively deal with a drop as important to employment. The Auditor General also found that the CRA was limited in the degree of control it could perform for the wage subsidy due to a lack of access to real-time tax and wage data.

Such facts argue in favor of relatively unglamorous things like Employment insurance reform and initiatives to improve the federal government’s technology infrastructure — such as the current “ePayroll” and “benefits delivery modernization“programs.

There’s very little political benefit to such things, mind you. Playing with systems and structures carries risks. Changes to IT can lead to cost overruns and embarrassing complications. The Phoenix payroll fiasco. Making government more nimble, responsive, and efficient won’t get you exactly any votes in the next election.

But governments should be able to act with great speed and precision, pandemic or not. This should be something Liberals and Conservatives can agree on.