An International Monetary Fund report recently released advises the Canadian government to do a broader review of its employment insurance system to address gaps in eligibility after the Canada Emergency Response Benefit ended.
“The crisis exposed gaps in Canada’s social safety net that should be addressed,” said the report. “The lessons from the crisis represent an excellent opportunity to review the EI system.”
According to the report, the Canada Emergency Response Benefit and its wage subsidy program had flaws during the initial rollout, the report said, with workers fearing the loss of full CERB payments if they earned $1 more than the $1,000 per month cap, making the initial thresholds for the wage subsidies a hurdle for businesses.
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The report suggests Canadian officials could reduce uncertainty for consumers and businesses by tying the expiration of emergency benefits to an automatic trigger like the unemployment rate, instead of arbitrarily announcing the end of such measures.
“Benefits that abruptly expire complicate planning decisions and could increase precautionary saving. This could delay the recovery and ultimately increase fiscal costs. Clear and credible communication of the exit strategy will be key,” the report said.
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However, the IMF’s report praised the federal government and the Bank of Canada’s response to the pandemic as “timely, decisive and well-co-ordinated.” In particular, the organization said Canada’s economy would have suffered a “harmful” and “even larger collapse” without emergency benefit spending from the government. It also noted the Bank of Canada helped the country avoid major disruptions in financial markets and is striking the right balance on interest rates.
But Canada’s response at both the federal and provincial levels also contributed to a “historically large fiscal deficit,” although the report said Canada’s net public debt is expected to remain low relative to other G7 countries.
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“Economic and social restrictions put in place since March 2020 have helped to mitigate the first and the second wave of the virus, but they came at significant cost,” the report said, noting that the economic rebound slowed during the second wave of COVID-19 infections and “Canada still needs to boost its productivity.”