Federal budget 2021: Program extensions, new hiring subsidy for small business

West Block
Editor's Note

Join the Ottawa Board of Trade, the Ottawa Business Journal and its partners for a virtual edition of the Post-Budget Breakfast for a closer look at what the budget means for you and the National Capital Region. Read more here.

The Liberal's budget measures for small and medium-sized businesses include pandemic-related program extensions and funding boosts even as the government rolls out a $15 federal minimum wage.

The federal budget unveiled Monday plans to extend – then gradually wean businesses off – the pandemic-triggered programs while phasing in new measures.

The Liberals are extending rent and wage programs while at the same time phasing in hiring subsidies, microgrants to help companies move online and allowances for capital investment expenditures.

The goal, Finance Minister Chrystia Freeland said in a prepared version of her budget speech, is to “punch our way out of the COVID recession” and ensure small businesses remain the heart of the economy.

“While many big, multinational companies have actually prospered during this low-interest rate COVID year,” the budget reads, “our small businesses have been battered.

“Healing the wounds of COVID requires a rescue plan for them.”

The budget – the first in two years and the first since the onset of the COVID-19 pandemic – comes as small businesses once again contemplate closures, bankruptcies and layoffs as the country struggles with shutdowns related to a more virulent third wave of the virus.

Prior to the release of the budget, the Canadian Federation of Independent Businesses warned that more than 181,000 businesses, or one in six, are at risk of closing over the next year. The organization estimates such closures would result in the loss of about 2.4 million jobs.

Business-specific budget supports begin with extending the wage subsidy, the rent subsidy and its lockdown top-ups to Sept. 25, while also expanding the timeframe on income support programs for Canadians with the virus taking sick leave, in isolation or caring for children and family.

The extension of the wage subsidy and rent subsidy with lockdown top-ups is expected to cost $10.1 billion and $1.9 billion, respectively. The rate of both will gradually be decreased starting in July, as vaccinations become more widespread.

“The wage subsidy extension is prudent, given that there's a lot of uncertainty around the vaccine rollout, but once you start to apply the policy, it just gets very difficult,” said Pedro Antunes, chief economist at the Conference Board of Canada, a non-partisan think tank.

“When we look back on these programs years down the road, maybe the criteria to qualify ... should be tightened up a little bit.

“In any case, the money's out there now.”

As the wage subsidy winds down, the government plans to introduce the Canada Recovery Hiring Program to offset the cost of increasing worker hours or hiring additional staff as businesses reopen.

The new program is expected to cost $595 million and will involve a subsidy of up to 50 per cent between June 6 and Nov. 20 for a maximum of $1,129 per employee per week.

Eligible employers will be able to claim either the hiring subsidy or the current wage subsidy for a particular qualifying period, but not both and the hiring subsidy will not apply to furloughed staff.

Digitization microgrants

The government will also spend $4 billion on the Canada Digital Adoption Program, which will create a “Canadian technology corps” of 28,000 young Canadians, who will be trained and deployed to help as many as 160,000 small businesses move online and offer e-commerce.

These businesses will be eligible for microgrants to support digitization. For companies farther ahead with technology adoption, there will be access to advisory support.

The budget also proposes allowing immediate expensing of up to $1.5 million of eligible capital investments by Canadian-controlled private corporations made on or after budget day and before 2024 to free up cash that can be used for job creation.

Liberals propose luxury tax on pricey cars, boats, planes

They will be paired with improvements to the Canada Small Business Financing Program, which will now include lending against intellectual property and start-up assets and expenses, a maximum loan amount from $350,000 to $500,000 and a new line of credit to cover short-term capital needs.

But the budget will not be without costs to businesses. The government will implement a $15 minimum wage for federally regulated employees that will rise with inflation and include provisions to ensure that where provincial or territorial minimum wages are higher, that wage will prevail.

The government says the measure will benefit more than 26,000 workers – 36 per cent of them newcomers or immigrants – making less than $15 an hour, but previous provincial minimum wage hikes have squeezed small businesses with the added cost. Often, those costs are passed along to consumers.

Governments argue that minimum wage hikes force stimulus from businesses, but Antunes said a federal minimum wage increase affects relatively few people and applying will have a wide range of effects since some regions have significantly higher costs of living than others.

“I just find that the market probably settles these things better,” he said.

The CFIB spent much of the pandemic urging the government to boost its small business supports beyond what it offered, but leading up to the budget, also asked for a moratorium on new costs for small businesses, forgiveness for more small business debt, longer repayment terms for loans and hiring incentives.

It demanded the government also hold off on introducing consumer incentives to spur spending until small businesses can fully open and benefit.

While Antunes believes many small and medium-sized businesses will be pleased with the budget, he said the nature of the pandemic means it won't be a big enough lifeline for all.

“COVID-19 is going to bring some major changes, even once we get this crisis behind us,” he said. “We are going to see a lot of businesses that are not going to be viable anymore.”

Political calculations

The government will need to get at least one opposition party to support it to avoid a pandemic election this spring.

Canada's net debt is now over $1 trillion for the first time ever, after a $354 billion deficit for the pandemic year just over. It is expected to keep climbing with deficits of $155 billion this year, and $60 billion in 2022-23.

That is driven in part by more than $100 million in new spending over the next three years.

Freeland is also looking ahead to the post-pandemic Canada the Liberals want to see, one that has $10-a-day childcare, the ability to produce its own vaccines and national long-term care standards.

It also includes a greener, cleaner Canada, with a promise of more than $17 billion in climate change programs, much of it in the form of incentives to encourage heavy industry to curb their emissions and grow Canada's clean technology sector.

All of it comes with a pandemic-sized asterisk that things could still change drastically if vaccine supplies are delayed or they prove not to work that well against emerging variants of the virus. The budget includes alternative scenarios that show where the fiscal picture might go if the worst-case scenarios of the pandemic play out.