Canadians’ incomes took a huge hit this spring, declining $27 billion in the second quarter compared to the first, according to Statistics Canada data crunched by Scotiabank economists. But at the same time, government transfers to households — such as the Canada Emergency Response Benefit — rose by more than double that amount, up $56 billion.
As a result, household disposable income — spending money — climbed $36 billion compared to the first three months of the year, a 10.1 per cent increase, quarter over quarter.
We saved a lot of it. The savings rate, normally it’s in the single digits, climbed to a sky-high 26 per cent.
But at the same time, the federal deficit exploded in April, May and June to $120 billion, compared with just $85 million a year earlier.
In short, the pandemic spring saw us stay home, shut down our businesses, stop our spending, hunker down and collect government income support. The various programs far more than offset our personal losses so that we wouldn’t be tempted to venture out to work, running up government deficits to eye-popping levels.
Many of us tucked that money away, especially if we were well-off to begin with.
“The fiscal spending had a big role here,” says Rebekah Young, fiscal economist at Scotiabank. “From an economic position, we certainly averted the worst.”
Now, things are turning around quickly, surprising even the optimists about the recovery. More than half of the lost jobs have returned, stores and businesses are reopening, homebuyers are flocking into the market.
At the same time, billions more in government support is still gushing into households and businesses. The federal wage subsidy will run until the end of the year. The $19 billion in federal “safe restart” money for the provinces has yet to flow, not to mention the $2 billion in back-to-school money announced this week. And just last week, the federal government announced a $39-billion plan to extend and then replace the Canada Emergency Response Benefit with a revamped Employment Insurance program.
Did the government overdo it?
It’s hard to see how it could have worked any other way. The pandemic has hurt low-income and precarious workers the hardest, and the federal government had to move swiftly and generously to make sure those vulnerable groups were not penalized twice. Pausing to income-test and fine-tune government support would have meant a tragic spring for those already struggling.
And the government support and savings should stand us in good stead to face some subpar times ahead.
Despite recent signs of a quick, initial recovery, it will still take many more months to completely climb out of the hole the pandemic dug into our economy, economists say.
Deferred mortgage payments, emergency loans are coming due, and rent support is falling off. Business investment is still tepid. Some experts fear a second wave of unemployment, regardless of whether there’s a second wave of the pandemic. And of course, if the second wave of pandemic requires a retrenching, all bets are off.
At some point soon, the federal government will need to decide how and when to turn off the taps, how to calibrate income support so that it only goes to those who need it, and how to solidify the reopening of businesses and the jobs they bring.
But in the meantime, officials in the Prime Minister’s Office say Canadians are still writing to Justin Trudeau by the thousand, thanking him, criticizing him, asking for more, telling their personal stories. But we can be sure we won’t need to ask him to make sure we’re fully clothed.
Heather Scoffield is the Star’s Ottawa bureau chief and an economics columnist. Follow her on Twitter: @hscoffield