COVID ‘blank cheque’: Report finds large corporations spent billions on dividends and share buybacks while receiving government wage subsidies

Some of Canada’s biggest corporations received COVID wage subsidies while spending billions of dollars on shareholder dividends, share buybacks and company takeovers, according to a new report.

The non-profit advocacy group Canadians For Tax Fairness found 37 corporations that had received the Canada Emergency Wage Subsidy and spent a total of $81.3 billion on dividends, $41.1 billion on share buybacks and $51.1 billion on taking over other companies.

The federal government paid out just over $100 billion in claims under the CEWS program.

“The Canada Emergency Wage Subsidy (CEWS) was supposed to help businesses retain employees — not pad the profits of large corporations and shareholders,” said economist and report author DT Cochrane.

The report looked at 74 publicly-traded companies which had what the CTF calls a “tax gap” of $100 million or more. (The CTF defines the tax gap as the difference between what a company would pay on its profits at the standard corporate rate of 26.5 per cent, and what it actually paid).

Of those 74 corporations, 37 collected CEWS. But Cochrane doesn’t blame the companies for taking the money.

“Corporations have one purpose, and that’s to maximize their bottom line,” said Cochrane. “So if the government is saying ‘hey, here’s a bunch of money,’ with next to no strings attached, I’m honestly surprised that more companies didn’t take it.”

In principle, the idea behind CEWS — helping keep workers employed when they might have otherwise lost their jobs during the pandemic — was reasonable, Cochrane said. The devil, he added, was in the details, or more precisely, the lack of them.

“We don’t think that it’s necessarily wrong to flow funds to workers through their employers,” said Cochrane “but it needs to be done in a transparent and accountable way, and this program was the absolute opposite of that.”

He also pointed to the lack of reporting requirements for companies which received CEWS as a flaw in the system. Nowhere, Cochrane argued, was there any requirement for the companies to prove precisely how many jobs they were saving with the money they received.

“There should have been reporting requirements. Tell us how many employees do you have, and continue to keep us updated on the number of employees this subsidy is helping keep attached to their jobs,” said Cochrane. “It was practically a blank cheque to these corporations.”

But requiring stringent reporting would have at least partly defeated the purpose of the CEWS program argued economist Brett House: Getting money out the door quickly to ensure companies and the economy didn’t collapse.

“I think it’s important to keep in mind that government was acting under incredibly tight time constraints as shutdowns went into force, to ensure that businesses and households remained both liquid and solvent,” said House, professor of professional practice at Columbia University, and Fellow with the Public Policy Forum, Munk School, and Massey College. “Government very successfully got money out the door — and assistance — quickly. And at the time, it’s worth remembering, the critique was that it should have been faster, rather than slower and more considered.”

House isn’t affiliated with CTF and had no role in the report.

But while House decried “Monday morning quarterbacking” retroactively criticizing the design of CEWS and other COVID subsidy programs, he said the numbers compiled in CTF’s report shows that some companies may not have needed the money they collected.

“It’s right to say government did what was needed in terms of getting support out the door quickly … It’s also right and appropriate to ask ‘well, what happened here? Was there support provided that they in fact didn’t need?,’ ” said House.

Just as governments shouldn’t be faulted for pushing the subsidies out the door as quickly as possible, businesses shouldn’t be blamed for taking it at the time, said House, adding the quick economic bounceback wasn’t something economists, governments or most companies foresaw.

“Just as the government didn’t know at the time just how things would develop, neither did the companies and organizations which applied for this money,” said House. “So was it appropriate for them to apply? Absolutely, given that uncertainty.”

Still, the bounceback means that some companies likely got money they didn’t ultimately need. And that, says House, means some kind of clawback mechanism is needed, either for this time around, or when designing future programs.

“The fact things ended up turning out better in the end does not invalidate or call into question the fact that these companies applied. What it does raise is the question whether we should have some kind of clawback now on the support that was provided.”

The CTF is not the only organization to question CEWS or other COVID subsidies. In a report issued in late December, federal auditor general Karen Hogan also slammed the Canada Revenue Agency for not being careful enough that money only went to eligible companies.

“I am concerned about the lack of rigour on postpayment verifications and collection activities,” Hogan wrote in her report, which looked at six federal government COVID aid programs, which together accounted for $210 billion in spending.

Hogan found that up to $9.9 billion may have gone to companies which weren’t eligible to receive it.

But the eligibility requirements were too flimsy anyway, Cochrane argued.

“Their one litmus test was that revenues had to have declined by a certain amount. But clearly this wasn’t done at the consolidated level. So you could have a subsidiary that saw a massive decline in its revenue, but the parent company was doing totally fine,” Cochrane said.


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