[00:00:00] Jordan Heath-Rawlings: First of all, every government program has outliers. There are always businesses getting tax breaks that don’t deserve it. People who need social assistance programs, who somehow don’t qualify. Or equalization payments that well, you ask anyone who is passionate about provincial politics about equalization payments. The point is no government program as perfect, especially not the programs that were rolled out last year in a matter of weeks as the first wave of the pandemic sowed chaos and uncertainty around the world. Small businesses were closer to folding by the day and they needed help. And so in an awful hurry, the Canadian Emergency Wage Subsidy was born.
And now one year, and tens of billions of dollars later, a team of reporters is trying to figure out who got that [00:01:00] money? What did they use it for? Did they use it as intended or did the program miss the mark? There are hundreds, even thousands of Canadian businesses open today because they got that money. So that’s good. But there are also shareholders who receive dividends from profitable companies that were paid with money from the CEWS, and that’s not so great.
So what happened to the money? How hard was it to try and track it down? What did we learn from that and why wasn’t this data public in the first place?
I’m Jordan Heath-Rawlings, this is The Big Story. Patrick Brethour is the tax and fiscal policy reporter at the Globe and Mail, and he, along with several of his colleagues worked on this investigation. Hey Patrick.
Patrick Brethour: Hey there, Jordan.
Jordan Heath-Rawlings: First, for those who didn’t encounter it during the pandemic, can you just explain what the Emergency Wage Subsidy is?
Patrick Brethour: So [00:02:00] the Canada Emergency Wage Subsidy is, is one of the big programs, in fact, the biggest program that Ottawa was rolling out, uh, about this time last year, to help out businesses as the pandemic really sort of sent the economy into a tailspin. And the idea was rather than, you know, pay money to people after they’d lost their job, to try and keep them from losing their job in the first place by subsidizing their employers. Uh, and the deal was, if you keep people on staff, the government will subsidize up to 75% of their salary in order to avoid layoffs.
Jordan Heath-Rawlings: Which businesses qualified for that? Was it kind of anybody who could apply?
Patrick Brethour: Pretty much everybody. Yeah, I mean, there were, you know, there sort of were businesses out of along the way. Uh, so the very first iteration of this was, you know, a very small subsidy only for small business that lasted about a week before an uproar pushed the government to launch the, the Canada Emergency Wage Subsidy. So any company then that could [00:03:00] show that it had a 30% revenue loss for a comparable period could qualify. And then once you’d qualify, you, uh, could get, as I said, up to 75% of wages subsidized not just for employees you might’ve laid off before everybody in the company.
Jordan Heath-Rawlings: Hm. So were there any strings attached to this, uh, when companies applied? And I guess what I’m trying to figure out, you know, before we move into the rest of the, the nitty gritty here is what companies thought they were signing up for.
Patrick Brethour: So the government very conspicuously and deliberately did not place any strings on it. There were other programs in other countries like the United States where companies had to commit to keeping payroll at a certain level. It didn’t happen in Canada. There were other programs that in other countries that placed limits on dividend payments, didn’t happen in Canada. The NDP was pressing the government pretty consistently along the way to put those kinds of restrictions on. Uh, but the government didn’t, of course it [00:04:00] didn’t prevent the government from sort of hinting or pretending they’d had, but ultimately once you got the money you could do with it, as you want it to. And in reality, it’s more of a rebate than a subsidy since you’re going to be getting it weeks or months after you’ve actually paid your payroll expenses.
Jordan Heath-Rawlings: So tell me then what you guys set out to do, uh, with this investigation and how you went about it.
Patrick Brethour: So, we knew going into it, we had a sense from economists and by sort of observing a couple of examples that it was probably likely the companies got it and didn’t really need it, if by really needing it you mean, if you didn’t get the money, you would have had to have like severely cut back your business and laid off a lot of people.
And so we came at that in a bunch of ways, but one way we thought was if you’re a public company and you receive this kind of subsidy, first of all, you have access to lots of other kinds of capital. You’re, you know, you’ve got access to bank loans, you can sell shares. You know, you probably have [00:05:00] deeper pockets overall than small businesses.
So we started off with that sort of universe of companies. And then we wanted to try and figure out how many companies had had really a lasting downturn of their business. So obviously, if you look back in retrospect, if you knew that a company was only going to have a downturn for three or four or five weeks, obviously that’s not going to be a, such a huge deal, uh, especially for large companies, you know, and you could have tailored things.
None of us knew that this time, last year, that it would only be, you know, a fairly sharp, but short down term, uh. But with that idea in mind, we went and then looked at the financial records for those public companies and how they did, you know, in the second quarter of April, May, and June, and the third quarter of July, August, September, which was, which was really the sort of height of funding for CEWS.
Uh, so we went to look to see how all those companies had done and not, a bit to our [00:06:00] surprise, a large minority of them did quite well and actually, you know, had higher revenue and in many cases, higher profits than they had the year before. So that raised some big questions.
Jordan Heath-Rawlings: Can you give me some examples, um, either specific companies or general types of companies that would kind of meet that description?
Patrick Brethour: So the idea, you know, of companies that, uh, you know, that have higher revenue, generally, you know, large stable companies and industries that weren’t necessarily directly, you know, sort of targeted by health measures. So, you know, if you were a hotel. Or in retail or in accommodation, obviously you were in a world of pain, but other companies, you know, the example we led off the series with was a trucking conglomerate, which parts of its business, you know, didn’t do terribly well, but some parts, including the packages it delivered for e-commerce fulfilment, it did very well indeed.
So the company, uh, saw its bottom line improve, uh, had higher revenue, made acquisitions, paid dividends. [00:07:00] Uh, but also got, uh, millions in wage subsidies and, and also laid off people. So it was, you know, uh, an interesting example and a bunch of fronts of a company that had totally played by the rules, no question there, uh, had legitimately qualified for the money, but then went on to use it in ways that, uh, might’ve been surprising for people that thought it was a bailout of, of struggling firms to, uh, to keep people employed.
Jordan Heath-Rawlings: What did they say when you asked them about that? About how they’d use the money and why?
Patrick Brethour: Well, that, that company do declined to comment, which is, which is their right. Uh, their, uh, the union that has organized parts of their organization, it’s a conglomerate, so there’s many different companies, uh, it was none too pleased by it. And certainly the NDP talking about that kind of company was really questioning why there were loopholes that allowed someone to collect millions in wage subsidies, but still seemingly have enough money to pay dividends to [00:08:00] shareholders, uh, have enough money to make positions and, you know, and we’re allowed to lay off workers at all, even if, you know, uh, one part of their business had received subsidy and another part doing the layoffs had not.
Jordan Heath-Rawlings: You mentioned a minute ago that, you know, it was slightly to your surprise, but how surprised were you guys, really? I mean, you know, it was fascinating to read this investigation and then once we got to the part where giant companies who might have succeeded during the pandemic were using that money to pay out dividends, I wasn’t that shocked. I mean, that’s kind of what they do, right?
Patrick Brethour: So the idea that a company could have done this and it did did this, I mean that, we were pretty, you know, we knew it, there had been some examples, so we weren’t shocked by that.
I think it was the breadth of this, that it wasn’t just a small slice of companies that had done fairly well, even after receiving subsidies. That it was a, you know, a large minority, uh, you know, it was a bare majority of companies [00:09:00] that, you know, that, that really were, uh, hurting revenue and profit wise, but only about 51, depending on what period, you know, 55%.
So you had, you know, more than two in five companies, uh, doing better than in, uh, in 2020, than in 2019, and still receiving wage subsidies. So and again, I just want to sort of pause for a moment that might raise questions in people’s mind, like, “Hey, how can you be doing better and getting a subsidy?” The key here is that the subsidies were calculated on four week periods whereas we were looking at 12 week or three month period. So you could have done really, really badly in say April, but then had a pretty good May and June and more than made up that grant, which is what it would, would have happened with the companies that we were looking at.
Jordan Heath-Rawlings: Right. And I mean, I’m assuming, I remember that four week period well, like I’d be struggling to name a single business that didn’t drop 30% during that period of like intense fear, lockdown, et cetera.
Patrick Brethour: Sure, it was terrifying. We hadn’t you know, we’d stepped [00:10:00] out of the plane without a parachute and were hoping to find one on the way down. Observers’ economists have said, and I, I would tend to agree that, you know, it’s fair to cut the government slack for that, you know, that first, you know, three months of the program, when really no one knew what was going on, and, and much better to sort of err on the side of caution than, you know, than try and sort of pinch pennies, uh, at the start.
But after that, you know, first three months, you know, the government has tweaked, re-tweaked, extended, re-extended the program, really without taking any kind of serious look at the, uh, at the kind of flaws that we’ve been talking about.
Jordan Heath-Rawlings: Can you give me a sense of the scale? You know, when you say two in five businesses, you know, how much money has the government paid out so far? And what does it mean then in terms of what percentage of that money might have gone to companies like the ones we’re talking about?
Patrick Brethour: Yeah. So the overall budget over two years is just a shade under $111 billion. So. And if you take, [00:11:00] say two years of equalization payments CEWS is more than that.
Jordan Heath-Rawlings: Wow.
Patrick Brethour: If you take, uh, two years of Canada child benefits, wage subsidies are more than that. More than two years of health transfers, more than two years of social transfers. And only if you had lumped the two, uh, benefit programs for, uh, senior citizens together. If you lump those two together, they’re just barely bigger than the wage subsidy. So that, this wage subsidy program, uh, is, is the largest single spending program that Ottawa’s ever launched in dollar terms. But $77 billion spent so far another $33 billion, uh, if it stays, you know, hits it sort of budget target to be spent by the end of September. So that’s a lot of money. That is a lot of money.
Jordan Heath-Rawlings: I feel like I know the answer to the question I’m about to ask because it comes up every time, uh, we report on the federal government of Canada, but, uh, how much visibility did you guys get into where that money went and how it was used?
[00:12:00] Patrick Brethour: That is a great question. So, uh, generally speaking, if the government outside of sort of emergency times provides payment subsidies to a company, that’s generally subject to, to being disclosed. The government has not done that with wage subsidies. All it has done is an extremely limited form of disclosure where, uh, it will in a searchable database confirm that a company has received a subsidy or not. It’s just binary, a yes or no thing. Doesn’t explain how much.
But I think the point we were making our coverage is Canadians really have a right to know how their money is being spent, and in order to be able to determine if it was spent well.
Jordan Heath-Rawlings: And so I guess there’s no way then, um, if they’re not making public how much various companies got, for you guys to figure out how much of that $77 billion that’s been spent so far might have gone to profitable companies?
Patrick Brethour: So that was part of our, part of our investigation to look and [00:13:00] try and figure out if Ottawa wasn’t going to disclose, what could we find out from public filings? And so what we found, again, just looking at public companies on the TSX and TSX venture, that there was more than $3 billion, uh, that had gone to them.
And it’s more, we don’t know how much more because some companies simply didn’t disclose, so. Some companies getting, even though they’re getting millions, they deemed that to be not material enough to disclose, which is odd that you can, A) need something badly enough to be subsidized, and B) say, “Wow, we don’t have to really tell anyone because it’s not important.”
Jordan Heath-Rawlings: Right.
Patrick Brethour: So at least $3 billion, definitely more. Now, one way of looking at it is, “Hey, that’s only 3 billion out of 110 billion, that’s not very much.” The other way to look at as, uh, it, uh, it’s $3 billion, and that’s a lot of money. And if you spend a billion dollars or maybe even just a dollar, you should spend it well, cause it’s, you know, it’s, people’s tax dollars at work.
[00:14:00] Then there are large private firms. There’s really no way of knowing. Short of the government forcing, you know, sort of proactively disclosing that or the companies choosing to disclose it themselves, but there’s, there’s certainly funding to companies like that that would add to that total substantially.
Fair to note that as far as then kind of companies receiving this well over 90% of the claims are for very relatively small amounts, which would indicate to us that they’re going to small businesses. So certainly there’s a lot of businesses that needed this badly, would have done very poorly or gone out of business without it.
And that I think that’s something to keep in mind. It’s not that the program is a complete boondoggle, it’s that there are loopholes in it that people, uh, some companies used, uh, when they really didn’t need to.
Jordan Heath-Rawlings: How co-operative, um, were folks from the government when you ask them about this stuff? And particularly I’m thinking about, you know, which companies got it, but also, as you mentioned earlier, you know, that there were really no [00:15:00] regulations on how you were going to spend it and that it theoretically applied all the way up to the CEO, getting their wages subsidized.
Patrick Brethour: Oh, and not just theoretically, I mean, we had one case where a member of the board of directors’ salary, or, uh, payment was, uh, with subsidized money during that.
Jordan Heath-Rawlings: Really?
Patrick Brethour: Well, and presumably that person was not going to lose their job, right. Which, which is a nice indication of, of the sort of lack of targeting, uh, of this measure.
I mean, you know, it’s government spokespeoples’ job is to prevent- present the, you know, the government’s viewpoints. So, you know, you gotta be realistic, I don’t begrudge them that. But the fact of the matter is the legislation was included in the Income Tax Act for the purpose of, uh, of shielding the amounts being sent to companies to provide them the privacy protections under the Income Tax Act, that was a choice, uh, the government made. They’ve made a choice to not proactively disclose, and then they made choices, uh, to not, uh, until [00:16:00] very recently put any restrictions on the use of the funds.
Now, as of early July companies that are public, that receive subsidies from that point on will be subject to a clawback if they’ve boosted certain kinds of executive compensation compared to 2019. But it’s an open question as to how many companies that fit that description will indeed be applying for wage subsidies.
Jordan Heath-Rawlings: I’m going to ask a question that’s kind of like hindsight is 2020, um, because I know, and you know, we’ve done episodes before about how impossible it has been for the government to roll out that many programs that quickly in the middle of a catastrophe. So, you know, recognizing that they were never going to get it perfect from the beginning. Uh, but you mentioned that you spoke to a bunch of experts, um, policymakers, economists, what do they say about how this could have been more targeted and more effective?
Patrick Brethour: So it’s a fair point. I think, to say that the government, you know, deserves a bit of slack, [00:17:00] uh, from, in the early days of the pandemic, uh, because it really was, you know, an extremely uncertain time, and it’s only a year ago, but, you know, uh, I think if we sort of cast our minds back to like, we’re all just getting used to wearing masks, businesses are shut down, there’s sorta tumbleweed in the streets. Um, I mean, very frightening time.
And part of what government was looking to do was reassure people as well. Even if there wasn’t sort of an immediate economic catastrophe from locking down, if everyone got worried that that could, could sort of accelerate things. So building confidence was part of this.
So I think, I think that’s fair, but equally fair is other governments faced with exactly the same circumstance, made different choices. Other people at the time pointed this out to the government, including the NDP, including the economists, gosh, including even the Globe and Mail, I think, you know, that some degree of targeting was [00:18:00] better. But even if you accept the idea that in the early days, you know, cut the government slack, eventually say in July, the immediate crisis was over, and if we remember, you know, things were getting a little bit better and the government then made a choice to expand and extend the wage subsidies. Uh, expanding them by lowering the bar for how much your revenue need to have dropped to get a wage subsidy and then extending the duration of them.
And then they made that choice again in November. And as of last month, they, again extended the wage subsidies, without any real reform other than the executive compensation thing we were just talking about.
So along the way that they really haven’t introduced the kind of restrictions that other companies have. And those that’s, that’s been a consistent choice. Yeah, hindsight’s 2020. But if people are saying that at the time, and as you go along and you continue to make choices, I think the hindsight defense sort of, uh, [00:19:00] it expired quite some time ago.
Jordan Heath-Rawlings: There are so many companies and so much money involved in this program. And, you know, we’ve sort of talked about the big picture of your investigation, but with all this data that you’re going through, I want to ask you, like, what other strange things did you find, um, as you looked around? Cause I know there must be some if you’re looking at this much stuff.
Patrick Brethour: Yeah. I mean, a couple of things spring to mind. One, uh, hedge funds got wage subsidy. So, you know, those are sort of, uh, they certainly serve a purpose in the, in the business ecosystem, but, uh, those are not mom and pop shops. You know, those are not yours-
Jordan Heath-Rawlings: Right, yeah.
Patrick Brethour: It’s not the, you know, it’s not the corner hedge fund store, uh, that we were worried about.
Uh, so, you know, they would have had a very bad April, but that’s sort of, they’re in the risk business, right? You roll the dice and sometimes you win big, sometimes you lose big. But you know, they had, they had a bad, uh, few weeks. Some of them applied legitimately for the wage subsidy, but by the end of [00:20:00] the year, you know, some of them had played their cards very well and had a great year because the markets went down. But of course, if you time it well with market’s down, you can buy and, and end up pretty flush, which is what happened with them. So great year, great calls on investing, and wage subsidies. So those, you know, that was an odd combination I think we found.
Another sort of at the other end of the scale were companies that were, uh, bankrupt or in the, you know, so they had filed for bankruptcy, they were in the process where they are sort of chopping up the furniture for firewood selling off their business and whatever employees that, uh, were working at those firms certainly, you know, there was not a long runway for those jobs to stay, uh, stay alive. Those companies became legitimately qualified for wage subsidies. So. If the idea was, “Well we’re going to pay companies money to preserve that tie of employment between employee and employer, [00:21:00] clearly doesn’t make sense for, uh, for firms that are going bankrupt.”
Again, they legitimately got the payments, but the ultimate use of those dollars, you know, those went to pay off creditors, not to keep payroll going for the longterm. So that was pretty odd too.
Jordan Heath-Rawlings: The last thing I want to ask you about is kind of financials this year and going forward. And this is maybe a dumb question because I’m not a business journalist, but if the wage subsidies on all these companies’ books for last year, and it applies to every worker in the company, are there going to be all sorts of screwed up financials as we go quarter to quarter through this year? Because they’ve been boosted by wage subsidies and you know, the business recovered. Like I just, it must be a mess.
Patrick Brethour: I’ll have to disagree with you, that’s a fantastic question.
So, uh, and it’s compounded by the fact that some companies who accounted for the payment of the subsidies in one way and some accounted for it in another, so, you know, one of the most common ways was [00:22:00] to reduce your wage expenses. Uh, so if you were paying a hundred dollars in wages and you got $20 in subsidies, obviously the numbers are too low, but you know, you sort of recorded a net of $80.
Well then the next year, of course your, your, probably your wages, uh, bill is going to appear to go up. Uh, so, you know, that’ll have to be sort of like explained and justified, uh, in order to not confuse investors. Other companies did it in different accounting ways, you know, so depending on your choices, you may have a bit of, uh, a bit of fog to make your way through, uh, with investors.
Jordan Heath-Rawlings: So there will probably then be companies who are reporting, because they qualified for this before, um, reporting technically worse results in 2021 than they did in 2020?
Patrick Brethour: That may happen. Uh, I guess you could probably construct a scenario where that could happen. Um, it would really depend how the, you know, this sort of business environment goes [00:23:00] for the rest of this year.
So hopefully, you know, if, if, as it appears, vaccines are rolling out pretty steadily and we’re, uh, and we’re lifting health restrictions, hopefully through the summer. That probably shouldn’t be the case, but, but yeah, I mean, there, there were certainly were firms where, uh, it looked like their business was, you know, bottom line was basically employed by wage subsidies. Just take those away and change nothing else. Yeah. Yeah. They, they could do worse, but, well, we’ll have to see, but that’s certainly an interesting, uh, uh, point to keep an eye out for.
Jordan Heath-Rawlings: Patrick, thank you so much for walking us through this. I feel like I understand it a lot better now.
Patrick Brethour: That’s the job, thanks so much,
Jordan Heath-Rawlings: Patrick Brethour of the Globe and Mail. The investigation was made possible by him, Tom Cardoso, Vanmala Subramaniam and David Milstead. That was The Big Story, for more from us head to thebigstorypodcast.ca. Find us on Twitter at @TheBigStoryFPN. Write us an email, thebigstorypodcast, that’s all one [00:24:00] word, @rci.rogers.com [click here!]. And as always find us in your favourite podcast player. Tell us what you like. Tell us what you don’t like. Leave a rating, leave a review. We love to hear from anyone who has anything to say.
Thanks for listening. I’m Jordan Heath-Rawlings, we’ll talk tomorrow.
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