The News Rundown
- A federal government business loan program set up during the pandemic is coming up on its repayment date, and almost half of the businesses that got money from this program say they don't have the money to pay the loan back.
- The government launched the Canada Emergency Business Account, or CEBA, during the early months of the pandemic, offering businesses loans up to $60,000. While the loans were processed through regular banks and financial institutions, the federal government backed them leaving the liability on the government’s coffers.
- CEBA's interest-free loans were designed to help businesses with expenses like patio expansions, personal protective equipment or other pandemic-related needs. They came on top of the wage and rent subsidy programs that offered more specific support to businesses.
- If businesses repay the loans by the end of this year, they can receive loan forgiveness on up to a third of the amount they borrowed, but if they don’t they must repay the full amount and will face five-per-cent interest on their remaining balance.
- Dan Kelly, president and CEO of the Canadian Federation of Independent Business, said the debt is weighing on business owners as the deadline looms. The CFIB does regular surveys of its members and Kelly said many of them believe repaying on time is going to be a major challenge.
- Kelly said: “There is near panic on the part of close to half of Canada’s small businesses about the looming deadline that is approaching for CEBA loans. About 43 per cent of small businesses are telling us they just don’t have the money to repay their CEBA loans and they’re gonna have to take some pretty drastic action if they are required to repay them by the end of this year.”
- Businesses that miss this year’s deadline will lose the debt forgiveness and will begin paying five-per-cent interest for two years, before the full loan becomes due at the end of 2025.
- Kelly said companies don’t want to miss out on the forgiveness, leaving them to consider some fairly desperate options: “Some of them are looking at borrowing money in order to repay their loan, if they don’t have it, and so there are all sorts of companies out there right now offering crazy, high-interest loans.”
- The government gave out just under $50 billion in CEBA loans to nearly 900,000 individual businesses. The program began as a loan of up to $40,000, but was extended to $60,000 as the pandemic dragged on. The government has already given businesses another year to repay their loans and receive forgiveness.
- An order paper question submitted in the House of Commons earlier this year, identified more than 50,000 businesses, owing just over $2 billion, who have already been deemed ineligible and ordered to pay back their loans immediately.
- The National Post asked the finance department for updated numbers on how many businesses have paid back the loans, how many the government forecast could default and how much is still outstanding, but they provided none of those figures.
- While the government could not provide numbers, financial statements from Export Development Canada, which housed the program, priced the cost to the government at $13.1 billion, estimating that is how much of the initial $50 billion would be forgiven.
- The small businesses most likely to miss this deadline belong to sectors like arts, recreation, and information (62%), hospitality (61%) and social services sectors (46%). Half of businesses with less than four employees could miss it, too.
- Kelly said they expect as many as 250,000 businesses in Canada could risk closing their doors over the issue. He is encouraging Ottawa to extend the repayment deadline by at least another year. He said: “If the business goes down Ottawa won’t get even the $40,000 back, so we could end up cutting off our nose to spite our face. I do believe that there are some serious risks to Ottawa getting its money back, if this doesn’t happen, if they’re not patient.”
- The deadline was already extended by one year, as the loans were originally due to be repaid on Dec. 31, 2022, now Dec. 31, 2023.
- Adrienne Vaupshas, spokesperson for Finance Minister Chrystia Freeland, indicated the government is watching the repayment rates. She said the deadline has already been extended once “so hard-working business owners could focus on getting their operations back up and running and rebuilding their businesses.”
- Export Development Canada, the Crown corporation that oversees CEBA, said that just 13% of the loans, representing $5.7-billion, were repaid as of the end of November, 2022. However, much of the administration of CEBA was outsourced to global consulting firm Accenture Inc., at a cost of more than $61-million by Aug. 13, 2021, another case of the government outsourcing its responsibilities at a huge cost to taxpayers.
- Many businesses are still not back to pre-pandemic levels of business and profit margins. Part of that could be due to the federal government's policies towards business, which have been much more favourable to big businesses than small ones.
- We know that Trudeau personally has disdain for small businesses. Before he was elected in 2015, Trudeau was asked by former CBC News anchor Peter Mansbridge about his position on taxes paid by small businesses. Trudeau replied "We have to know that a large percentage of small businesses are actually just ways for wealthier Canadians to save on their taxes, and we want to reward the people who are actually creating jobs, and contributing in concrete ways. So there's a little tweaking to do around that."
- At the time he was blasted for his comments, but doubled down. He said: "We are committed to evidence-based policies and I will make no apologies for that. There are a number of studies out there. Some have shown upwards of 50 per cent where it's high net worth individuals who incorporate, professionals for example, who actually use it to avoid paying as high taxes as they otherwise would."
- Perhaps Trudeau has changed his thoughts on small businesses since 2015, but the policies that his government has come up with have severely hurt small businesses. The loans were a good idea in theory, but shutting the economy at the start of the pandemic, then offering a carrot in the form of a ticking time bomb loan is not good policy. It's clear more than ever that Trudeau's government has made many missteps over the past few years, and this is just yet another one.
- Last week on Western Context we mentioned that the forthcoming Sustainable Jobs Act would undoubtedly impact Alberta and in the lead-up to its unveiling there was a great amount of histrionics in the media.
- Media were expecting the Alberta government to go in guns-blazing but the story that was supposed to net fireworks showed a more moderate side of Premier Danielle Smith.
- Premier Danielle Smith met with federal Natural Resources Minister Jonathan Wilkinson and Intergovernmental Affairs Minister Dominic LeBlanc to discuss the Canadian Sustainable Jobs Act, otherwise known as Bill C-50.
- Danielle Smith held firm on not adopting the federal government’s 2035 net zero electricity plan and reducing emissions from oil and natural gas by 42% by 2030.
- The first without sufficient electricity capacity means an increase in electricity prices.
- The second would in effect be a cap on the oil and gas parts of the energy industry to the tune of 42% by 2030.
- Danielle Smith suggested that Alberta would continue to develop its own emissions reduction plan while maintaining economic growth.
- Prior to the meeting she said, “We are going to take the lead on developing an emissions reduction plan that works for Alberta while maintaining our economic growth. We need to bring them into alignment with what it is that we want to do and get them back to their original commitment of carbon neutrality by 2050 — we think that that’s achievable.”
- Also gone is the language of the “just transition”.
- The legislation acknowledges that phasing out oil and gas completely will not happen and there are opportunities for investment in carbon capture utilization and storage, hydrogen, and LNG export.
- Now the interesting part, and what people were not expecting, both sides, the Alberta government and the federal ministers called the meeting constructive.
- Natural Resources Minister Jonathan Wilkinson said, “We have committed to a cap on oil and gas emissions. But there are lots of different ways to do that. There are flexibilities and how you design it.”
- Following the meeting the feds were coy on what that would mean but both sides acknowledge this was a first meeting.
- We have included in our supplementals a media piece by the CBC from the Friday before painting a picture of what would depict Alberta and the federal government at loggerheads.
- This discussion has permeated the wider discourse because of the Alberta Sovereignty Act and the rhetoric we witnessed during the UCP leadership campaign.
- The Alberta government has not ruled out the possibility of using the Sovereignty Act but the story that didn’t make it across the headlines was that this was the beginning of finding common ground and the conversation will continue.
- The issues at this point relate to the timelines and approach to achieving emission reductions.
- This brings both parties to a level of discourse that we haven’t seen in a long time and the question remains if the media or forces in Trudeau’s government or the UCP will further politicize it.
- Going forward the best place to be in general when discussing ideas is one where the question comes down to approach.
- We’ll have to see if the desire for the federal government to divide and wedge regions against one another arises or if more radical parts of the government such as Steven Guilbeault as Environment Minister will be able to torpedo progress made.
- This is for all intents and purposes a negotiation and the province Alberta gains by taking a moderate approach.
- The reason? The inherent power of the federal government.
- Either government could torpedo results but the lesson at the end of the day is that the media fireworks some expected did not materialize.
- A website highlighting the struggle to keep up with Canada's ballooning cost of living, has incorporated data from the 2021 census that shows that British Columbia now has the highest share of renters spending more than half of their income on rent and utilities in Canada.
- The study from the Canadian Rental Housing Index has released its latest findings, showing that between 2016 and 2021, the largest increases in average rents in Canada were in British Columbia. BC, in just 5 years has seen a 30% jump in the average amount renters have to pay.
- As a result, 16% of renters in the province are using more than half their income to pay for rent and utilities each month, which the index considers a crisis level of spending.
- According to the most recent census data from 2021, British Columbians are paying an average of nearly $1,500 dollars a month for utilities and rent. That’s compared to $1,200 nationwide.
- It's clear that in Canada, and in BC specifically, more and more people can no longer afford to put a roof over their heads, and are taking drastic measures to ensure that they can continue to do so. 11% of B.C. renters are living in “overcrowded conditions,” representing an increase of about 20 per cent over five years. The situation is worse in Surrey, where 24% of renters are living in cramped quarters.
- It seems to be an issue that both sides of the Legislature agree need addressing, but as usual there's a lot of finger pointing. The BC NDP blame the BC United, who as the BC Liberals were in government for 16 years until 2017. But the BC United point to the much worsened numbers since the NDP got into power.
- Karin Kirkpatrick, the BC United housing critic and MLA for West Vancouver-Capilano said: “We need to invest heavily in non-profit housing, heavily in co-op housing and we have to reduce the barriers to actually increasing supply and developing more homes. We haven't seen that happening."
- In April, the province released its so-called Homes for People plan, including a $4-billion investment over three years and $12 billion over a decade. It aims to increase density, deliver supportive housing, change zoning to make basement suites legal across the province and crackdown on house flippers.
- Ravi Kahlon, BC’s Housing Minister said: “We had two decades of no investment in housing, and the chickens are coming home to roost, and we're paying the price for that lack of investment. That's why we have to double down, we have to build more housing, affordable housing, and we have to do it much faster than we've been doing.”
- Housing advocates say the latest data shows a collective failure of rental housing investments over the last quarter century. Likely, it is a result of a failure of policy from both the former BC Liberals, as well as the current NDP.
- Certain programs that have been put in place to help renters are overdrawn and not able to keep up with the surge or people needing help. For example, the BC Rent Bank is a project of Vancity Community Foundation, funded by the provincial government. It supports a network of 15 different rent banks across the province. The network provides assistance to moderate income earners who are renters, and who are facing a temporary crisis and can’t afford rent or essential utilities bills.
- When the BC Rent bank started back in 2019, it received about 300 applications a month. Managing Director Melissa Giles now says that in 2023, that amount has doubled already. Giles said: “Inflation rates and other things are affecting people. So even who we consider most vulnerable is shifting. We look at a low to moderate income bracket for eligibility, but who falls into that category has steadily been increasing.”
- Jill Atkey, CEO of the BC Non-Profit Housing Association said: “Spending over 50 per cent of your pre-tax income on rent means you're foregoing other basic necessities. So you're probably cutting back on food. Rent is always the first thing to get paid. You're probably starting to cut back on kids' extracurricular activities. So it has a real impact on quality of life.”
- Cutting back on food has also been hard to do, as grocery prices have inflated to a huge degree over the past few years. Food banks have seen record numbers of people needing help with food security, and among the most impacted members are students and seniors.
- One of the biggest issues of the housing crisis that hasn't been discussed in the media, is just how many people are staying as renters, because the rising real estate cost stops them from owning their own home. Atkey said from 2016 to 2021, renter households grew at a faster rate than homeowners, according to census data. She said it was the first time in 50 years the growth in renters outpaced homeowners.
- Atkey says: “That’s because people are being priced out of home ownership and staying in rental longer, and now rental is not affordable either. So you’ve got two working professionals who 20 years ago would have gone on to become homeowners. They’re no longer able to do that.”
- This has furthered the trend of homes becoming commodities to be leveraged for financial gain, rather than places for someone to live in. An increase in renters, but not rental stock, just increases demand, which causes prices to go up, a circuitous loop that will not end without intervention.
- BC went from 4.6 million people in 2016 to 5 million in 2021, a growth rate of 7.6 per cent. Only Yukon (12.1 per cent) and Prince Edward Island (eight per cent) grew faster, and only Ontario and Quebec had more people. With so many people moving to BC, it's clear that the government needs to do more for low income people in this province, and in the country as a whole. After all, if all you're able to do is tread water, what's the point in staying?
- The devastation of the opioid crisis is something that has touched almost all Canadians in one way or another and this week we learned that a company which the federal government has worked closely with has been trying to boost opioid sales in Canada since 2014.
- McKinsey & Co., a global consulting firm, pitched Purdue Pharma (Canada) in 2014 on how to aggressively market and boost sales of OxyContin and other opioids in Canada.
- McKinsey has been a major contractor for the Canadian government, receiving over $115 million in contract work since 2015.
- The confidential memo obtained by The Globe and Mail reveals McKinsey's involvement in promoting opioids and has led to a class-action lawsuit filed by the B.C. government, which the federal government plans to join.
- The linkages to the federal government come from that when McKinsey made these efforts, they were led by Dominic Barton who has his own ties to the federal government.
- Dominic Barton, the former head of McKinsey and Canada's ambassador to China, served as a pro-bono economic adviser to Prime Minister Justin Trudeau when the Liberal government formed in 2015.
- McKinsey has been a major contractor for the Canadian government, receiving over $100 million in contract work since 2015.
- McKinsey denies conducting any opioid sales and marketing in Canada, but the memo contradicts their claim, indicating a proposed strategy to increase opioid sales.
- The insidious part about this is that the memo from McKinsey to Purdue Pharma (Canada) outlined plans to identify growth opportunities and boost sales of opioids in Canada, including targeting high-potential prescribers and aligning sales force goals with company objectives.
- The Globe and Mail has been investigating and obtained the memo and other records from the Opioid Industry Documents Archive, a searchable online collection of 1.5 million documents collected as a result of litigation against the U.S. pharmaceutical industry. The archive at the University of California, San Francisco and Johns Hopkins University includes more than 114,000 documents from McKinsey, which consulted on opioid sales and marketing for Purdue Pharma in the United States.
- It is apparent that McKinsey is facing problems related to this since the firm is now hiring for a position on its “ethics allegations management team.”
- They are also looking to replace their ethics director. The salary for that position ranges anywhere from $235,000 to $314,000.
- Looking more into McKinsey we see that they have paid $641m to resolve lawsuits relating to the opioid file that we have been discussing. And they have also been criticized for being too slow to cut ties with Russia after the Ukraine invasion.
- McKinsey settled investigations in the United States related to its consulting work on opioid sales for $573 million in 2021, but maintains that it did nothing illegal. The company faces allegations of causing Canadian deaths through its marketing advice to pharmaceutical companies.
- Here at Western Context we have a track record of connecting dots years or months before they appear in media or public discussion.
- Today, it’s clear that the federal government needs to suspend its dealings with McKinsey over this at least until the lawsuit regarding opioids is settled and McKinsey changes directions.
- But perhaps we also need to ask why the federal government is so reliant on McKinsey.
- Dominic Barton, while managing director of McKinsey also advised the government to ramp up immigration levels to 450,000 per year by 2030 but as we know, the government plans to hit 500,000 by 2025.
- McKinsey has said they don’t advise on policy but it is suspicious that their managing director would also advise a sharp rise in Canada’s immigration levels.
- This is a file we’ll be following as there may be other foreign actors at work in this advisory process.
- Right now we don’t know if there’s more than meets the eye with the government contracts but what we do know is there’s a question of judgement when it comes to who the government has decided to award contracts to.
- In January this year the Trudeau government said they will review the McKinsey contracts and we have not heard anything on that review yet beyond that an early audit shows ‘no evidence of political interference.’
- We need to be clear that McKinsey does not sell opioids but pushing pharmaceutical companies like Purdue Pharma (Canada) to “aggressively market and boost sales” does have the potential to get more people addicted to these drugs.
- At the end of the day the opioid crisis has destroyed more lives than the pandemic did yet there is no question of whether or not McKinsey will continue to receive government contracts. That is the truly absurd part of this story.
Quote of the Week
“There is near panic on the part of close to half of Canada’s small businesses about the looming deadline that is approaching for CEBA loans. About 43 per cent of small businesses are telling us they just don’t have the money to repay their CEBA loans and they’re gonna have to take some pretty drastic action if they are required to repay them by the end of this year.” - Dan Kelly, president and CEO of the Canadian Federation of Independent Business, on the looming deadline for small businesses to repay their pandemic CEBA loans.
Word of the Week
Due - expected at or planned for at a certain time.
How to Find Us
Episode Title: The Bill is Always Due
Teaser: Half of small businesses can’t repay their CEBA loans, Danielle Smith negotiates climate targets with the federal government, and the amount paid by BC renters has reached a crisis level. Also, we see just how much McKinsey has affected the opioid crisis.
Recorded Date: June 24, 2023
Release Date: June 25, 2023
Edit Notes: Shane cough
Podcast Summary Notes