Policy makers must encourage spending within Canada to drive economic recovery: TD CEO
Kevin Yeung has been working from home for almost an entire year, but that hasn’t stopped him from making plans to travel as soon as COVID-19 is in the rear view.
“Once it’s finally all over I want to go to Hong Kong for sure. I’ve had the idea of living there for a long time now and I feel after been confined to Toronto for so long it makes me want it even more,” the 24-year-old social media producer for TSN, said in an interview.
“I have saved a lot of money that I would normally spend commuting to work or going out with friends. I’m absolutely going to put that towards going to Hong Kong.”
Yeung isn’t alone. A February report by CIBC Capital Markets highlighted that an estimated $100 billion of excess cash is sitting in Canadians’ bank accounts and more than a third of residents say they would allocate funds to travel.
All of that money sitting in Canadians’ accounts, waiting to be deployed in post-pandemic days when some form of normalcy returns to everyday life, carries a significant economic consequence. Finance Minister Chrystia Freeland has referred to those savings as “pre-loaded stimulus” that could play a huge role in the country’s recovery from the pandemic.
But Bharat Masrani, president and CEO of Toronto-Dominion Bank, said Canadian lawmakers need to think about how they’re going to keep that extra money in Canada by looking at how other countries have encouraged their residents to spend locally.
“Some of the models you’ve seen out of places like Singapore, where they promote local use of the funding that’s available, I think that’s an important consideration going forward,” Masrani said in a recent interview.
Last August, Singapore’s government committed S$320 million (around $300 million) to launch a campaign called SingapoRediscovers Vouchers, with the goal of encouraging domestic travel and local spending.
The program gives Singaporeans tourism credits that they can redeem on staycations and tours until the end of June.
While the country saw a decline in visitor arrivals in 2020, over 300,000 residents used vouchers to make bookings, spending S$35.9 million ($33.6 million) in redemptions and out-of-pocket payments.
Leslie Bruce, president and CEO of Banff & Lake Louise Tourism, said similar incentives could help cities like the Alberta ski-resort destination that rely mainly on tourism to support their economy.
“Not only are incentives very sensible as a way to keep Canadian dollars in the Canadian tourism economy, but they have the potential to foster pride of place and work to re-engage national unity at a time when we need it,” Bruce stated by email.
This week, Destination Canada published a report that found if Canadians shift two-thirds of their planned spending on international travel towards domestic trips then it would erase the estimated $19.4-billion shortfall in revenue from international visitors in 2020.
The Destination Canada study also showed that a pivot to local travel could accelerate a recovery to pre-COVID levels for this sector by about a year and explained that the current situation is worse than the impact of 9/11, SARS and the 2008 economic crisis combined.
However, not everyone believes the federal government would be open to creating travel incentives post-pandemic.
Aviation industry consultant Robert Kokonis said he doesn’t think the federal government would prioritize additional travel support programs due to its lack of sector-specific aid for airlines so far.
“Canada is the only G7 nation not to provide direct, sectoral-specific aid to our aviation and tourism sector. Airlines, airports, trade associations, unions and business associations are practically on their knees, begging for anything,” wrote Kokonis, the president and managing director of AirTrav Inc., via email.
“You think Ottawa would ever come up with domestic tourism incentives when they have not even come up with the aviation aid package? No.”
Last week marked a grim milestone for Toronto and nearby Peel – a region including the cities of Mississauga and Brampton, with a combined population of more than 1 million – as they hit 100 consecutive days in lockdown, which was the longest in North America.
While public health restrictions in the two COVID-19 hot spots were loosened on Monday, many businesses have been struggling to stay afloat with ongoing uncertainty around pandemic-related rules.
Don Drummond, a former top finance department official who now serves as senior fellow at C.D. Howe Institute, explained that if the Canadian government wants to make sure citizens spend their money locally, then it needs to start opening up businesses again.
“The obvious point is if we open things up it will ensure that the people spend the money here, it really comes back to the supply side as much as anything,” Drummond highlighted in a phone interview.
“Canadians have the financial wherewithal to spend and they seem inclined to do so, we just need to accommodate that physically and that’s just getting things open.”
There are other experts who question whether it’s a good idea to encourage spending at this point in recovery.
Sean Speer, who served as senior economic advisor to former Prime Minister Stephen Harper, said it might be best for Canadians to continue saving since household debt has been seen as a risk to the economy for years.
“It's a bit odd to be concerned about getting people to draw down these savings in order to stimulate the economy given that we were concerned about household debt mere months ago,” Speer stated over email.
“There seems to be a bit of cognitive dissonance at play here.”
Even if policy makers were to introduce domestic spending incentives, that doesn’t guarantee every Canadian is going to keep their passport stashed away.
“If the federal government were to offer a generous deal to travel within Canada it would be tempting; but, with that said, I feel like at the end of the day what I want specifically experience-wise is outside of Canada,” Yeung explained.
“I don’t think there’s any kind of bargaining chip they could make that would cause me to change my plans.”
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