Minister Freeland calling on Canadians for ideas on how to 'unlock the pre-loaded stimulus'
Finance Minister Chrystia Freeland asked BNN Bloomberg viewers on Friday to suggest some possible ways to unleash the massive mountain of excess cash some Canadian households and businesses are sitting on as a result of the pandemic.
Estimates on how much money has been hoarded vary, with Deloitte Canada’s Craig Alexander saying savings could reach as high as $200 billion by the end of the year. With such astronomical figures, the federal government noted in its Fall Economic Statement that tapping into these savings could help stimulate an economy that’s been hit hard by COVID-19.
“If people have ideas on how the government can act to help unlock that 'pre-loaded stimulus,’ I’m very interested,” Freeland said.
Here’s what some economists and observers told BNN Bloomberg the government should do:
“I think the most immediate thing that can do is to reduce the GST; that would definitely stimulate consumer spending … It obviously costs money, but on the other hand it generates revenue, too. And some of these companies, particularly the smaller companies, once things open up again they desperately need the economic activity, the spending.”
— Joe Oliver, former finance minister
ZOOM IN ON SMALL BUSINESSES
“I think there's lots of different incentives the government can provide. The question I have is whether those policy options are going to be palatable. For example, … if you make a ‘GST holiday’ over a relative modest period of time, say three to six months, that would encourage people to make purchases sooner rather than later. The question, though, is how the government feels about giving tax incentives to encourage spending from higher-income Canadians. These sort of measures would benefit the rich more than the rest and that's part of my question mark.
“The GST holiday is the best example of a policy that would get people out spending. But we know the small business community has been particularly hard-hit, so how about doing a GST holiday but for small businesses versus, say, large businesses? That would cost the government less money, it would help the hardest-hit businesses and it would encourage spending.”
“The government could also come out with tax credit for purchases of certain things. Let's say you want to help the airline industry; you could provide a tax credit for purchases of flights. But again, this is where I think there’s an issue related to who is doing the spending: Do you want to make it cheaper for rich people to travel? The answer is you want to spend their savings, so maybe you do want that tax credit. On the other hand, who's benefiting may create a political issue for them.”
— Craig Alexander, chief economist and executive advisor at Deloitte Canada
TARGET 'PRODUCTIVE INVESTMENTS'
“Focusing on using the savings for productive investments as opposed to conspicuous consumption is how you ultimately drive sustainable economic growth. Not to mention the fact that while Canada is indeed a large exporter, [it] actually imports more than it exports, so you're incentivising Canadians to use their savings for conspicuous consumption on products that are imported from the rest of the world. What you’re doing is subsidizing foreign producers. It's just a colossal waste.
“The whole question itself, in my opinion, is offensive … After the biggest housing market spree of all time, you're going to have a tough time convincing me that there's a lot of pent-up demand in Canada on the consumption side. That that's where the focus would be, to siphon off the savings into conspicuous consumption with no domestic economic multiplier, borders on the ridiculous.”
— David Rosenberg, chief economist and strategist at Rosenberg Research
“I actually don’t believe that policy needs to prompt people to spend. I believe households have built up so much savings because they can’t spend (in some areas), not because they don’t want to spend. If and when the health concerns recede, I would expect spending to come back strongly on its own. If we attempt to force-feed spending now, we risk channeling even more spending into areas that are already hot, and won’t benefit the sectors that are in the most dire situation. If it turns out that as things re-open and consumers are still reluctant, then it may make sense for policy to shift.
“The other point to make is that it’s not clear that it’s such a bad thing that households have strengthened their balance sheets — after all, for years, we have heard pundits, policymakers and the media nagging households about their high debt levels, and low savings. Are we now going to turn around and complain that they are too frugal?”
— Douglas Porter, chief economist at BMO Capital Markets
REDUCE RED TAPE
"When it comes to household spending, just provide a vaccine, make sure there's distribution and then get out of the way if you're the government because, believe me, households and individuals, they don't need any encouragement to spend this money. They're dying to spend this money; they just need an opportunity. The government can't do anything else – just provide the vaccine.
“As for businesses … Many businesses will die, we all know that, and then they will start up. It's much easier to start up in the service sector, but you have to reduce red tape. If you, as the government, can make it easier to start something new, then maybe this money will be released faster into the economy.”
— Benjamin Tal, deputy chief economist at CIBC
FOCUS ON HEALTH CRISIS
“People are nervous and even when the current wave of the virus subsides, unless people are vaccinated, they're still going to be concerned about the risk of catching the virus when they're out and about. So, I think if you want people to resume more normal spending patterns, the best thing the government can do — and the government is perfectly positioned for this — is to focus on the vaccine rollout and to make sure it occurs as quickly and as safely and as efficiently as possible and to do things such as make sure the take-up of the vaccine is as high as possible. Once you've done that … a lot of these areas in spending that are depressed will naturally rebound as a result of people being comfortable eating out at restaurants, travelling, staying in hotels, taking flights, the kind of stuff which is depressed right now … I think that it's really the health issue the government should be focused on, more so than specific fiscal measures.”
— David Doyle, North American economist and Canadian market strategist at Macquarie Group