Liberals and Conservatives wrestle over the legacy of pandemic spending

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One of the most awe-inspiring accounts of government activity ever produced can be found on page 254 of the spring budget — table A1.13, under the heading "Canada's COVID-19 Economic Response Plan."

According to that table, the federal government committed roughly $352.2 billion toward responding to the pandemic, almost all of it distributed over the last three fiscal years. A substantial portion of that spending — $69.4 billion — was directed toward health and safety measures. But the greater share — $282.8 billion — covers fiscal support measures for individuals and businesses.

That is, from any perspective, an incredible amount of money. For the sake of comparison, the federal government spent a total of $314.6 billion on all of its many programs and initiatives in 2018-2019, the last COVID-free fiscal year. 

Much of that pandemic spending went to programs that were conceived on the fly and implemented in a matter of weeks — programs like the emergency response benefit and the wage subsidy. And a lot of that money got spent very quickly — $209.7 billion was distributed in the 2020-2021 fiscal year.

The Liberal government made a conscious choice to prioritize speed over precision. Given the circumstances, it decided that getting support to Canadians was more important than making sure that every dollar went only to those who absolutely needed it. Double-checking the eligibility of recipients would come after.

So it's not all that surprising that at least some of that support ended up in the hands of people and business owners who didn't technically deserve it.

But last week's report by the auditor general is still a significant piece of a consequential debate about the legacy of the government's extraordinary actions during an extraordinary emergency.

The AG's mixed report card

That report was not a complete repudiation. In fact, the report's summary begins on a rather positive note for the government.

"With its response to the COVID‑19 pandemic, the Government of Canada set an objective of helping Canadians as quickly as possible. The COVID‑19 emergency programs that we audited achieved that objective," Karen Hogan wrote.

"They quickly offered financial relief to individuals and employers, prevented a rise in poverty, mitigated income inequalities and helped the economy to recover from the effects of the pandemic."

This is essentially the government's argument — that the support mitigated hardship and set up the economy to bounce back quickly from the forced shutdowns of the pandemic. If support payments made it easier for people to stay home, those programs probably also reduced the number of people who were infected with COVID-19.

But after reviewing $210.7 billion of the total spending, the auditor general also found that at least $4.6 billion went to people and businesses ineligible to receive it. She flagged another $27.4 billion that needs further scrutiny. The government has so far recovered approximately $2.3 billion from recipients who were ineligible, but the auditor questioned whether the Canada Revenue Agency's plan to review payments was good enough.

It was these findings that the Conservatives understandably seized on this week — Conservative Leader Pierre Poilievre used the word "waste" nine times in the space of four questions in the House of Commons on Tuesday. 

Much about the question of "waste" depends on how much more of that $32 billion the federal government ultimately recovers. But the auditor general's report is most valuable to Poilievre as a piece of a larger argument — that the government spent too much and thus triggered the inflation that is increasing the cost of living for Canadians now. 

For the Conservatives, this argument has three potential benefits. It both blames the government for what's currently causing Canadians stress and undercuts the government's argument that it did a good job responding to the pandemic. It also advances Poilievre's primary political idea — that government does more harm than good whenever it tries to actively do something.

The rhetoric and reality of inflation

On inflation, the situation is more complicated than Poilievre's attacks would suggest — though it's also not as straightforward as the Liberals might like. 

New analysis from Scotiabank's chief economist suggests that global factors account for 85 per cent of the inflation that Canadians are experiencing. But federal support — which may have been overly generous — likely contributed to "excess demand" and is thus compelling the Bank of Canada to raise interest rates somewhat higher than it otherwise would have.

There is always a counterfactual to consider. In this case, according to an estimate from Statistics Canada, the poverty rate in Canada would have spiked to 11.6 per cent in 2020 without government support. Instead, it was 6.4 per cent. Untold long-term economic damage would have occured had the government done nothing.

Conservatives no doubt would reply that they wouldn't have done nothing — they just would have spent less. But how much less? And how? What would be the economic and inflationary consequences of this imagined alternative? There are almost always trade-offs. Under a Conservative government that focused more on precision, the speed of delivery might have suffered.

And anyone conducting a post-spending analysis must also concede that they are dealing with perfect hindsight that was not available to government officials in 2020 and 2021, as the country confronted a truly unprecedented crisis.

These finer details and nuances might be lost as the debate is boiled down to one side yelling "reckless spending!" while the other chants "supporting Canadians!" But a true reckoning with the federal government's extraordinary spending during the pandemic would also deal with the practical aspects of how and why those benefits rolled out as they did. 

The unglamorous work of better government

The Canada Emergency Response Benefit (CERB) was necessary — not only because of the pandemic-era lockdowns, but because the employment insurance system was incapable of dealing quickly and effectively with such a steep drop in employment. The auditor general also found that CRA was limited in how much screening it could do for the wage subsidy because of a lack of access to real-time tax and payroll data.

Such facts make the case for relatively unglamorous things like EI reform and initiatives to improve the federal government's technological infrastructure — like the current "ePayroll" and "benefits delivery modernization" programs. 

There's very little political upside to such things, mind you. Fiddling with systems and structures entails risk. Changes to IT can lead to cost overruns and embarrassing complications — witness the Phoenix pay system fiasco. Making the government more nimble, responsive and efficient is going to win you exactly zero votes in the next election.

But governments should be able to move with great speed and greater precision, pandemic or not. That should be something Liberals and Conservatives can agree on.