Young people living with their parents could receive $11.8 billion from CERB

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Appeared in the National Post, July 16, 2020
Young people living with their parents could receive $11.8 billion from CERB

Prudent use of public finances should always be a top priority for any government. With the federal budget deficit now projected to reach almost $350 billion, Ottawa should apply additional prudence to new and existing government programs. Unfortunately, this federal government seems to have discarded any remaining semblance of fiscal discipline in the name of expediency. Doing so has produced poorly targeted programs, wasted resources and a larger deficit.

At the heart of the federal government’s response to the COVID recession lies the Canada Emergency Response Benefit (CERB)—a taxable $2,000 monthly benefit for eligible Canadians who earned at least $5,000 in the previous 12 months (or in 2019), experienced a decline in their earnings due to the recession and now earn less than $1,000 per month.

The cost of the initial 16-week program increased from an original estimate of $35.5 billion to $53.4 billion (after cost recoveries)—an increase of 50.4 per cent in just a few months. Despite these marked cost increases, Ottawa recently announced an eight-week extension of the program with no changes. CERB will now cost an estimated $73.1 billion.

According to our new study, an estimated 400,000 Canadians aged 18 to 24, who are still in school, still living with their parents—in households with total incomes of at least $100,000—and who earned between $5,000 and $12,000 in 2019 are eligible for CERB benefits.

These 400,000 Canadians represent a total potential cost to CERB of $4.8 billion (before taxes on CERB). It’s also worth noting that for this group of CERB-eligible Canadians, CERB benefits are on average higher than their monthly earnings in 2019 (which at most would have been $1,000), meaning they’re actually better off receiving CERB than they were working.

Another 287,300 CERB-eligible Canadians with the same characteristics (age 18 to 24, in school, living at home) who earned between $12,001 and $24,000 in 2019 represent a total potential cost to CERB of $3.4 billion. Members of this group who receive CERB would (on average) experience no decline in their average monthly earnings and would more than likely experience an increase.

When the analysis includes Canadians under the age of 18 with the same characteristics noted above, who earned between $5,000 and $24,000, the number of potential CERB recipients increases to 855,500 with a total potential cost of $10.3 billion.

And finally, when the analysis includes Canadians age 15 to 24 who live with their parents in households making at least $100,000 but who do not attend school and who earned between $5,000 and $24,000 in 2019, the number of potential CERB recipients increases to 985,200 with a total potential cost of $11.8 billion.

These are significant expenditures to a large group of Canadians whose need is at least questionable given the live at home as dependents in households with significant income (2019) and, in most cases, whose average monthly earnings under CERB would be higher than when they were working.

And lest anyone think CERB is the only poorly targeted new federal spending program, consider the new COVID-related $2.5 billion income support program for seniors, which provides a one-time payment of $300 to seniors eligible for Old Age Security (OAS) and another $200 for seniors receiving the Guaranteed Income Supplement (GIS).

The $300 payment is made to seniors with annual incomes up to $128,136, which means married seniors with a combined household income of more than $250,000 can receive two $300 payments. Ottawa could have increased the benefit for recipients of the GIS recipients, which targets low-income seniors, by fully 400 per cent and still have reduced the cost of the program.

Though income stabilization during a recession can be sound policy, there’s increasing evidence that this federal government has discarded caution in the name of convenience, with the result that potentially large transfers are going to groups of Canadians whose need is questionable and who may now actually enjoy higher incomes than when they were working. At a time of unprecedented federal spending and borrowing, policymakers in Ottawa need to demonstrate much greater prudence and fiscal discipline.