How the Canadian government can use fiscal policies to mitigate the effects of covid-19 in the economy
INTRODUCTION
In the wake of the Covid 19 pandemic, many sectors of the global economy have been hard hit. It is expected that a significant adverse impact on the global economy shall be realized. Governments globally, Canada, included having to put efforts to counter the downturn with fiscal and monetary policy support. The baseline forecast envisions a 5.2 percent contraction in the global GDP in 2020. This data will help in mitigating the effects and provide relief for businesses and households. In an economy that is undergoing depression, the Canadian government can use the expansionary fiscal policy. These policies should be put in place to help rebuild in the short and long-term to strengthen health services and targeted stimulus measures to help rejuvenate growth.
The following measures should be put by the government of Canada to help in cushioning the economy from the regression and shifting aggregate demand;
Support measures for businesses:
Supporting measures is a short-term measure to ensure that businesses maintain a sufficient flow of cash. Since most companies are experiencing a sharp decline in liquidity, this has hindered their capacity to pay for wages, intermediate goods, interest on debts and taxes, and debts. The government of Canada can generate all or part of the value of the bank loans granted to eligible businesses. For small or those in affected sectors, the government may offer interest-free loans and cash grants. The government can also introduce deferrals for tax payments for advanced corporate income tax(CIT) or personal income tax(PIT) payments value-added tax(VAT) and social security contributions(SSCs). The government should help businesses retain their employees by introducing or enhancing the generosity and availability of short-term work schemes. This helps provide public income support to workers whose working hours have been reduced or temporarily laid off, but their contracts with the firms they work in are still valid.
The government should introduce measures to allow carry-back of losses for the tax year 2020. This will help taxpayers carry back their 2020 losses against profits earned in previous fiscal years. For small businesses, the government should waiver property taxes and presumptive taxes. This may also include a reduction in vehicle taxes and water wage taxes. Tourism and airline companies have been profoundly affected, and the government should waiver specific levies on them.
Support Measures for Households
To enhance the household flow of cash, the Canadian government should extend payment plans for households that are unable to make their tax payments and extend tax filing deadlines or tax deferrals. These should apply to personal income tax and property taxes. These should target low-income households or property below a particular value. The government should put in place social protection systems to provide income replacement for families affected by sicknesses, job loss, or a drop in earnings, thus offering automatic stabilization of the affected households. The government should consider direct transfers of income rather than through the tax systems to redistribute income, given the immediate need to provide financial support to the most affected households in the crisis.
Measures to support investment and consumption
The government should explore introducing measures to support investment and consumption, which include temporary increases in thresholds for low-value asset write-offs as well as wells accelerated depreciation. The government should waiver or exempt import tax for manufacturing companies for a specified period. The provision of preferential tax treatment to stimulate health-related spending and investments should be considered. This includes deduction of input VAT on items donated by businesses or increases CIT and PIT deductions purposes for donations made businesses or households to the health institutions
Changes in government Purchases
The Canadian government can increase its purchases and projects. Projects that enhance job creation like building more highway, railways, and government parastatals may increase job opportunities to the citizens, thus cushioning the households from the harsh economic time hence increasing the demand aggregate.
Measures to support investment and consumption
To efficiently and cheaply acquire health devices and equipment, the government should introduce measures to facilitate imports of medical input to combat Covid-19. This includes the temporary removal of import duties on medicines and health devices and equipment. Specific CIT incentives for enterprises engaged in producing essential supplies related to Covid -19 protection and containment should be introduced. This includes 100% expensing for investment in equipment to expand production capacity. The medical personnel and immigration staff should have special allowances and payment to health officers that have contacted the deadly virus.