Richest Canadians Biggest Beneficiaries of Pandemic Spending

September 20th, 2021

Awake Goy

Despite large amounts of government assistance during the pandemic, Canadians borrowed more than they saved in 2020, according to Statistics Canada, while an economic analyst says some of the government’s pandemic aid wasn’t well targeted and went to high-income households that didn’t need it.

The richest quintile of households, or the top fifth, saved $186.61 billion in 2020, which represents a net savings rate of 33.1 percent, Statistics Canada found. This was much more than the $137.38 billion they saved in 2019, at a 25.7 percent savings rate. In 2020, this demographic represented 89.54 percent of all savings.

In contrast, the lowest quintile of households, or the bottom fifth, accumulated $60.35 billion of debt in 2020, amounting to a net savings rate of -61.4 percent. This means they spent 61.4 percent more than they made in 2020.

“It is telling that the savings rate for well-off people went up. That’s entirely consistent with a lot of other findings of research that the government just sprayed this money across to everybody,” said Macdonald-Laurier Institute (MLI) senior fellow Philip Cross.

“Too much of it went to upper income households who didn’t need this money, and that’s shown in the fact that these people saved a whole bunch. They didn’t need it, so it’s sitting there in the bank account, and it shows that this aid was not well targeted.”

Households in the second-highest quintile doubled their savings in 2020, saving $66.06 billion, at a 19.6 percent savings rate, beating the 2019 mark of $31.5 billion, which was a 9.9 percent savings rate.

The second-lowest quintile saw their debt increase by $6.88 billion, amounting to a net savings rate of -3.7 percent. The previous year was even worse, as the lowest quintile accumulated $90.14 billion of debt and the second-lowest accumulated $45.02 billion, for net savings rates of -114 percent and -28 percent respectively.

Government aid moved the middle class, or the third quintile of income, into savings in 2020 after mild losses. Their household savings rate was 9.1 percent ($22.97 billion) in 2020, up from -6.9 percent (-$15.63 billion) in 2019.

Cross, a former chief economic analyst at Statistics Canada, says that if more of the aid had gone through employers, “presumably we wouldn’t have the shortages that we’re facing today, particularly of labour and manpower.”

Canada received an economic grade of “F” in the Sept. 17 update of the MLI’s COVID-19 Misery Index. The index is a comparison of 15 countries during the pandemic in terms of the health impacts of the COVID-19 disease, the governments’ policy responses, and the impact of the disease on their economies.

“Canada’s unemployment rate is 7.5 percent and has just now returned to less than 2 percent above the pre-pandemic level. Only the U.S. has had a more persistent increase in unemployment; however, they started from a much lower rate,” the update said.

“Canada has taken on substantial amounts of public debt that will likely take generations to repay. While we do expect the economy to recover, the second quarter of 2021 saw a 1.1 percent contraction of GDP, and growth estimates for the remainder of the year are being revised downwards.”

Cross says governments dealt with only one side of the basic economic principles of supply and demand.

“As often happens during crises or emergencies, it’s the unintended consequence and it’s actually the unexpected consequence that becomes the big one,” he said.

“They lowered interest rates, they threw money out the window, demand recovered quickly. What they didn’t realize was that all these actions around the world were creating the supply problem, and fixing that is going to be a lot more difficult.”

A Fraser Institute analysis published in August 2020 also noted that much of the federal government’s spending on programs in response to the pandemic appears to have been poorly targeted toward those in genuine need, resulting in the waste of an estimated $22.3 billion of taxpayer resources.