By Julie Gordon and Kelsey Johnson
OTTAWA (Reuters) - Canada is preparing to dial back emergency income support for people laid off due to COVID-19 in favor of more traditional unemployment benefits and will shift resources to a wage subsidy program that encourage employers to rehire staff.
The income support, paid to individuals, has done its job and the focus must now shift to getting people back to work by making better uses of the wage subsidy program, which is paid to businesses, Finance Minister Bill Morneau said this week.
He promoted the shift after saying Canada would post a historic C$343.2 billion ($252.6 billion) deficit this year.
But Morneau's job will be tricky. COVID-19 cases are increasing more slowly, but there is a heightened risk of a second wave as the economy reopens. Furthermore, the shift must ensure that people do not end up worse off than they were during the lockdown phase.
For example, the emergency support had few restrictions and most people were eligible, while traditional unemployment criteria are more stringent.
So far, some 8 million people have received as much as C$2,000 ($1,472) per month in emergency cash, but the program expires at the end of August.
"It's going to be critical for the economy, one way or the other, that we transition Canadians off the (income support) and onto the wage subsidy," said Colin Guldimann, an economist at the Royal Bank of Canada.
Analysts expect Friday's job data to show 700,000 new jobs in June, following nearly 300,000 gains in May. But the unemployment rate is seen at 12%, not far below the May record of 13.7%.
Under the wage subsidy program, the federal government gives qualifying businesses 75% of employees' wages. But critics of the program say the current requirement to have posted a 30% revenue loss is too onerous and may prevent businesses from fully reopening for fear they will lose access to it.
"They have to build into the system a little bit more flexibility for all employers, so if they're on the program and they have these ups and downs (in revenue), they don't lose access to the program," said Hassan Yussuff, Canadian Labor Congress president.
The changes are coming, and they will make the program more flexible for employers and aim to stimulate hiring even as uncertainty remains due to COVID-19, Morneau said.
The government on Wednesday set aside C$82.3 billion for the wage subsidy program, some C$64 billion more than it has paid out. By contrast, the income support has cost C$53.5 billion so far, and only an additional C$20 billion has been earmarked for this year.
"The original idea of these programs was to minimize the damage," said Royce Mendes, senior economist at CIBC Capital Markets. "The new goal is to promote recovery... For that to happen, the government would like to see people get back to work."
(Reporting by Julie Gordon and Kelsey Johnson; Editing by Steve Scherer and Dan Grebler)