Freeland is trying to get ahead of a recession — but EI reform might not come fast enough

The Liberals are now moving to get ahead of a recession — at least rhetorically. They may be trying to correct for how flat-footed they seemed this spring when global inflation refused to abate. Now they might be wishing they'd moved faster on EI reform.

Stephen Harper's experience proves recessions aren't always government-killers

Finance Minister Chrystia Freeland arrives at a cabinet meeting on Parliament Hill in Ottawa on Thursday, Oct. 6, 2022. (Sean Kilpatrick/The Canadian Press)

In an interview with the CBC's Power & Politics earlier this fall, former Liberal finance minister John Manley warned that "recessions lead to changes in government."

That's not entirely true. Manley's maxim ignores the case of the Great Recession in 2008. But governing through an economic downturn is inherently difficult. Finance Minister Chrystia Freeland surely has that in mind as she warns Canadians that "there are still some difficult days ahead."

"But we will be ready," she promised. "We will get through the economic slowdown that is coming for Canada and the world."

In moving to get ahead of a recession — at least rhetorically — the Liberals might be trying to correct for how flat-footed they seemed this spring when global inflation refused to abate.

Whether that will translate into a nimble response remains to be seen. But to be fully ready, the Liberals might wish they'd been able to move faster on one of the biggest outstanding items on their agenda — employment insurance reform.

Recessions aren't always fatal for governments

Even if recessions aren't necessarily fatal for governments, incumbents ignore the obvious dangers at their peril.

A recession from 1981 to 1982 likely contributed to the defeat of the Liberal government in 1984. The demise of the subsequent PC government was preceded by a downturn from 1990 to 1992. The Great Depression unquestionably doomed R.B. Bennett's government, which came to office with a majority in 1930 before being thrown out in 1935.

Maybe those governments would have been replaced anyway — there were other factors working against them. But the economic struggles didn't help. As Manley said in September, "it's very hard for a government to gain strength during a recession because people are hurting."

But the case of the Great Recession and Stephen Harper's government demonstrates that a downturn doesn't have to be politically fatal — even when the government initially botches its response.

Former Prime Minister of Canada Stephen Harper speaks at the 2017 American Israel Public Affairs Committee (AIPAC) policy conference in Washington on March 26, 2017. (Jose Luis Magana/The Associated Press)

In mid-September 2008, with the American financial system teetering, Harper said his "own belief" was that "if we were going to have some kind of big crash or recession, we probably would have had it by now."

A re-elected Conservative government then tabled an economic update that had little to say about the unfolding crisis, while picking unnecessary fights over political financing, pay equity and the right of public sector unions to strike. In the ensuing furor, Harper came very close to losing power.

But then Harper bought himself time to recalibrate; faced with an imminent vote of non-confidence, he asked the governor general to prorogue Parliament. Harper came back with "Canada's Economic Action Plan," an early budget packed with stimulus spending that buried the Conservative Party's promise to never run a deficit. 

Whatever the merits were of the plan's actual spending, the action plan was a master class in political communication — with large signs at the site of every federally funded project and millions of dollars in government ads blanketing the airwaves. The Conservatives successfully made the case that the economic problems had originated elsewhere and the federal government was acting decisively to help Canadians get through a difficult moment.

In the next election, Harper's Conservatives won their best-ever result — a majority in the House and 39.6 per cent of the popular vote. 

The weaknesses in employment insurance

More than a decade later, the Liberal government has bought itself some time to get through a downturn by signing a confidence-and-supply agreement with the NDP. But for the sake of being ready, the Liberals might wish they had expedited their plans to reform EI.

As the government acknowledged in its throne speech in September 2020, the pandemic showed that "Canada needs an EI system for the 21st century, including for the self-employed and those in the gig economy." The following spring, the Liberals announced consultations on "future, long-term reforms."

The second of two reports on those consultations was published last month, joining a body of recent research that includes a report tabled by a House of Commons committee in June 2021 and an expert report issued by the Institute for Research on Public Policy this past May.

The IRPP reported that, "over the course of the two-day workshop, participants described the current EI system as too complex, inadequate and suffering from glaring coverage gaps and regional inequities that have made it increasingly ineffective." Research shows that the percentage of unemployed Canadians who received EI benefits has dropped from 83 per cent in 1990 to 38 per cent in 2019.

WATCH: Prime Minister Justin Trudeau discusses the threat of a recession

Trudeau discusses threat of a recession

5 months ago
Duration 1:50
Prime Minister Justin Trudeau responds to questions about how the government will handle a probable recession in Canada following warnings from Finance Minister Chrystia Freeland and former Bank of Canada governor Mark Carney.

Making changes to a fundamental piece of the social safety net is never simple — the consultations report hints at some of the potential trouble spots. There was no consensus on how to handle self-employed workers among those the government heard from — particularly on the question of whether participation should be mandatory or voluntary. Meanwhile, "employers cautioned that there should not be additional financial burden on businesses."

A recent report prepared by researchers David Gray and Colin Busby for the C.D. Howe Institute confirmed that the EI system is slow to react to downturns in the economy. That concern is echoed in the IRPP report: "The layers of complexity added to the EI system over the years and glaring gaps in coverage have thwarted its ability to stabilize the economy in times of crisis."

Armine Yalnizyan, an economist and Atkinson Fellow on the Future of Worker, said in an interview last week that, in the event of a downturn, "coverage rates are going to be quite low for the people that are the most likely to get hurt."

The example of the Canada Emergency Response Benefit also shows that better support can help an economy bounce back, Yalnizyan says.

No one knows for sure when the next downturn might hit. It might be too late now for the federal government to move on comprehensive EI reform. Temporary fixes might be necessary to address the gaps.

The office of Employment Minister Carla Qualtrough said in a statement last week the government is working toward releasing a plan to "permanently improve Canada's EI system ... in the coming months."

"Modernizing a complex system that serves millions of Canadian each year is a serious undertaking that requires substantial consideration, and we are taking the time necessary to get it right," the statement added.

Getting it right is important. But one way or another, a recession should make EI reform an unavoidable question.


Aaron Wherry

Senior writer

Aaron Wherry has covered Parliament Hill since 2007 and has written for Maclean's, the National Post and the Globe and Mail. He is the author of Promise & Peril, a book about Justin Trudeau's years in power.

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