Statistics Canada’s latest unemployment numbers clearly show how severe the set off by COVID-19 has become. The unemployment rate increased more in March 2020 than in any other month since that data first became available in 1976. More than 3 million Canadians have lost their jobs or had their work hours reduced due to COVID-19.
Retail sales have been particularly affected by shutdowns, travel restrictions, and physical distancing requirements. Unlike other parts of the economy, retail workers have limited opportunities to work from home. Across Canada, more than 1.3 million retail jobs have been affected by the pandemic. The latest Labour Force Survey shows the number of people working in wholesale and retail decreased by 208,000 in March. The April numbers may be even higher, since measures to limit the spread of the virus didn’t fully take effect until mid-March.
While the immediate effect of retail job losses is becoming clearer, the amount of money that governments make from taxes will also decrease. Goods and Services Tax (GST) revenue, which is closely connected to retail, made up nearly 12 per cent of all federal revenues in 2018–19. We estimate more than half of that came from retail sales.
The effect of GST revenue losses on provincial budgets will vary. In New Brunswick, Nova Scotia, and Ontario, retail-related taxes provide the highest percentages of provincial revenues in the country. (See Table 1.) For example, New Brunswick could lose up to one-tenth of its government revenues because of lower retail spending.
The Government of Canada has created several programs to limit the negative effects of the pandemic on the retail industry. These include the Canada Emergency Wage Subsidy, the Canada Emergency Business Account, the new Small and Medium-sized Enterprise Loan and Guarantee program, and allowing people to postpone all GST/HST payments until June. But we don’t know how much these programs will protect provincial budgets. It will become clearer in the coming months, but economists predict a double-digit decline in sales tax revenue for this fiscal year.
We also don’t know how much pent-up consumer demand there will be once restrictions are relaxed. That will depend on how much consumers are able to spend on things they put off buying during the pandemic and how secure they think their jobs are. Consumer confidence is now at a record low in Canada, so it will be a slow recovery. As a result, we don’t expect retail spending in Canada to return to its pre-COVID peak for at least 12 months. This long period of weakness will affect both retail employees and government finances.
Employment and sales in high-risk retail sectors
|Province/territory||Retail employees||Retail employee share (%)||Retail sales ($ millions)||Tax revenue ($ millions)||Revenue share (%)|
|Newfoundland and Labrador||21,755||8.0||5,510||551||7.1|
|Prince Edward Island||5,935||7.4||1,591||159||7.9|
Note: Employment figures are for 2015 while retail sales and revenue estimates are for fiscal year 2018–2019.
Sources: The Conference Board of Canada; Statistics Canada; Canada Revenue Agency; provincial and territorial departments of finance.