Public Values

Upcoming federal budget needs tax fairness, investment in public services

Don't panic about recession, PM, finance minister told at pre-budget consultations.

Tax fairness would help eliminate structural deficitby James Clancy

Prime Minister Harper is seeking guidance from Canadians on the economy and the upcoming federal budget which will be released on March 4th.

The budget shapes the social and economic realities of our lives. It's important that as many Canadians as possible provide their input to ensure the budget represents our priorities and values. I encourage you to voice your views at this federal government link.

Set out below are the four pieces of advice that my union shared with the prime minister and finance minister. If you'd like to provide me with feedback on the points below, please do so at the link below.

1. The top priority must be to preserve and create good jobs.

The number one focus for the upcoming budget must be jobs.

Canadians are still reeling from a recession that's as tough, as deep and as dire as anything we've experienced for generations. The jobless rate remains stubbornly high – it was 8.3 per cent in January. More than 1.5 million Canadians are out of work. Since October 2008 close to 350,000 full-time jobs have been lost in Canada.

Any economic recovery is going to be long and drawn out. At this point, the private sector has been unable to create jobs and economic growth – those things will have to come from public investment. The government must continue pumping fiscal stimulus into the economy until the job market recovers, Canadians are back at work and the economy is growing again.

The budget must continue stimulus spending and set out a jobs plan that emphasizes the following:

More public investment in infrastructure projects.

A national industrial strategy to reinvigorate Canada's manufacturing base.

An early learning and child care program that will create thousands of jobs for women.

Invest in R&D, emerging innovative technologies, public transit, and a national building retrofit program, in order to create green-collar jobs and a thriving green-tech economy.

A Made in Canada public procurement policy.

  "In tough economic times, families need to rely on accessible and high quality public services more than ever. And sectors such as health, education and social services are a source of decent jobs for millions of Canadians."

2. Invest in improving our quality of life.

The budget must also focus on creating a healthier, smarter, greener and more secure Canada.

This requires more investment in the key public services and social programs that support families, improve our quality of life, and improve Canada's productivity and competitiveness, specifically:

Expand the Canada Health Act to cover home care and mental health services.

Create a national early learning and childcare program, make post-secondary education more affordable, and expand apprenticeship and training programs at community colleges.

Invest more in renewable energy projects and initiatives that improve energy efficiency and strengthen conservation.

Improve the EI program by implementing a uniform entrance requirement of 360 hours and increasing benefit levels.

Increase benefit levels under the Canada Pension Plan and Guaranteed Income Supplement, and invest more in elder care, to ensure all seniors can retire with security and dignity.

Clearly, all Canadians and Canada are better served by growing up with world-class health care, world-class education and skills, more retirement security, more support for the unemployed, and by living in a more environmentally friendly world.

What is also clear is that in fragile economic times it makes no sense to cut funding for public services. In tough economic times, families need to rely on accessible and high quality public services more than ever. And sectors such as health, education and social services are a source of decent jobs for millions of Canadians. At times like these, we need to keep people working and we need workers spending money at local businesses in their communities in order to get the economy going again.

  "The facts clearly show there's no fiscal crisis, there's no need to panic, and there's just no need to be in a rush to eliminate the deficit. Deficit hawkery right now is not just ludicrous it's also dangerous because it would promptly plunge our economy back into a deep recession."

If the government is spending billions of dollars to create jobs and stimulate the economy, it just doesn't make sense to cut spending and jobs in the public sector. This would be like driving with one foot on the gas pedal and the other on the brake. It just doesn't make sense.

The government must use this budget to invest more in the public services that support families, improve our quality of life, build a fairer society, and provide jobs that stimulate the economy.

3. Don't panic about the deficit.

The federal government should ignore the growing drumbeat of dire deficit warnings because they simply are not supported by any hard evidence.

The facts clearly show there's no fiscal crisis, there's no need to panic, and there's just no need to be in a rush to eliminate the deficit. Deficit hawkery right now is not just ludicrous it's also dangerous because it would promptly plunge our economy back into a deep recession. The government must put the deficit in perspective and adopt a longer-range plan to deal with it.

The big deficits this year and next are largely cyclical and due to a drop in tax revenues and temporary stimulus spending. According to Parliament's independent budget officer, once the two-year stimulus spending is finished, the federal government will be left with a very manageable structural deficit in the range of $19 billion by the year 2013-14. That represents just 1 per cent of Canada's GDP. It’s a small number, especially compared to a G20 advanced country average of 3.4 per cent.

Moreover, at about 33 per cent this year, Canada has the lowest national debt to GDP ratio of all G7 nations. And our national debt burden is small relative to our own past experience. The last time Canada supposedly came close to "hitting the debt wall" was in the mid-90s, when federal debt peaked at about 70 per cent of GDP. We're at less than half that number today. And, quite unlike the late 1980s and early 1990s, the stage today is set for interest rates to be lower than rates of economic growth for some time. That means we can run modest deficits without increasing the debt to GDP ratio at all. The chances of Canada finding itself in a debt-interest payment trap are very small.

Therefore, compared to other OECD countries, compared to our own history, and in light of the serious needs in the current crisis, the federal deficit just isn't a serious or urgent problem. This economic downturn didn't happen overnight. And the solution to it won't either. In the long-run, as more jobs are created, as the economy begins to grow again, and tax revenues begin to rise, the deficit will automatically start declining.

However, most economists agree that economic growth in the years ahead will not be enough on its own to eliminate the structural deficit. So other options should be considered. But drastic cuts to public services and the public sector shouldn't be one of them. That approach risks putting us back into recession. It would increase hardship for vulnerable families. And it would diminish our quality of life.

Any structural deficit needs to be handled in a responsible and fair manner.

  "This economic downturn didn't happen overnight. And the solution to it won't either. In the long-run, as more jobs are created, as the economy begins to grow again, and tax revenues begin to rise, the deficit will automatically start declining."

4. A return to responsible public financing and tax fairness is needed.

The federal government has a revenue problem, not an expenditure problem.

Over the last decade, the federal government implemented deep tax cuts that have been largely ineffective and have recklessly depleted the government's fiscal capacity to deal with an economic downturn and make investments to improve our quality of life.

Data from the OECD shows that since 1995 total tax revenue in Canada has dropped from 36 per cent of GDP to 33 per cent of GDP. It may not sound like a lot, but that 3 per cent drop represents a loss of nearly $50 billion a year in public revenue for things like health care, education and social services.

The government has a revenue problem today, but Canadians are also facing a tax fairness problem. The tax burden has increasingly shifted from the business sector and onto individuals. And personal tax cuts have overwhelmingly benefited the wealthiest Canadians. These trends mean that middle and lower income Canadians are carrying much more of the tax burden.

It's time to reverse this pattern of irresponsible and unfair public financing. The goal should be to return Canada's total tax revenue to 36 per cent of GDP (which is the OECD average) and restore fairness to the system. The budget should consider a tax reform plan that includes a mix of the following options:

Goods and services tax: According to Finance Canada, the 2 per cent GST cut costs the federal government $12 billion dollars every year in revenue. If the federal government reversed this decision, either partially or in full, it could raise a significant amount of revenue.

Federal corporate income tax rates: When it came to office, the Harper government began a process of slashing the federal corprate tax rate from 22 per cent to 15 per cent by the year 2012. This will put Canada among the very lowest in the OECD and significantly below the US rate. According to Finance Canada, going from 22 per cent to 15 per cent will cost the federal government about $14 billion a year in revenue. If the federal government canceled its plan to cut the corporate rate over the next few years, and instead simply maintained the current rate of 19 per cent, it could gain anywhere from $7 to $10 billion dollars per year. When you are already short of money, does it make sense to cut your revenue stream even further?

Income tax rates for the wealthiest Canadians: Studies by the OECD conclude that the wealthiest Canadians have benefited the most from personal income tax cuts in recent years. In addition, Canada’s top federal tax rate (29 per cent) is considerably lower than the top rate in the US (35 per cent). The government should consider establishing a new tax bracket at 35 per cent for income above $250,000. This new bracket would only affect the richest 0.8 per cent of Canadians. But it would raise close to $4 billion in revenue per year.

Capital gains taxes: Individuals and corporations with capital gains from the sale of assets or stocks are only charged half the tax rate of what ordinary Canadians pay on their hard-earned wages. In 2009, this inequity cost the federal government about $6.5 billion dollars in lost personal and corporate tax revenue. Half of taxable capital gains go to the richest 0.8 per cent of Canadians with an annual income over $250,000. The federal government should consider fully taxing capital gains at the same rate as other forms of income.

Offshore tax loopholes: Experts estimate there could be as much as $100 billion dollars in hidden offshore accounts owned by wealthy Canadians. The US, UK, France, Italy and others have all taken steps to crack down on tax evasion. As a first step, the Canadian government should consider offering a one-time amnesty program to recoup lost tax revenue.

If the federal government took a combination of steps across these five areas, it could bring Canada's total tax revenue as a percent of GDP closer to the OECD average of 36 per cent.

That would make a major contribution to eliminating the structural deficit.

It would help restore tax fairness for Canadians.

And it would provide more revenue to make investments in the key public services and social programs that would build a healthier, smarter, greener and more secure Canada.

That's the kind of responsible and fair budget that Canadians need and want the federal government to deliver on March 4th.

James Clancy National President, NUPGE

James Clancy is the national president of the National Union of Public and General Employees (NUPGE), one of Canada's largest labour organizations with over 340,000 members. Their mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good.

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Posted: February 18, 2010

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