Introduction
With unemployment and underemployment still at high levels, the
federal government should have led the way to a sustained and broadly
shared economic recovery. Instead, the Conservative Budget introduces
only very modest new job creation and social spending measures,
including a supplement to the Guaranteed Income Supplement for low
income seniors, and a home energy retrofit program.
For unemployed workers, the Budget includes a one-year
extension of two Employment Insurance pilot projects, and a temporary
extension of existing and recently expired work-sharing arrangements.
There is also a modest $4.5-million-per-year enhancement to the Wage
Earner Protection Program.
Small business gets a one-year break on EI premiums if they
expand jobs. Manufacturers get a two-year extension of the fast write-off
for new investment in machinery and equipment, a targeted measure
which could help boost real investment.
There are no major job creation measures such as support for
municipal infrastructure investment, or child and senior care.
The hidden focus of the Budget is upon reducing an already
modest deficit. Big spending cuts amounting to $4 billion per year are to
take place over the next few years, though no details are provided on
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where the axe will fall. The Budget hints that these cuts will be used to
fund further tax cuts.
What We Wanted
The CLC had called on the government to address three key issues
in the Budget — Pensions, Employment Insurance, and Jobs.
Our priorities were to:
1. Overhaul our national pension system through a package of
measures, including a doubling of Canada Pension Plan
benefits and an increase in the Guaranteed Income
Supplement to a level sufficient to eliminate poverty among
the elderly in Canada.
2. Improve income security for unemployed workers, and help
hard-hit communities by continuing and improving the
special EI benefits and training measures which were
introduced in the recession, but which have since expired.
3. Launch a major, multi-year, public investment program to
create jobs and build a stronger economy, including support
for public infrastructure development, expanded public
services such as child and elder care, energy conservation,
public transit, renewable energy projects, and support for
industrial restructuring.
Pensions
The crisis exposed major faults at the heart of our pension system.
Our public pensions — Old Age Security (OAS) and the Guaranteed
Income Supplement (GIS), plus the Canada Pension Plan (CPP) — are
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supposed to provide a secure income in retirement, but the maximum
value of these public pensions falls well short of replacing the 50% to
70% of pre-retirement income needed to maintain living standards.
Meanwhile, the private part of our pension system is in deep trouble.
The labour movement believes that Canadians should not have to
“fend for themselves” in retirement. We welcome the fact that seven
provinces have agreed to expand the Canada Pension Plan. The CLC has
called for a doubling of benefits from 25% to 50% of average earnings,
paid for on a fully pre-funded basis by a phased-in premium increase of
less than 6% of earnings up to maximum pensionable earnings. The CPP
provides a fully portable, inflation-indexed, defined pension benefit for
life at a much lower cost than the “pooled registered pension plans”
supported by Finance Minister Flaherty and the financial institutions
which lobbied against CPP expansion.
The Budget speaks to “continuing work (by the federal and
provincial governments) on options for modest enhancement of the CPP,”
but does not indicate strong support for such an option. It talks about
the need for consensus, not reaching the required CPP amendment
formula of seven provinces with two thirds of the national population. It
restates the government’s intent to proceed with the “pooled plans” with
no new details.
The CLC called for an immediate increase in the Guaranteed
Income Supplement of 15% to eliminate poverty among the elderly. This
would cost about $1.1 billion.
The Budget introduces a supplement to the GIS to a maximum of
$600 per year for single seniors, and $840 for couples. The maximum
amount will go to those with less than $2,000 in income other than from
OAS and GIS. Above these income thresholds, the amount of the top-up
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will be gradually reduced, and will be completely phased out at an
income level (excluding OAS and GIS) of $4,400 for singles, and $7,360
for couples. The cost of the top-up to GIS, expected to go to 680,000
seniors, is $300 million per year.
Employment Insurance and Training
Special Employment Insurance income support and training
measures were an important part of the Government of Canada’s
response to the Great Recession, but have now come to an end.
These included an extra five weeks of EI benefits for all regular
beneficiaries to a 50-week regional maximum, and a further extension of
regular benefits for some so-called long-tenure workers. Access to special
EI training benefits for extended training ended in May 2010.
Even at the peak of the recession, just over one half of all
unemployed workers qualified for regular EI benefits, and even fewer
women.
The CLC urged the government to continue the special measures
put in place, including benefit extensions, flexibility for work-sharing
arrangements, and use of regular EI benefits to support retraining of
unemployed workers.
The Budget extends EI work-sharing arrangements already in
place or recently terminated for up to 16 weeks at a cost of $10 million.
The extension will be phased out by October 2011. It also announces a
one-year extension of two EI pilot projects, which were due to expire this
summer, at a total cost of $420 million. These are the projects which
base benefits on the best 14 weeks of earnings in 25 high unemployment
regions, and the Working while on Claim project which allows workers
more flexibility to combine EI with temporary work opportunities. The
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CLC has called for both of these measures to be permanently in place,
and to cover all unemployed workers.
The Budget gives a one-year EI premium break worth $165 million
to small businesses which increases their payrolls in 2011 compared to
2010. Already-announced limits on the increase in EI premiums remain
in place.
The Budget forecasts that the new EI Fund will return to balance
by 2015, and promised consultations on EI premium setting will go
ahead soon.
The Wage Earner Protection Program which covers unpaid wages
in the event of bankruptcy (up to a maximum of $3,400) is enhanced to
cover a longer period to protect employees hit by an employer’s
unsuccessful restructuring, at an annual cost of $4.5 million. The
Temporary Initiative for Older Workers, which helps unemployed workers
in smaller communities, is extended for two years at a cost of
$50 million.
With respect to training, the Budget announces a “Helmets to
Hardhats” program in partnership with the AFL-CIO Building Trades
which will train released armed forces personnel for jobs in the
construction industry. There will be a tax break for examination fees for
skills certification, and some small improvements to student loans and
grants.
Jobs
To deal with the continuing jobs crisis, the CLC called for the
federal government to launch, in partnership with the provinces and
cities, a major, multi-year, public investment program which would
create jobs now, promote our environmental goals, and build new “green”
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industries for the future. A comprehensive plan would cover: roads,
sewers, and basic municipal infrastructure; health and educational
facilities; mass transit; passenger rail; affordable housing; energy
conservation through building retrofits; and renewable energy. Federal
government support for all infrastructure and environmental investments
should be linked to “Made in Canada” procurement policies so goods and
services inputs are purchased in Canada. We also called for sectoral
industrial strategies to assist restructuring.
The current infrastructure investment program — including the
Infrastructure Stimulus Fund — made a significant contribution to
recovery in the job market, but these investments were modest in scale,
had an inadequate focus on green investments, and expired at the end of
the fiscal year 2010-11.
The Budget makes a number of small announcements on job
creating investment. There is a one-year-only extension of the
ecoENERGY Home Retrofit program at a cost of $400 million as part of a
suite of modest measures in support of clean and renewable energy.
There is no increase in federal support for municipal
infrastructure, though the Gas Tax Transfer base will now provide a
guaranteed $2 billion per year. (It could now fall below that base in the
very unlikely event that gasoline prices fell sharply.)
There is a two-year extension of the fast two-year write-off for
companies for manufacturers and processors who invest in machinery
and equipment, at a total cost of $620 million. The CLC has supported
such targeted measures as an alternative to unproductive broad-brush
cuts to the corporate tax rate.
The Budget announces minor measures in support of the forest
and aerospace sectors, and in support of research and development.
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We also called for investments in child care and early learning,
home care, and long-term care for the elderly which would create new
jobs while promoting our social goals. Rather than expand public
programs, the Budget announces small improvements to tax credits to a
maximum of an extra $300 per year for family caregivers of infirm child
and senior dependents.
Health and Social Transfers to the Provinces
The Conservatives did not announce any changes to transfers to
the provinces in this Budget. Currently, health transfers to the provinces
are growing by 6% per year, and the Canada Social Transfer is growing
by 3% per year. The current formula for federal contributions to
provincial social programs expires in 2013-14. A majority Conservative
government would probably cut the rate of increase of transfers to force
the provinces to cut public health care and to expand private health care.
Context: the Continuing Jobs Crisis
While the Canadian economy has begun to recover from the “Great
Recession” in terms of the level of GDP and overall job growth,
unemployment and underemployment still remain well above preecession
levels. The national unemployment rate in February 2011 was
7.8%, up sharply from about 6% before the recession, and there were
still almost 1.5 million unemployed workers; 21% of the unemployed
have been out of work for six months or longer.
Many of the jobs created in the recent recovery have been parttime
and temporary. Statistics Canada’s broadest measure of
unemployment, which counts labour force dropouts and involuntary
part-time workers, stands at 11.7%. A near record one in five workers
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(19.7%) are now part-time, and the number of temporary workers has
also been rising.
The Budget expects the unemployment rate to average 7.5% this
year and 7.2% in 2012, well above the 6% rate reached in 2008 before
the recession.
The Conservative Spending Cuts and Tax Plan
The Harper government’s priority before the recession was tax
cuts. Federal taxes were cut from 16.2% of GDP in 2005-06 to 14.6%
before the recession. In the fiscal year just ahead of us (2011-12), tax
cuts introduced by the Conservatives will reduce revenues by at total of
$37.5 billion, of which $10.5 billion come from corporate income tax
cuts, and $13.2 billion come from the two-percentage-point cut to the
GST. These are classic right-wing, “starve the beast” tactics which were
intended to set the stage for spending cuts.
The general corporate income tax rate is now 16.5%, down from
22% in 2006, and far less than the U.S. rate of 35%. In January 2012, it
will fall to just 15%. Despite past cuts to the corporate tax rate, real
business investment did not rise as a share of our economy. Continuing
cuts to the corporate income tax rate have been sold on the basis that
they would boost investment in the real economy and create jobs.
However, the lion’s share of the tax cuts go to the banks and to resource
companies which already have high profits.
The Budget made no changes to planned corporate tax cuts.
The Conservatives responded to the recession by raising spending
grudgingly and under pressure, both domestically and internationally.
Deficit-financed stimulus measures taken in the 2009 Budget which
continued into 2010 — especially investment in municipal infrastructure
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and somewhat enhanced access to Employment Insurance and
training — had some positive impact in alleviating the full force of the
Great Recession on working people and on hard-hit communities. But
these measures have come to an end, and the focus is now on fiscal
austerity.
Contrary to conventional wisdom, the federal government deficit
and debt are not major problems.
The federal debt as a share of GDP was just 29.0% before the
recession, one of the lowest levels among major economies. Despite three
years of deficits due to the recession, the debt today still stands below
the level of 2005-06, and is much lower than in Japan, the U.S., or major
European economies. It will soon return to pre-recession levels.
The deficit is low and falling. It topped out at 3.6% of GDP last
year, has been falling quite rapidly to a projected 2.5% of GDP this fiscal
year, and is expected to fall to just 1.7% of GDP in 2011-12 due to the
limited economic recovery which has boosted tax revenues. The deficit
has fallen well below the projections in the last Budget, and is expected
to be all but eliminated by 2014-15. It was much higher — about 5% of
GDP — from the late 1980s until the mid-1990s. Moreover, interest rates
on government debt remain near record lows (well under 4% per year on
ten-year bonds). The deficit today exists more due to Conservative tax
cuts than to the recession.
Despite the falling deficit, the Budget announces a total of
$17.2 billion in spending cuts over the next five years, with a target
moving forward of annual savings of $4 billion per year to reduce the
debt and/or to fund further tax cuts.
To his credit, Minister Flaherty also plans to raise an extra
$1 billion per year in revenues by closing tax loopholes mainly used by
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very high income Canadians (including senior executives with personal
pension plans).
Introduced in 2007, Strategic Expenditure Reviews were originally
characterized as a revolving cycle of departmental reviews reallocating
5% of expenditures from low-priority to high-priority areas within the
department. By 2009, the Strategic Review exercise had evolved into a
program designed to reduce departmental expenditures by 5% yearly.
The first four-year cycle of Strategic Reviews ended in 2010. By
2014-15, these reviews will have delivered a total savings of $8.5 billion.
In 2011, a new one-year, whole-of-government “Targeted Strategic
and Operating Review” will temporarily replace the revolving Strategic
Reviews. This new Review will deliver $4 billion (representing 5% of the
review base) in yearly savings starting in 2014-15, and total accumulated
savings of $11 billion by 2015-16.
As with the most recent 2010 round of the Strategic Review
exercise, no indication whatsoever is given in the Budget of where the
axe will fall. Observers will have to comb through the Main and
Supplementary Estimates for department-specific details of the past
review, and we do not know what the future program targets will be.
Combined with the ongoing savings from 2007-10 Strategic Review
process, total annual savings are forecast to be $15.5 billion by 2014-15.
Federal departmental operating budgets remain frozen for two
years at their 2010-11 levels. In 2010-11, no increase in departmental
envelopes was allocated to absorb the legislated 1.5% wage increase for
federal public service workers, delivering savings of $300 million in
2010-11.
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Conclusion
The jobs crisis is still very much with us. Our national debt is low,
and interest rates are and will remain very low. The priorities in this
Budget should have been pensions, jobs, and support for the
unemployed,
fund future tax cuts.
The CCPA Alternative Federal Budget shows that a major public
investment program along the lines proposed by the CLC could improve
services to communities and people, and quickly bring the national
unemployment rate down below 7%. By putting Canadians back to work
and paying taxes, the deficit would fall just about as fast as under the
Conservative plan, and programs and services would be improved rather
than cut.
not spending cuts to reduce an already small deficit and toAJ:jc:cope 225 / March 22, 2011
File: 2-03-20302-B02
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