Status quo Budget advice

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Dollar cutsThis summer, the House of Commons Standing Committee on Finance invited Canadians (view CPJ’s submission) to participate in the pre-budget consultation process. We were invited to submit recommendations and, “provide views about how to achieve a sustained economic recovery in Canada, create quality, sustainable jobs, ensure relatively low rates of taxation and achieve a balanced budget”. With parameters like that, the Committee’s recently released recommendations for the 2012 budget shouldn’t come as much of a surprise. See: Staying Focused on Canadian Jobs and Growth. The report seems to narrowly promote economic growth at all costs.

With a majority in government and in the Committee, the report likely provides a good idea of what we can expect in the February 2012 budget. But federal budgets are meant to be about more than just finances; they’re to reflect our nation’s deeply-held values and priorities.

What do Canadians really want and need?

The general thrust of the report can be summed up as follows:

Lower taxes (especially corporate taxes)

= greater investment & growth + more jobs
= stronger economy
= decreased need for government spending (e.g. social programs) & increased tax base & revenues

This isn’t a new argument. And it would make perfect sense if it actually worked – but it doesn’t. The truth is that low taxes do not necessarily lead to more jobs and increased investment. And even if they did, economic growth doesn’t benefit everyone.

While the need for a low-tax regime may be touted by some as an absolute necessity for investment (Canada now has one of the lowest tax environments in the world), the argument fails to take into consideration the numerous other benefits that a country like Canada has to offer: geo-political stability and security, a highly-skilled workforce, strong infrastructure, etc. When a business decides where to invest, they consider a lot more than just taxes.

Nor do low taxes necessarily result in the creation of more jobs. While the corporate tax rate has been consistently and dramatically cut over the last decade, businesses have added billions of dollars to their cash reserves. According to one study, the number of jobs created by Canada’s largest corporations was actually lower than the country’s average employment growth. Rather than investing in more jobs, these corporations hoarded the money for themselves.

So who does benefit from low taxes? Disproportionately, the wealthiest in society:  between 1997 and 2007, the richest one per cent of Canadians took home close to a third of the growth. At the same time, those at the bottom of the economic ladder experienced a decrease in real wages as inflation outpaced scant increases in income. “Trickle-down [economics] would work,” says Armine Yalmizyan at the Canadian Centre of Policy Alternatives, “if it wasn’t for the sponges at the top”.

Despite all this evidence, though, what are the key recommendations in the Committee’s report? Implement corporate tax cuts and find other ways to make the tax system more “competitive”, reduce personal taxes, cut current government programs, and limit any new spending.

When you impair the government’s ability to collect taxes and limit its investment in health and social programs that promote people’s well-being and dignity, you are getting government out of the business of caring. Is that what Canada is about?

“The best measure of a society,” it has often been said, “is the way it treats its most vulnerable citizens”. Government has the responsibility to the interests of all its citizens, including those currently being left behind by narrow economic policies. With the exception of the dissenting opinions included in the report, there are no recommendations to address poverty in the budget (something that actually could result in a strengthened economy and livelihoods for all). It also says little about mechanisms to protect the environment and curb climate change.

A recent Globe and Mail article found that the members of the Finance Committee are some of the most lobbied individuals in Ottawa. “Money talks”, and the Committee’s report makes it apparent who the money’s been talking to. The pre-budget briefs submitted by CPJ and multiple other like-minded organizations calling for people and the environment to be put before tax cuts and economic growth-at-all-costs have been all but ignored.

Loving your neighbour and caring for creation are economic imperatives as much as they are moral.  The best way to achieve a sustainable economic recovery is to ensure that all Canadians are able to participate in the economy and to protect the integrity of the environment on which that economy so heavily relies. The report fails to address these realities.

The government’s Speech from the Throne earlier this year was entitled, “Here for all Canadians” [emphasis added]. Let’s hope Finance Minister Jim Flaherty remembers this fact when he considers the Committee’s recommendations and prepares the 2012 budget.

Stay tuned!

Simon is CPJ's Socio-Economic Policy Analyst.

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