Federal budget 2006: A public justice first look

Canada is a land of great wealth. Nowhere was that more apparent than in the 2006 federal budget, the first of the new Conservative government. In it, Minister of Finance Jim Flaherty forecast surpluses of more than $37 billion dollars over the next two years.

But Canada is also a land of great disparity. More than a million children and their families are living in poverty. That poverty is most prevalent among aboriginal people, recent immigrants, families with disabilities and lone parent families. One can debate just where the poverty line should fall. Regardless, those families are excluded from opportunities that most families take for granted.

Public justice requires government to exercise particular care in assuring that those who have the least are assured not only the basics of life, but real opportunity to flourish and fully participate in the life of community. From that perspective, the Harper government’s first budget comes up short.

Finance Minister Flaherty made it very clear that cutting taxes and reducing the role of the federal government were his main priorities. “Mr. Speaker,” he said, “this government is focused. And nowhere are we more focused than in the area of tax relief....that’s the bottom line.”

With budget surpluses of $37.2 billion over the next two years, the budget devotes $21.2 billion to tax cuts. Another $6 billion will be used for debt reduction. That means almost three out of every four dollars will go to tax cuts and debt repayment.

No matter how much federal finance ministers, of whatever political stripe, tout the equal opportunity benefits of cross-the-board tax cuts, the real result is that tax cuts lock in disparity. Consider that those 1.2 million children living in families in poverty fall, on average, $7,000 or more below the poverty line. All of the tax cuts in Budget 2006 amount to what Minister Flaherty called “almost $300” in savings for families with incomes between $15,000 and $30,000 per year.

The Good

Budget 2006 does honour some of the agreements made in last year’s budget. $1.4 billion of the original $1.6 billion in one-time funding for affordable housing made it into the budget. $1 billion for post-secondary education and $1.3 billion for public transit are also in the budget. The budget also increased the Child Disability Benefit, an income-tested benefit delivered through the Canada Child Tax Benefit. It also reduced the tax-back rate on this disability benefit, allowing more middle income families to get greater benefit.

While the new Universal Child Care Benefit (UCCB) will likely do very little to create high quality, community based early learning and child care, it does provide a higher monthly benefit than the “under 7 years of age” supplement it replaces. Unlike that supplement, which was part of the Canada Child Tax Benefit, the new UCCB will be taxable. But Budget 2006 promises that the UCCB will not lead to a reduction in federal income-tested benefits, like the Canada Child Tax Benefit. And the budget speech included a reference thanking those provinces who have stated they will not claw the benefit back from families receiving social assistance.

Budget 2006 reduces the Right of Permanent Residence fee from $975 to $490. That and the promise to create a Canadian Agency for Assessment and Recognition of Foreign Credentials should help new immigrants to Canada. Another step the government should take is to eliminate processing fees for refugees. The Right of Permanent Residence Fee was lifted for refugees in 2000. But other immigration fees remain in place. They are a costly burden for refugees who do not have the means to pay them and must borrow that money. But those fees produce miniscule revenue for the federal government.

The Not-So Good

The housing funds did not include $500 million in grants to help low-income households with energy retrofits. And the promise to deliver the $700 million earmarked for Early Learning and Child Care for 2006-07 fell short by $50 million – $25 million for aboriginal child care was cut, as was $25 million for accountability in how the ELCC money was spent.

A lot of the measures in this budget are delivered through the tax system. Budget 2006 includes a host of tax credits, from a public transit tax credit to a textbook tax credit. Those credits appear to be non-refundable. That means that if your income is so low that you do not owe federal personal income tax, the credits will not benefit you. That may be particularly important for the $500 physical fitness tax credit – meant to help parents with fees and the costs of things like hockey equipment. Budget 2006 states that, “For many children,” participating in sports and physical fitness activities “is a crucial part of their development.” In fact, it is a crucial part of development for all children. The challenge remains how the government can help insure all children can truly participate.

Room to build

Scrapping the Early Learning and Child Care agreement is a major setback for efforts to create a program of services available to all families across Canada. Budget 2006 earmarks $250 million per year to create new child care spaces. The government has said it will consult with “governments, businesses and community organizations to develop a plan that works, a plan that actually creates spaces.” That $250 million a year is only a fraction of the $1 billion per year for early learning and child care that the existing agreements included.

Rather than trying to create a whole new plan to build early learning and child care, and lose the spaces that could be created immediately, the government should consider flowing the $250 million it is prepared to spend through the existing agreements.

Putting things in perspective

Finance Minister Flaherty justifies his government’s emphasis on cutting taxes in two ways.

First, as a drag on the economy. “Canadians pay too much in tax. It’s holding families back. It makes it harder for small businesses to create jobs and opportunities. It discourages innovation and investment. It limits our productivity.” Such a gloomy outlook belies the strength and prosperity of the Canadian economy. “Looking at our current situation,” Mr. Flaherty states later in his speech, “Canadians have many reasons to be confident. Unemployment is at a 30-year low, we have low inflation and strong consumer confidence, and corporate profits are at record levels.”

Second, Mr. Flaherty paints federal government spending as “neither sustainable nor desirable.” To make the point, he observes that program spending grew by an average of 8 per cent annually over the past five years. “In 2004-05 growth in spending increased by 14.4 per cent.” Set in a larger context and historical perspective, though, those figures look a whole lot more sustainable than the Finance Minister would have us believe. Elsewhere in his budget speech, Minister Flaherty reports that “program spending as a share of GDP is projected to decline from 13.7 per cent in 2004-05 to 13.0 per cent in 2007-08.” Under Paul Martin’s watch as Finance Minister, program spending as a per cent of GDP had already fallen to historically low levels, the lowest since the end of the Second World War.

Given the increased responsibilities of government to fund health care, post-secondary education, pensions and child benefits, that is a remarkable fact. It also suggests that we need not fear that additional public spending will be unsustainable. The case remains to be made whether it is undesirable.