Have more – keep more: federal tax cuts initiative doesn’t cut it for ordinary, working Canadians

The federal government is in a nice financial position. Year after year, it has been running huge budget surpluses, including nearly $14 billion for the 2006-07 fiscal year, and it is on pace to match that for the 2007-08 fiscal year. This fiscal prosperity provides the government with a lot of options. In their recent Economic Statement, the Conservatives have chosen the option of cutting taxes.

The current government believes that cutting taxes is the single, best way to help ordinary Canadians. They offer examples of what people will save as a result of the cut to the GST when they buy a new $300,000 house or a new $30,000 mini-van. But for many Canadians, the closest chance they will get to make such purchases is if they win the lottery. GST cuts only make a difference if you have a lot of money to spend on things besides groceries, rent and child care, all of which are GST exempt. For most of us, tax savings will be measured in spare change, not in the thousands or even hundreds of dollars.

While the government lowered the income tax rate of the lowest earners by 0.5%, it also pledged to reduce corporate taxes by 7.1% over the next 5 years. Since corporate earnings usually go to Canada’s top income earners, these changes reinforced the overall taxation trend that sees high income earners contributing less of their income to government services than low income earners.

In fact, a recently released study by the Canadian Centre for Policy Alternatives demonstrates that since 1990, repeated modifications to the tax system have resulted in the top one percent of earners paying a lower portion of their income than the lowest income earners. This basic unfairness in the tax system impoverishes us all.

Ironically, Finance Minister Jim Flaherty invoked the memory of Lester B. Pearson in his speech laying out the tax cuts – if only to say that federal tax rates have not been so low since Pearson was prime minister. But the reference serves to remind us of other choices that the federal government could have made, following in the footsteps of Pearson.

In a similar period of economic prosperity, Pearson’s government introduced a universal health insurance plan. This has become one of Canada’s most highly valued institutions. It provides tangible benefits to all Canadians, while recognizing that the health of Canadians is a public good. Healthy workers sustain our entire economy; healthy families raise Canada’s next generation of citizens.

But Canada’s public health care system is still under construction. Pharmacare and dental care still lie outside our public health system. Canadians who do not have an employer health plan spend hundreds or sometimes thousands of dollars a year on prescription drugs and dental care – or they do without. Saving a little on the GST will hardly cover those expenses.

There are other holes in Canada’s social fabric, too. The number of affordable housing units available does not meet current demand, as safe and secure housing becomes a luxury too many Canadians cannot afford rather than a human right. Quality early childhood education is not accessible to all children, and many working parents struggle to meet child care costs – when they are lucky enough to find an available space.

For many ordinary, working Canadians, taxes are not the problem: while working full-time, they still cannot make ends meet. Work doesn’t always provide a livable income. Yet the Work Income Tax Benefit is only available to individuals who make less than $12,833 a year and families that earn less than $21,167 a year. In most of Canada, this is less than an individual would make working full-time, year round at the minimum wage. Much more could be done to ensure that work pays in Canada – beginning with increasing the Work Income Tax Benefit and the minimum wage.

The Conservative government’s Economic Statement suggested that "Canada needs a new tax system that rewards Canadians for realizing their full potential." Unfortunately, the government’s tax cuts will only make it more difficult for many Canadians to achieve their full potential.