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Election 2015: An Escape Hatch for the NDP?

In an earlier post, I sought to explain (not necessarily defend) the Mulcair team’s decision to run balanced budgets as an election campaign tactic to counter being branded by the Conservatives (and potentially the Liberals)as a profligate manager of the public purse.  Whether or not this tactic is successful will ultimately reflect in the October 19th electoral results.

Since this announcement in late August, polls have suggested the tactic may not have worked, with the NDP having being overtaken by the Conservatives and Liberals in terms of share of the popular vote.  It does not strictly follow that these polling trends will translate into the seats necessary to form a majority for any party, especially for the Liberals, who will have to gain an additional 134 sears to form the government, from the 36  seats they held at dissolution.  Another consideration is the extent we can have confidence in any  polling results given the deterioration of a reliable sampling frame with the rise of cell phone use over land lines.

However, let’s consider three possible electoral outcomes for the NDP: an NDP minority government supported by the Liberals, a Liberal minority government supported by the NDP  (minority governments being not uncommon in Canadian politics) and a coalition government between the NDP and Liberals (rare in Canadian history but can’t be ruled out).  In all three scenarios, it is plausible to imagine the NDP relinquishing their campaign promise of balanced budgets in order to cooperate with the Trudeau team.  This would provide an escape hatch from the corner the Mulcair team has seemed to paint itself into with this campaign commitment of not one, but four consecutive balanced budgets.  While a shrewd campaign tactic, the commitment makes the NDP vulnerable to three political risks: 1) the risk of alienating part of its support base, and having this contribute to its defeat on Oct 19; 2) assuming the NDP forms the government, the risk of making an economic policy error by sticking to balanced budgets, when in fact the government should have run deficits to achieve its policy goals;  3) the risk being punished in 2019 for breaking an election promise when an NDP government changes its position and runs deficits (recall George H.W. Bush’s “read my lips, no new taxes” in 1992).   The possibility of a minority or a coalition between the NDP and the Liberals  (and this is a real possibility, according to Nanos Research) would help the NDP avoid these three risks.

Beyond this issue, a larger question that has emerged (for me at least) is: what is this election about for Canadian voters?  Unlike the 1988 election campaign, where free trade became the defining issue, this election is a rapidly  moving discussion in the 24/7 news cycle, with few apparent anchors.  What about the economic policy debate beyond the “ balanced budgets vs budget deficit” issue?  Wasn’t it about how we treat refugees in this country?  What about corruption and Senate?  Climate change, anyone?  Does Canada’s reputation abroad matter?  How has citizenship and values moved up the middle?  Is the niqab the defining issue of this moment for Canadians?

First Nations Education is critical social infrastructure

Many Canadians know that the federal government is responsible for funding social services, health care, education and income supports on First Nations reserves.

Few people realize that the escalator for these transfer payments has been frozen at 2% per year since 1996, without consideration for population growth or need.

According to the Assembly of First Nations, by 2011 this resulted in an average funding gap of $3,500 per student in First Nation schools compared to per student funding in provincial schools.

Funding Gap

This operational funding gap is on top of a physical infrastructure funding gap for resources such as libraries, computer labs, or supports for First Nations languages.

This is particularly egregious given low high school completion rates, high risk of suicide, and the fact that half — 50% — of First Nations children live below the poverty line.

This should be a collective shame for Canadians and a key election issue.

Conservative Track Record

In 2014, the Conservative government made a commitment to First Nations education that consisted of $1.25 billion in core education funding over three years, $500 million in infrastructure funding over seven years, and $160 million to implement the plan. (See Budget 2014, pg. 76).

This money was contingent on the passage of the controversial First Nations Education Act (Bill C-33).  A centralization of control in the hands of the Minister of AADNC concerned many First Nations communities, the bill was withdrawn, and the money promised for elementary and secondary education was never spent.

Budget 2015 made more modest promises, committing $200 million over 5 years to “improve educational outcomes”, and keeping the $500 million in infrastructure funding over seven years. (See Budget 2015, pg. 294)

The commitment of $1.25 billion in core education funding for First Nations communities vanished in Budget 2015, and in fact had never made its way into Department planning documents because the bill (C-33) never passed the House. (Budget 2014 had earmarked the money to start in FY 2016-17).

Election 2015 Promises

The New Democrats have yet to fully detail their platform on First Nations education, but the Liberals have promised $2.6B over the next four years for education funding.

It turns out that only 900 million of this is new funding, the rest depending on Budget 2014’s commitment of $1.25B that appears to have evaporated from Budget 2015’s fiscal framework.

Liberal Fiscal Framework

Budget 2015 only shows an annual investment of $40 million for First Nations Elementary and Secondary Education ($200 million over 5 years).

If it turns out that money *is* sitting around on someone’s desk at the Treasury Board, that would be great, because this funding is sorely needed to close the education funding gap for First Nations communities. But Parliamentary appropriations documents, including the department’s Report on Plans and Priorities and Treasury Board’s Main Estimates, suggest that this is not the case.

Rebuilding Social Infrastructure

Our current debt in social infrastructure has been ignored for too long. The Federation of Canadian Municipalities has put out good numbers on the current municipal infrastructure debt, but no one has done something similar for social infrastructure.

Along with investments in early childhood education and care, repairing the funding gap to First Nations schools would go a long way to eliminating that social debt for future generations. Ask your local candidate for their party’s position, and after the election, keep pushing. It’s too important to ignore.

Too Early to Call Recession Over

Statistics Canada is reporting a 0.3% increase in monthly GDP for July, on top of a (downward revised) 0.4% increase in June. This will no doubt spark Conservative politicians, and many economists, to declare that the shallow recession which Canada experienced in the first half of 2015 is already over.

As recently as last week, Finance Minister Joe Oliver was still denying the existence of the first-half recession.  Read more »

Taking credit where it’s not due

On the election’s climate file, Prime Minister Harper has claimed that his is the “first government in Canadian history that has actually been able to see a reduction in our greenhouse gas emissions while at the same time seeing the economy grow.” This is very much a case of claiming credit where it is NOT due, from a Prime Minister who is only pretending to care about the issue amid the spotlight of the election campaign.

First, it depends on which dates you choose. If we look at Canada’s GHG emissions going back to 2005, the last full year before Harper became Prime Minister, Canada’s emissions fell by 23 million tonnes of CO2, or 3%, as of 2013, the last year for which we have data. But if we consider the impact of the 2008-10 Great Recession, we see that GHG emissions fell alongside the economy, bottoming out in 2009. Since then Canada’s emissions have grown every year between 2009 and 2013.

Second, many provinces have taken on climate action initiatives in the absence of federal leadership. The Government of Ontario, in particular, has done much heavy lifting by phasing out coal-fired power. This alone reduced Canada’s emissions by 23.6 million tonnes between 2005 and 2013 – equivalent to the national drop. Total emissions in Ontario actually fell by more – 40 million tonnes – over the same time frame, due to additional hit to manufacturing industries from the recession.

Third, federal “leadership” has been in the opposite direction of climate action. PM Harper has pushed relentlessly to enable the expansion of fossil fuel industries, including pressing for pipelines, gutting environmental protection, removing opportunities for public comment, even spying on environmental groups. Although unsuccessful in getting new pipeline capacity online, GHG emissions from fossil fuel production in the Conservative heartland are way up: Alberta’s emissions grew by 33 million tonnes since 2005, a 14% increase; Saskatchewan emissions grew by 5 million tonnes, up 8%. [Note: data tables for Canada and provinces available here]

The PM’s claim of a sector-by-sector regulatory approach is also fiction. No sectoral regulations have emerged for oil and gas, the source of 1/4 of the country’s industrial and commercial emissions, despite being promised repeatedly. In transportation, Canada is merely following the US lead on fuel efficiency standards for vehicles. The only other area of note is coal-fired power regulations, which contrast with provincial actions like Ontario’s – regs apply to new plants, but exempt existing plants from regulation until they are 50 years old. A broader recap of climate and energy policy in the Harper Decade is available here.

On the economy, the PM’s preference for small government and balanced budgets has, if anything, been a drag on growth. Going back seven years when the financial crisis hit, the PM rigidly clung to a notion of a balanced budget, which would have made the crisis worse. Only when faced with losing power to a NDP-Liberal coalition did a stimulus package get implemented in the 2009 budget. That stimulus package was under-funded, then flipped into a multi-year advertising campaign for the Conservatives, paid for by taxpayers, with Economic Action Plan signs on the ground and ads on TV.

Canada’s economy has stalled in 2015 after a period of “slowth” (my colleague Armine Yalnizyan’s term for weak growth). The latest obsession with presenting a balanced budget for the electorate has led to many cuts in recent years, again a drag on growth. The federal government has left most of the action to the Bank of Canada and low-interest-rate monetary policy, while abdicating counter-cyclical fiscal policy.

Ironically, because GHG emissions are linked to GDP growth, PM Harper’s failure to get GDP rolling is probably his best shot at claiming some credit for Canada’s GHG performance.


Memo from Washington: The Pope’s Call for Climate Action

To start his US tour, the Pope stated that “climate change is a problem which can no longer be left to a future generation. When it comes to the care of our ‘common home,’ we are living at a critical moment of history.” Speaking on behalf the poorest people – those who will be most adversely affected by climate change, but have done the least to cause the problem – the Pope’s message is a powerful moral call to action.

Can this call overcome cultural and political barriers to change? In the near term, the push for a new climate treaty in Paris represents a key decision point for the planet. The Pope’s encyclical, released in June, surveys the science on climate change, then comments:

“It is remarkable how weak international political responses have been. The failure of global summits on the environment make it plain that our politics are subject to technology and finance. There are too many special interests, and economic interests easily end up trumping the common good and manipulating information so that their own plans will not be affected.”[para 54]

These words may sound familiar to observers of Canadian politics when it comes to climate change. Election 2015 has so far offered up a soft form of climate denial, with the three main political parties at best talking in vague terms about reducing greenhouse gas emissions, while endorsing plans that would dig Canada ever deeper into fossil fuel production and export.

The encyclical saw it coming: “Consequently the most one can expect is superficial rhetoric, sporadic acts of philanthropy and perfunctory expressions of concern for the environment, whereas any genuine attempt by groups within society to introduce change is viewed as a nuisance based on romantic illusions or an obstacle to be circumvented.” [para 54]

In its challenge to the status quo, the Pope has more in common with the Leap Manifesto‘s vision of “a country powered entirely by truly just renewable energy, woven together by accessible public transit, in which the jobs and opportunities of this transition are designed to systematically eliminate racial and gender inequality.”

As foreshadowed by the encyclical, the Leap Manifesto’s call for leadership and action was largely dismissed by mainstream elites, who apparently see no problem with the truly radical proposal of pumping ever more of Canada’s abundant fossil fuel reserves into the atmosphere.

The good news is that this path is becoming increasingly difficult to tread. The collapse of commodity prices, which has exposed Canada as a high-cost producer, is a shot over our bow. In a carbon-constrained world, most of Canada’s reserves will need to remain underground, undeveloped.

On the ground, new pipelines and other fossil fuel infrastructure are meeting opposition wherever they are proposed. Enbridge’s Northern Gateway Pipeline, approved by the Harper government in spite of massive protest, may never get built in the face of opposition by local communities and First Nations. For Canada-US relations, a central issue of tension has been the delay, and possible rejection, of the Keystone XL pipeline.

Parallel to protests and blockades, a new movement has sprung up demanding institutional divestment from fossil fuel energy (and corporations) and re-investment in clean technologies. A new report totals up divestment commitments from 430 institutions and 2,040 individuals across 43 countries at $2.6 trillion in assets.

The cost of renewable energy has come down substantially and is increasingly competitive with fossil fuels. It is widely recognized that we have a political problem not an economic or technological one, and that the costs of acting are less than the costs of doing nothing.

Even leaders of the Group of 7, earlier this year, agreed to phase out fossil fuels by 2100. Canada was “successful” in defending its perceived interests by deferring the date from 2050, the target proposed by Germany. If made into a national priority, rich countries like Canada could get there in a generation.

The only question is how much damage we do in the interim. Every year we delay we transfer well-being from many people in the future to a small number in the present. More refugees, for example, will spill across borders due to climate change, in the aftermath of droughts and extreme weather and rising sea levels.

The Pope demands that we in wealthy nations not become numbed to the plight of the poor as we try and address our environmental and climate problems. The encyclical comments that “a true ecological approach always becomes a social approach; it must integrate questions of justice in debates on the environment, so as to hear both the cry of the earth and the cry of the poor.”

To get to this promised land, we must let go of our fear that action will be painful. That means our actions must be steeped in concepts of climate justice: providing decent and plentiful jobs building the green infrastructure we need, ensuring that no one is left behind, and that the high emitters causing the problem are first to act.

As Canadians vote in a few weeks time, we should reflect on how we move forward together with compassion and justice on the overarching challenge of our times.

TPP: Renegotiating NAFTA, By the Back Door

For years, trade and justice activists have proposed renegotiating the North American Free Trade Agreement to address some of the deal’s most damaging features: for example, by removing the anti-democratic investor-state dispute settlement provisions of Chapter 11, linking trade benefits to genuine protections for human and labour rights (all the more important given the deteriorating democratic situation in Mexico), and establishing a continent-wide strategy for auto investment and production.  We were always told that renegotiating NAFTA was a pipe dream: it would not be possible to open the text and get all three countries on board with reforms, no matter how legitimate the concerns. Read more »

Missing in (debate) action: macroeconomic lessons from the Great Depression

This is a guest blog post from Mario Seccareccia, Professor of Economics, University of Ottawa.


Since the October 2008 federal election, Canadian politicians have been struggling to come to terms with what to all accounts has turned out to be a “lite” version of the 1930s, whose major difference is that today we have a much larger government sector that is now about 1/4 rather than 1/10 of gross domestic product, thereby offering somewhat of a makeweight (despite the adoption of fiscal austerity over the last five years). Also, we have today an indomitable Canadian consumer who continues to spend somewhat because of the easy credit that the banking sector creates in additional purchasing power to supplement an otherwise stationary, if not declining, real personal disposable income, as long as households are able to service their debts at such record low levels of interest rates set by the Bank of Canada.

However, much like the 1929 crash, we experienced a worldwide financial crisis centered in the US in 2008. As it is well known, the financial crisis triggered a collapse of economic activity, which after a short fiscal stimulus immediately after the financial crisis in 2009, governments are now back to being obsessively concerned about government deficits. Given their fears of being financially in the red for a significant length of time, fiscal policy inaction has become the norm nowadays just as it was during the 1930s. Indeed, during that era, those Herbert Hoover/R.B. Bennett policies of austerity, implemented in the name of strengthening investors’ confidence, did little of that, since investment spending remained abysmal. By initially putting a lid on public spending, what these policies did was to help to keep economies in a state of long-term stagnation during the Great Depression despite some short-lived socially desirable New Deal measures put in place until Western governments justified, on a more massive scale, net public spending by implementing a less socially desirable, yet equally efficient, brand of what has been sometimes described as “military Keynesianism” during WWII.  Some seven years after the financial crisis in 2008, we seem to have a repetition of what, in appearance, looks more and more like the 1930s scenario that even the former secretary to the US Treasury and former director of the US National Economic Council, Lawrence Summers, has decried as a trend towards a state of secular stagnation.

There are three important lessons from the Great Depression to which our political leaders seem to be oblivious because of what seems to be a collective amnesia. First of all, to kick start an economy stuck in a state of secular stagnation (that is, a situation in which private businesses are unwilling to undertake significant spending), it is up to the state to do so. During the first two decades of the postwar period, governments espoused some hybrid form of the basic principle of “functional finance”, which simply affirmed that budget deficits (or surpluses) should not be consider as ends in themselves but rather as means or instruments to achieve socially desirable macroeconomic goals, such as low rates of unemployment and high rates of economic growth.  Hence, unless one lives in a country without its own currency (such as Greece) or in a dollarized regime (such as Ecuador), the federal government should abandon the principle of seeking to achieve budget balances or a budgetary surplus for all seasons.

But why is deficit spending not a problem. This brings us to a second lesson. In an advanced monetary economy as ours, at the macroeconomic level there must be at least one sector of the economy that spends more than it receives. If economic agents in an economy spend only what they receive as incomes, then at best such an economy will remain stuck in a stationary state, without growth. In reality, we know that certain groups, who save, may actually want to spend less than their total revenues or incomes, and hence there must be some other sector that must spend more than it receives to sustain spending growth in an economy.  How can one envisage growth in an economy in which both the private sector and the public sector refuse to spend more than their receipts, thereby refusing to run deficits? Where will the net spending come from? That was the waiting game and scenario of the 1930s during which period the economy only began to grow significantly once large doses of net government spending were undertaken at the end of the 1930s because of WWII.

As a corollary, there is a third simple lesson. Let us imagine the economy as being regrouped into two very large sectors, namely the private sector (households and firms representing , say, 3/4  of the economy) and the public sector (all levels of governments representing the remaining 1/4), while abstracting for now the net spending behaviour of foreigners. In this economy, if, say, the consolidated public sector spends more than it receives (that is, a situation in which the government sector runs a deficit), then the private sector will find itself receiving more than it is spending, that is to say, that it will be building up savings that would permit private agents to deleverage if they are in debt. Needless to say, if we also add foreigners who are willing to buy more of our wares than we buy of theirs, then the positive net exports would further compound this deleveraging of the private sector domestically. If, on the other hand, the government sector begins to run surpluses, this would be destroying private saving and increasing household debt.

As former prime minister Paul Martin has said it very clearly in his support of the Liberals’ programme during this election campaign, the reason why he was able to achieve federal budgetary surpluses for over a decade since the mid-1990s was because households had been running up huge debts as interest rates were falling and the US economy was running on six cylinders by generating record levels of positive net Canadian exports, especially during the Clinton years of the late 1990s. Nowadays, none of these elements are in place. Households are overextended, interest rates cannot go any lower and our neighbours to the south have also been suffering anemic long-term growth. These are not unlike the conditions prevailing during the 1930s, when the private sector faced an increasing debt burden, interest rates had reached bottom, and countries internationally had been seeking to “beggar thy neighbours”, as all these countries were seeking to achieve trade surpluses, which of course is logically impossible for the planet as a whole, and all that it did was to spread deflationary pressures internationally!

Indeed, a policy of seeking to run budget surpluses until 2020 as targeted by both by Stephen Harper’s Conservatives (of about $4.7 billion annually) and Tom Mulcair’s NDP (at around $3.5 billion annually, pulled from the NDP Fiscal Framework), will do nothing but to destabilize further the private sector by preventing Canadian households from deleveraging via increased savings through higher overall income growth. Why would the federal government want to prevent private households from deleveraging? There is something particularly pernicious about such a proposed fiscal policy of striving to achieve budgetary surpluses largely on the backs of the household sector. There is nothing “sound” about a policy whose actual effect will be to de-stabilize the finances of the private sector. Interestingly, Justin Trudeau’s Liberals have at least understood the need to stimulate the economy in the current context and they should be applauded for recognizing this. Yet, even they have not fully abandoned the principle of “sound finance” in favour of the principle of “functional finance”, since presumably the latter are themselves committed to balancing the books by 2019 after which they will have also reached the Nirvana of budget surpluses as they had achieved during the Chrétien and Martin years!

Why has our current crop of Canadian political leaders gotten themselves trapped in this rhetorical box of “sound finance” that will merely guarantee that our economy will remain stuck in a state of secular stagnation? Must we wait for some outside shock to end fiscal austerity as had happened at the end of the 1930s? In defense of his 2009 fiscal stimulus, in 2008 Prime Minister Harper himself affirmed that one of the causes of the Great Depression was that policymakers “undertook to balance the books at all costs — raising taxes and contracting government economic activity at a time when fiscal stimulus was absolutely essential.” ( ) Why is it that a fiscal stimulus was appropriate in 2009, but that it is inappropriate today and that we must now target fiscal surpluses during this recession?

Election 2015: The Political Economy of Balanced Budgets

First, disclosure.  I wear several hats.  In addition to being a progressive economist, I am  a member of the NDP.  I have been since 1988.  I will be voting for the NDP candidate in my riding and I just donated $100 to the party,with more to follow.

The recent promise of four years of balanced budgets by the Mulcair-led NDP has irked several progressive economists  (see Marc Lavoie  and Louis-Philippe Rochon), who are puzzled over why Canada’s social democratic party would eschew running deficits during a period of cyclical slow-down and probable stagnation. The quick answer is that the Mulcair team is not trying to convince  mainstream economists (a relatively small, spread-out segment of the Canadian electorate) of the wisdom of post-Keynesian economic policy, but rather is trying to persuade the median Canadian voter (a problematic concept, for sure) that they would not be the Ontario Bob Rae government of the early 1990s.

Progressive economists sometimes refer to themselves as political economists.  However, I fear we sometimes don’t given enough attention to the political.  To implement your economic policy platform, you need to win the electoral competition game.  Our game is a majoritarian one, meaning winning 50% plus one seat to form the government.  In this federal election, that involves winning at least 170 of the 338 seats of the House.

Let’s check the political arithmetik:  at dissolution of the 41st Parliament in August, the NDP held 95 of 308 (versus the Conservative 159 and the Liberal 36).  Note the increase of 20 seats from 308 at dissolution to the 338 up for grabs in the October election due to the 2012 electoral redistribution.  Let’s look at the distribution of NDP incumbent seats across the regions: Atlantic 6 of 32; Quebec 54 of 75; Ontario 19 of 106; Prairies 3 of 56; British Columbia 12 of 36, the North 1 of 3.

To form the government, the NDP have to win an additional 75 seats as well as retain their 95 incumbent seats to bring their number to 170.  Let’s assume they retain their seats in Atlantic, Quebec and BC/North, but make no further gains in those regions; that’s 73 seats.  To form the government, the Mulcair NDP will need to not only hold onto their 22 seats in Ontario and the Prairies (19 and 3 respectively), but will need to win an additional 75 in those regions.  An additional 75!  This is quite an electoral challenge, and this I feel explains why the NDP have chosen a platform centred on balance budgets: to win the confidence of the dissatisfied moderate of Ontario and the West.  Assuming the mantle of Tommy Douglas (and Roy Romanov) and not Bob Rae (and Glen Clarke and Darrell Dexter) positions themselves as such.

The Trudeau Liberals, needing to distinguish themselves from the Mulcair NDP, have taken the courageous stance and promised three  years of deficit spending, investing in infrastructure.  Will it persuade Canadian voters?  With only 36 seats at dissolution, they have even more ground to gain, an additional 134 seats, to form the government!  That would be quite the red tide, compared to the orange wave.

Political scientist Peter Hall once remarked: “Much of what goes on in the political arena is, in fact, a struggle among political entrepreneurs to define the way in which the electorate or potential followers within it interpret their interests.”  In the days leading up to October 19, it will be interesting to see how Mulcair and Trudeau teams perform in defining the interests of Ontario and Western voters.


Ten Things to Know About Homelessness in Canada

This afternoon I gave a presentation at Raising the Roof’s Child & Family Homelessness Stakeholder Summit in Toronto. My slide deck can be downloaded here. To accompany the presentation, I’ve prepared the following list of “Ten Things to Know About Homelessness in Canada.”

1.Efforts to enumerate persons experiencing homeless have generally been spotty, but it is reasonable to assert that homelessness in Canada saw substantial growth in the 1980s and 1990s. On a nightly basis in Toronto, there were about 1,000 persons per night staying in emergency shelters in 1980. By 1990, that figure had doubled. And ten years later, there were 4,000 persons per night staying in Toronto’s emergency shelters. The Toronto figure of 4,000 per night has remained relatively constant for the past 15 years, though it has ‘edged up’ in the aftermath of the 2008-2009 recession—a phenomenon which I’ve previously written about here. (Admittedly, the number of persons living in emergency shelters on a nightly basis is a rather narrow gauge of homelessness. According to Canada Mortgage and Housing Corporation, approximately 13% of Canadian households are in “core housing need;” for Nunavut, the figure is a whopping 39%.)

2. Though it’s difficult to establish causation, I think relatively safe assumptions can be made about some of the major contributors to homelessness. Researchers are generally careful about using the term causation—in fact, there are long-standing tensions among academic disciplines as to what methodological approaches are required to establish it. Statisticians, for example, generally believe that randomized controlled trials (RCTs) are needed to establish causation; but as David Freedman has argued, RCTs are often “impractical or unethical” (Freedman, 1999, p. 255). Rather, careful researchers are more likely to say things like “these factors have likely contributed to this effect,” or “I think it’s likely that this effect caused this to happen.” And with that in mind, I’d like to suggest that there are probably three major factors that have contributed to homelessness in Canada: 1) macroeconomic factors (especially unemployment); 2) changes to our social welfare system (including a decrease in the availability of government-subsidized housing); and 3) the design and administration of policies whose specific intent is to respond directly to homelessness (often referred to as ‘systems responses’ to homelessness).

3. Homelessness has profound ramifications on the lives of children. As I wrote in 2012: “Two studies have been done in Toronto looking at the role of housing with respect to children in care. Results of both studies indicate that the state of the family’s housing was a factor in one in five cases in which a child was temporarily admitted into care. Results from the Toronto research also indicate that, in one in 10 cases, housing status delayed the return home of a child from care” (Falvo, 2012, p. 14). Other research estimates that, on an annual basis in Toronto alone, approximately 300 babies are born to mothers who are homeless. (Of course, homelessness can have profound ramifications on the lives of adults as well. For more on this, see this 2007 study.)

4. The role of Canada’s federal government in funding both housing for low-income persons and programming for homeless persons has varied considerably over time. Provinces and territories spend much more of their own money on housing for low-income persons when the federal government leads. Thus, a considerable amount of subsidized housing for low-income Canadians was built from the mid-1960s through to the early 1990s. Since the early 1990s, comparatively little subsidized housing has been built for low-income persons in Canada. I should also note that the annual, inflation-adjusted value of federal funding for homelessness today is worth just 35% of what it was worth in 1999.

5. Not every province/territory responds to homelessness in the same way. While much mores subsidized housing for low-income persons gets built when the federal government leads, provinces and territories don’t always respond to federal funding initiatives in the same way. For example, between 2002 and 2013, three times as many subsidized housing units were built in Alberta (on a per capita basis) than in Ontario. I would argue that a driving force behind this differential stems from Alberta’s strong economic performance during this same period relative to that of Ontario’s.

6. Though a careful researcher will be cautious in discussing what causes homelessness, I think we know a lot about what solves it. In many cases, a person who stays in an emergency shelter will ‘exit homelessness’ without substantial public resources. In some cases, they might find housing on their own; in other cases, family and friends may provide them with short term assistance—e.g. some financial support, a couch to sleep on, etc. (To learn more about lengths of stay in homeless shelters in a sample of Canadian cities, see this 2013 study.) Researchers and advocates for the homeless generally don’t view such short-term stays as a major public policy challenge—the bigger challenge is in the case of persons who stay in emergency shelters (and outside) for longer periods of time. Even here though, I would argue that it’s hardly a mystery as to what constitutes an effective policy response.

Indeed, as early as the mid-1980s, small non-profit organizations in Ontario (and possibly in other provinces as well) found success in building subsidized housing for persons who had experienced long-term homelessness—they did so by providing professional staff support to help such tenants live independently in those units. This was (and still is) known as supportive housing. The emergence of supportive housing in Ontario happened in large part due to strong advocacy by community-based groups. This included: the Singles Displaced Persons Project; the consumer/survivor movement; the slogan “homes not hostels;” the founding of Houselink Community Homes; and the founding of Homes First Society. Conditions of eligibility for such housing varied from one provider to the next. In many cases, the tenant did not have to prove ‘housing readiness’ before being offered a unit. In fact, Homes First Society got its name because its founders believed that its tenants needed homes first before addressing other challenges (i.e. mental health, substance use, employment, etc.).

Today, researchers, practitioners and advocates refer to this approach as ‘housing first.’ And very recently, a successful RCT of ‘housing first’ was conducted in five Canadian cities; I’ve previously written about that study here.

7. There are several ways of making housing available to low-income households; all of them involve the private sector to varying degrees. Sometimes when government subsidizes housing for low-income persons, it provides money to a non-profit entity that develops, owns and operates the units. Other times, government provides a subsidy to landlords (either for-profit or non-profit); in exchange for the subsidy, the landlord agree to rent units at a reduced rate for a specified period of time (e.g. in some cases, for 10 years). And other times, government provides money (often known as a housing allowance) to low-income tenants who then rent a unit from a for-profit landlord. Of the three possible approaches, I personally have a preference for the option where a non-profit entity develops, owns and operates the units (and I have previously written about this here). Having said that, I think there’s a place for all three approaches, depending on local context.

8. Some jurisdictions have used sophisticated information management systems as part of their efforts to respond to homelessness. Many organizations serving homeless persons in Calgary enter client information into a database called the Homelessness Management Information System, a system that is also used in many American cities. Client-level information (such as age, health status, employment status and housing status) is entered into the database when an initial intake is done. While the client is receiving services, updated information is entered again; in the case of some programs, follow-up assessments are done every three months. In the case of some program types, there are both exit and post-exit follow-up assessments completed. All information-gathering is subject to provincial privacy legislation. There are many uses for the data once it’s gathered. For example, some organizations use the data to provide case management services to clients. Also, funders are able to assess each organization’s performance against benchmarks (i.e. percentage of clients who receive housing after a specific period of time).

9. When it comes to both preventing and responding to homelessness, the capacity of government to generate revenue matters a great deal. Governments typically use revenue generated from taxation to finance both subsidized housing and other important social programs. When tax revenue decreases, many governments have less ability to spend on such programs. Since the mid-1990s, tax revenue in Canada (measured as a percentage of our Gross Domestic Product) has decreased substantially. If this trend doesn’t reverse itself soon, it will be very challenging for many governments (especially provincial, territorial and municipal governments) to invest in important social programs. There is currently a move afoot by some Canadians to increase taxes; it is led by Alex Himelfarb, former Clerk of the Privy Council. Alex and his son Jordan recently co-edited a book that calls for the need for higher taxation in Canada. (Note: according to some schools of thought, it isn’t necessary for a sovereign government with its own currency to tax more in order to finance more social spending. While keeping in mind that such an approach would be most relevant to Canada’s federal government—and much less relevant to provincial, territorial and municipal governments—readers can read more about one such school of thought here.)

10. Over the course of the next decade, Canada will likely see substantial increases in homelessness among both seniors and Indigenous peoples (First Nation, Métis and Inuit). Seniors and Indigenous peoples are growing as a percentage of Canada’s total population. Further, the percentage of seniors living below Statistics Canada’s Low-Income Measure has grown substantially since the mid-1990s. I think all of this makes it likely that both of these groups will begin to grow as a percentage of Canada’s homeless populations.

The following individuals were very helpful in helping me prepare the present blog post: Maroine Bendaoud, Lisa Burke, George Fallis, Greg Suttor, Francesco Falvo, Louise Gallagher, Ali Jadidzadeh, Lisa Ker, Jennifer Legate, Kevin McNichol, Richard Shillington, Blake Thomas and Mike Veall. Any errors are mine.

Dix Choses à Savoir sur l’Itinérance au Canada

Cet après-midi, j’ai fait une présentation au Child & Family Homelessness Stakeholder Summit, organisé par Chez Toit, à Toronto. Ma presentation, illustrée de diapositives, peut être téléchargée ici. Pour accompagner la présentation, je vous ai préparé la liste suivante: « Dix choses à savoir sur l’itinérance au Canada. »

1. Les tentatives de dénombrer les personnes en situation d’itinérance ont généralement été intermittentes, mais il est raisonnable d’affirmer que l’itinérance au Canada a connu une croissance importante entre 1980 et 2000. Sur une base quotidienne à Toronto, il y avait environ 1,000 personnes par nuit séjournant dans les refuges d’urgence pour les personnes sans-abris en 1980. En 1990, ce chiffre avait doublé. Et dix ans plus tard, il y avait doublé encore pour s’élever à 4,000. Le chiffre de 4,000 par nuit, à Toronto, est demeuré relativement constant au cours des 15 dernières années, même s’il a légèrement augmenté à la suite de la récession de 2008-2009, un phénomène sur lequel j’ai déjà écrit içi. (Certes, le nombre de personnes vivant dans des refuges d’urgence pour les personnes sans-abris sur une base quotidienne est un indicateur plutôt étroit de l’itinérance. Selon la Société canadienne d’hypothèques et de logement, environ 13% des ménages canadiens ont un « besoin impérieux en matière de logement; » pour le Nunavut, le chiffre est un énorme 39%.)

2. Bien qu’il soit difficile d’établir un lien de causalité, je pense que des hypothèses relativement sûres peuvent être faites sur certains des principaux contributeurs à l’itinérance. Les chercheurs sont généralement prudents sur l’utilisation du terme causalité—en fait, il y a des tensions de longue date entre les disciplines académiques sur quelles approches méthodologiques sont nécessaires pour l’établir. Les statisticiens, par exemple, croient généralement que des essais randomisés contrôlés (ERC) sont nécessaires pour établir un lien de causalité; mais comme David Freedman a fait valoir, les ERC sont souvent «impossibles ou contraires à l’éthique» (Freedman, 1999, p. 255). Les chercheurs prudents préfèrent plutôt s’exprimer par des phrases comme: « Ces facteurs ont probablement contribué à cet effet, » ou « Je pense qu’il est probable que ceci a causé cela. » C’est dans cet esprit que je voudrais suggérer qu’il y a probablement trois principaux facteurs qui ont contribué à l’itinérance au Canada: 1) les facteurs macroéconomiques (en particulier le chômage); 2) les changements à notre système de protection sociale (y compris une diminution de la disponibilité de logements sociaux, voulue par le gouvernement); et 3) la conception et l’administration des politiques dont le but spécifique est de répondre directement à l’itinérance (souvent désignés comme des «réponses» à des systèmes sans-abri).

3. L’itinérance a des ramifications profondes sur la vie des enfants. Comme j’ai écrit en 2012: «Deux études ont été faites à Toronto sur l’effet du logement sur les enfants qui ont dû être mis en charge de l’assistance publique.  Les résultats des deux études indiquent que, dans un cas sur cinq, l’ état du logement de la famille était un facteur dans l’admission temporaire dans l’assistance publique. Ces résultats de la recherche de Toronto indiquent également que, dans un cas sur 10, la situation du logement a retardé le retour à la maison de l’enfant» (Falvo, 2012, p. 14). Une autre recherche estime que, sur une base annuelle à Toronto seulement, environ 300 bébés sont nés de mères qui sont sans abri. (Bien sûr, l’itinérance peut avoir des conséquences profondes sur la vie des adultes aussi. Pour en savoir plus, voir cette étude de 2007).

4. Le rôle du gouvernement fédéral du Canada dans le financement et du logement pour les personnes à faible revenu et des programmes pour les personnes sans-abri a varié considérablement au fil du temps. Les provinces et les territoires consacrent beaucoup plus de leur propre argent au logement pour les personnes à faible revenu lorsque le gouvernement fédéral mène. Ainsi, un nombre considérable de logements sociaux pour les Canadiens à faible revenu ont été construits à partir du milieu des années 1960 jusqu’au début des années 1990. Depuis le début des années 1990, relativement peu de lodgements sociaux ont été construits au Canada. Je tiens également à noter que la valeur annuelle, ajustée à l’inflation, du financement fédéral pour les personnes sans-abri d’aujourd’hui vaut seulement 35% de ce qu’elle valait en 1999.

5. Chaque province / territoire ne répond pas à l’itinérance de la même manière. Alors que beaucoup plus de logements subventionnés pour les personnes à faible revenu se construisent lorsque le gouvernement fédéral mène, les provinces et les territoires ne répondent pas toujours aux initiatives fédérales de financement de la même façon. Par exemple, entre 2002 et 2013, trois fois plus de logements subventionnés ont été construits en Alberta (sur une base par habitant) qu’en Ontario. Je dirais qu’ une force majeure derrière cette différence provient de la bonne performance économique de l’Alberta au cours de cette même période par rapport à celle de l’Ontario.

6. Bien qu’un chercheur attentif soit prudent en discutant ce qui provoque l’itinérance, je pense que nous savons beaucoup de choses sur ce qui la résout. Dans de nombreux cas, une personne qui séjourne dans un refuge d’urgence pour les personnes sans-abris le quitte, sans importantes ressources publiques. Dans certains cas, elle pourrait trouver un logement sans beaucoup d’aide publique; dans d’autres cas, la famille et les amis peuvent lui fournir une assistance à court terme—par exemple, un soutien financier, un canapé pour dormir, etc. (Pour en savoir plus sur la durée de séjour dans des refuges d’urgence pour les personnes sans-abris dans un échantillon de villes canadiennes, voir cette étude écrite en 2013.) Les chercheurs et les défenseurs des sans-abri en général ne considèrent pas les séjours à court terme un grand défi pour la politique publique—le plus grand défi est dans le cas des personnes qui séjournent dans des refuges d’urgence pour les personnes sans-abris (et en dehors) pour des périodes de temps plus longues. Même ici, cependant, je dirais que ce qui constitue une réponse politique efficace de la part d’un gouvernement n’est pas un mystère.

En effet, dès le milieu des années 1980, les petits organismes sans but lucratif de l’Ontario (et peut-être dans d’autres provinces aussi) ont trouvé le succès dans la construction de logements subventionnés pour les personnes qui avaient vécu la vie de sans-abri à long terme—ils l’ont fait en offrant du soutien professionnel pour aider ces locataires à vivre de façon autonome dans ces unités. Cettte approche est connue sous le non de logements supervisés—à Salus (un organisme à but non lucratif à Ottawa) il est connu aujourd’hui sous le nom de logements avec soutien. L’émergence de logements supervisés en Ontario est due en grande partie à la forte sensibilisation due à des groupes communautaires. Cela comprenait: le Singles Displaced Persons Project; le mouvement consommateur / survivant; le slogan «homes not hostels; » la fondation de Houselink Community Homes; et la fondation de Homes First Society.  Les conditions d’éligibilité pour de tels logements varient d’un fournisseur à l’autre. Dans de nombreux cas, le locataire n’a pas à prouver sa préparation pour le logement avant de recevoir un logement. En fait, Homes First Society a obtenu son nom parce que ses fondateurs croyaient que, pour ces locataires, il était nécessaire d’avoir une résidence avant d’aborder d’autres défis (santé mentale, toxicomanie, emploi, etc.).

Aujourd’hui, chercheurs, praticiens et défenseurs appellent cette approche «logement d’abord». Et très récemment, un heureux ERC de «logement d’abord» a été mené dans cinq villes canadiennes. (J’ai déjà écrit à propos de cette étude ici.)

7. Il y a plusieurs façons de rendre les logements disponibles pour les ménages à faible revenu; toutes impliquent le secteur privé à des degrés divers. Parfois, lorsque le gouvernement subventionne des logements pour personnes à faible revenu, il fournit de l’argent à une entité à but non lucratif qui développe, possède et exploite des unités. D’autres fois, le gouvernement fournit une subvention aux propriétaires (soit à but lucratif ou à but non lucratif); en échange de la subvention, le propriétaire accepte de louer des logements à un taux réduit pour une période de temps déterminée (par exemple, dans certains cas, pour 10 ans). Et d’autres fois, le gouvernement fournit de l’argent (souvent connu comme une indemnité de logement ou allocation de logement) pour les locataires à faible revenu qui louent alors une unité d’un propriétaire à but lucratif. Parmi les trois approches possibles, j’ai une préférence pour l’option où une entité à but non lucratif développe, possède et exploite des unités (et je l’ai déjà écrit à ce sujet ici). Cela dit, je pense qu’il y a une place pour les trois approches, selon le contexte local.

8. Certaines juridictions, pour répondre á l’itinerance, ont utilisé des systèmes sophistiqués d’ information.  De nombreuses organisations au service des personnes sans-abri à Calgary recuellient des renseignements sur leurs clients dans une base de données appelée Homelessness Management Information System­—système également utilisé dans de nombreuses villes américaines. Des renseignements concernant le client (âge, état de santé, statut d’emploi et statut du logement) sont entrés dans la base de données quand un apport initial est effectué. Plus tard, alors que le client reçoit des services, des renseignements actualisés sont entrés de nouveau; dans le cas de certains programmes, des évaluations de suivi sont effectuées tous les trois mois. Dans le cas de certains types de programmes, il y a à la fois des évaluations de sortie et, après fermeture, des évaluations de suivi. Tous les renseignements en matière de vie privée sont soumis à la législation provinciale. Ces données, une fois recueillies, sont utilisées de façons diverses. Par exemple, certains organismes les utilisent pour fournir des services de gestion de cas pour les clients. En outre, les bailleurs de fonds sont en mesure d’évaluer la performance de chaque organisation par rapport aux repères (c-à-d, le pourcentage de clients qui reçoivent un logement après une période de temps spécifique).

9. En ce qui concerne la prévention et la réponse à l’itinérance, la capacité du gouvernement de générer des revenus revêt une grande importance. Les gouvernements utilisent généralement des revenus générés par l’impôt pour financer à la fois les logements sociaux et d’autres programmes sociaux importants. Lorsque les recettes fiscales diminuent, de nombreux gouvernements ont moins d’argent à consacrer à ces programmes. Depuis le milieu des années 1990, les recettes fiscales au Canada (mesurées en pourcentage de notre produit intérieur brut) ont diminué sensiblement. Si cette tendance ne se renverse pas bientôt, il sera très difficile pour de nombreux gouvernements (provinciaux, territoriaux et municipaux) d’investir dans des programmes sociaux importants.

Il y a actuellement un mouvement qui préconise l’augmentation des impôts; il est dirigé par Alex Himelfarb, ancien greffier du Conseil privé. Alex et son fils Jordan ont récemment co-édité un livre qui preconise une taxation plus élevée au Canada.

(Remarque: selon certaines écoles de pensée, ce n’est pas nécessaire pour un gouvernement souverain avec sa propre monnaie de taxer davantage afin de financer les dépenses sociale. Pour plus de renseignement sur cela, lire ici.)

10. Au cours de la prochaine décennie, le Canada verra probablement une augmentation substantielle de l’itinérance chez les aînés et chez les peuples autochtones (Premières Nations, Métis et Inuits). Les personnes aînées et les peuples autochtones sont de plus en plus nombreux comme un pourcentage de la population totale du Canada. En outre, le pourcentage de personnes âgées vivant sous la mesure de faible revenu de Statistique Canada a augmenté considérablement depuis le milieu des années 1990. Je pense que tout cela fait qu’il est probable que ces deux groupes vont commencer à croître en tant que pourcentage des populations sans-abri du Canada.

Les personnes suivantes m’ont aidé à préparer le présent blogue: Maroine Bendaoud, Lisa Burke, George Fallis, Greg Suttor, Francesco Falvo, Louise Gallagher, Ali Jadidzadeh, Lisa Ker, Jennifer Legate, Kevin McNichol, Richard Shillington, Blake Thomas et Mike Veall. Toutes les erreurs sont les miennes.

Federal Surplus: Digging Deeper

This week Stephen Harper’s Conservatives are trumpeting the announcement of a small surplus ($1.9 billion) for fiscal 2014-15.  The political symbolism of this “good news” is a welcome change for them from a string of negative economic reports (most importantly, news that Canada slipped into recession in the first half of 2015) that has damaged their traditional claim to be the best “economic managers” for the country.  Let’s take a deeper look at the surplus, where it came from, and what it means. Read more »

New Study on Positive Economic Impacts of Public Infrastructure Investment in Canada

A five-year $50-billion public infrastructure spending initiative would generate a return on investment to Canadians over the long term as high as $3.83 per dollar spent, trigger significant private sector investment and stimulate wage increases, according to a new study by an independent economic modelling firm.

The Economic Benefits of Public Infrastructure Spending in Canada, authored by the Centre for Spatial Economics, examined the short term (2015 to 2019) and long run (2020 to 2040) economic impacts of a large public investment program in transportation and basic urban infrastructure. It models a five-year program of $10 billion per year equally shared by the federal and provincial governments with a set of simulations that examine the benefits to productivity from public infrastructure.

The study, commissioned by the Broadbent Institute, found that in the short term the infrastructure program boosts GDP by $1.43 per $1 spent due to the multiplier impact. Within the five-year construction phase, governments also recoup $0.44 of every dollar spent through additional tax revenues.

The public infrastructure confers permanent benefits to private business by lowering their operating costs, which leads to increased productivity and higher wages for workers.

“These results show why a robust public infrastructure program just makes sense, and I’m encouraged the opposition parties are committed to investing,” says Rick Smith, Executive Director of the Broadbent Institute. “This is about Canada’s long-term prosperity. It will enhance our competitiveness, boost productivity and raise real wages – while making a significant dent in Canada’s infrastructure deficit.”

Other key findings include:
•In the short term, the spending program boosts employment by between 81,000 and 88,000 jobs, increasing the employment rate by 0.4% to 0.5%;
•About one half of the new jobs (42,150) would be in construction, with positive short-term impacts on output and jobs in manufacturing and the business service sector providing inputs to construction;
•In the short term, provincial revenues raised per dollar spent are highest in Quebec ($0.72), British Columbia ($0.57) and Nova Scotia ($0.46). B.C. and Quebec see the greatest impact on real GDP growth in the short term: while the average annual increase across the range of benefit scenarios for Canada is around 0.7%, B.C. sees growth between 0.8% and 0.9% and Quebec an average increase of over 1.0%.
•Private-sector investment rises by as much as $0.34 per dollar spent in the short term, and by up to $1 per dollar spent in the long run;
•The spending program increases labour productivity by between 0.3% to 0.5% in the long term and workers earn higher real wages: up 0.4 to 0.6% a year on average relative to the economy without the spending program.
•The change in the average annual deficit-to-GDP ratio from this program lies between a rise of 0.04% and a decline of 0.02% for the federal government, and between a rise of 0.08% and a fall of 0.04% for provincial governments.

“The benefits of a public infrastructure spending program include more private-sector investment, a more productive economy, and a higher standard of living — and all are achieved without significant long-term fiscal consequences to federal or provincial governments,” the report states.

“There’s also a cautionary tale in here,” added the study’s author, economist Robin Somerville. “The costs of neglecting our public infrastructure are not zero. Allowing our public infrastructure to decay imposes costs at least equal but opposite to the benefits estimated in this study.”

The report is available online at The economic model is based on the economic and fiscal forecasts as of January 2015.

Small Business Taxes, Big Loopholes

by: Kaylie Tiessen & David Macdonald

Small business taxes made the news last week when, during a CBC interview, federal Liberal leader Justin Trudeau suggested many business owners are using the small business tax rate as a de facto in-country tax shelter.

Responding to the interview, Conservative leader Stephen Harper accused Trudeau of taking aim at the backbone of the economy. NDP leader Tom Mulcair called on Trudeau to apologize.

The Conservatives have already legislated a decrease in the federal small business tax rate – from 11% to 9% by 2019. The NDP have promised to make it 9% by 2017 if elected.

So why the controversy? Does Trudeau have a point? Let’s look at how small business taxation really works.

If you’re a small business owner, there are two ways to take money out of your small business for personal use:  

  1. Pay yourself a salary: In this case the owner gets a T4 just like everyone else and pays the full personal income tax rate. The business pays no small business taxes on wages as these are paid out before profit.  
  2. Pay yourself in dividends: Here the owner pays the small business tax rate on the retained earnings or profit, as well as the full personal income tax rate on the dividend minus what the business already paid.

Surprisingly, when income is taken through dividends, the small business rate is of little consequence. Even if it were 0% (as it is in Manitoba), the owner gets no deduction and pays the full personal income tax rate on the dividend. In other words, personal taxes increase by exactly as much as small business taxes decrease. (There are some exceptions to this, but it generally works out this way.) The small business tax systems is built so that it won’t matter if you’re paid via dividends or a salary (except that one doesn’t make CPP contributions on dividend income)

So you might ask: why should anyone care about the small business tax rate if it doesn’t seem to make a difference in overall tax revenues? The primary reason is loopholes.

What would be illegal for most working stiffs (tax avoidance) is totally legit under Canada’s small business tax regime. As a small business owner, these five loopholes are available to you regardless of the small business tax rate:

  1. Income splitting with kids and spouse:  A small business owner can designate lower-earning family members as “non-voting shareholders” and pay them dividends. If they are in a lower tax bracket, they’ll pay a lower income tax rate or no income tax at all (if the dividend is less than about $41,000). Salaried wealthy people with children can now share up to $50,000 with a spouse. Business owners have always been able to do this with a spouse and children (over 18) without an upper dollar limit.
  2. Employing kids and spouse & income splitting again: There is no tax benefit to employing family members in a business per se (although it’s always nice to have a job). But you can pay them more than they’re worth. This is technically illegal but it’s very hard to crack down on. Technically,  you could pay your kids and spouse for time they didn’t work or at an exaggerated rate. This is another means of income splitting that doesn’t involve issuing non-voting shares.
  3. Postpone personal taxes for years: As an owner, you can choose to keep money you don’t need in the business and therefore not pay personal income taxes for an indefinite period (as long as the business is still “active”). Imagine saying to Revenue Canada, “I’ll pay those personal taxes later… when I’m 70.” Those “deferred” income taxes you owe–you get to invest them for 30 years before paying them. Eventually you will have to pay personal income taxes on that income, but maybe you’ll be retired and in a lower tax bracket by that time.
  4. Pass on $800K to your kids or spouse tax free: If you put your spouse and/or kids on as shareholders of your small business early enough, and you sell the business (and its shares) years later, they’ll each receive their portion of the sale price absolutely tax free, up to $813,000 each. (This is called an “estate freeze.”)
  5. Additional write-offs: A business owner can write-off expenses like a cell phone, home Internet, a home office, their car, certain types of trips, etc. It means you don’t pay personal income tax on that money which means these items are effectively 30% to 40% off. There are limits here, too, but as long as you don’t get too crazy you likely won’t be audited.


When we hear discussion of dentists, doctors or other professionals using “tax dodges,” they are thinking of the above methods for avoiding paying taxes: 100% of small businesses with accountants are using one or more of these strategies (and if they aren’t they should fire their accountant). This wasn’t always the case.

Prior to 2005, in Ontario, doctors could incorporate, but they couldn’t list family as shareholders, invalidating many of the loopholes above. A year after this was changed, we saw (surprise surprise!) a tenfold increase in doctors who were incorporated. Interestingly, only lawyers can hold shares in professional legal corporations, cutting out the income-splitting loophole (unless your spouse and children are lawyers).  

However much we might want to shut these loopholes for professionals, they are provincially regulated and therefore it’s up to the provinces to decide to close (or open) them. To get back on track: is there a point when the small business tax matters? Yes, in two circumstances:

  1. When you keep money in your corporation to defer income taxes: If small business taxes are lower, there is more money to start investing within the business. In other words, you can invest your “deferred” income taxes for years and keep the proceeds. Once the money is taken out (years later), personal income taxes still need to be paid. However, a larger initial investment will likely lead to larger gains due to compound interest. However, returns to investments (capital gains, dividends, interest income) in the corporation are taxed similarly to the personal side.
  2. When you save to buy things or expand the business: If you want to expand your business, you can save up previous years’ profits to do so. If the small business tax rate is lower, you’ll have more money to buy more equipment (in future years, for example). This is what a lower small business tax rate is meant to do: not create jobs per se, but make it easier to save up cash to buy new equipment, which can be a way for a small business to expand.


But here’s the rub: most small businesses don’t expand by saving up for five years to buy new equipment or open a new store. Instead, they go to the bank and get a loan or negotiate a lease and expand today, not five years from now. If there are real limits to small business expansion on the supply side, it’s in accessing loans and leases, not in taking half a year off the time they need to save for expansion.

At the same time, it’s not at all clear small businesses are facing supply-side barriers to expansion at this time.

Each month, the Canadian Federation of Independent Business (CFIB) conducts a survey of its members; two questions stand out:

  1. What types of input costs are currently causing difficulties for your business?
  2. What factors are limiting your ability to increase sales or production?

The most popular answer to the first question was taxes and regulations followed by wages, and fuel and energy costs. The most popular answer to the second was insufficient domestic demand. In other words, the most important reason given for not expanding sales or production was not the tax rate, but that the business did not have enough customers walking through the door (literally or figuratively) to make expansion worthwhile.

If we really wanted to see businesses investing and expanding, we really need to do boost aggregate demand, not lower taxes.

There are three main actions a government can take toward this end:

  1.     Raise wages: Inequality is at an elevated level in Canada, with many people, particularly those at the median income level, having seen no increase in their pay above inflation since the recession. While the government cannot decree an increase in every worker’s pay, there are actions that can be taken to boost incomes at the bottom and be a leader on the race to the top. These include raising the minimum wage (which the NDP has promised to do at the federal level), becoming a living-wage employer (which Vancouver has committed to and Toronto is exploring), and promoting higher quality jobs including fewer part-time jobs, fewer temporary jobs and fewer contract positions.

It may seem counter intuitive to suggest that businesses (who say the second most important input cost causing difficulties for the business is wages) pay their employees more. The thing is, we’ve been on a race to the bottom for quite some time, asking workers to accept lower and lower wages in the name of cheap prices. What we forgot along the way is that workers, particularly in the domestic service industry, are also customers. If they don’t have enough money to purchase the products they make or serve then, of course, aggregate demand will suffer.

  1.     Increase public spending on infrastructure and social programs: This is a practical tool simply because it creates jobs–jobs that, at least in the construction industry, tend to pay decently. Canada’s employment rate has not returned to pre-recession health; the country would need to create almost 240,000 new jobs to get us there. Put more starkly, there are 240,000 people who could be working today but who are not.

Business investment in non-residential structures, machinery and equipment fell in the first three quarters of 2015. It has also been weak since the end of 2011. Since the economy is operating with significant slack ( hence the recession in at least the first two quarters of 2015), spending on infrastructure and social programs would boost GDP and actually increase investment. With interest rates at historical lows, now is the perfect time to invest in infrastructure and give our economy a little boost.

  1.     Give more incentives to innovate: The Conference Board of Canada says that Canada ranks 13th out of 16 peer countries on innovation, and receives a D grade for overall innovation performance. And those countries that are more innovative are passing Canada when it comes to income per capita, productivity and the quality of social programs. The strange thing is that Canada is one of the largest spenders on research and development – certainly through post-secondary institutions, but also through tax incentives.  Unfortunately, tax incentives are the least effective tool to kick-start new technologies and new industries. There are many reasons for this, not least of which is that the benefit of the tax incentive is received after the spending has already happened. It means new and innovative companies need to raise the money to test out the new technology and receive a cash boost later.

Instead of using the policy mix above, the government has relied on tax cuts and a “balanced” budget to spur investment and boost aggregate demand. So far it hasn’t been working. As mentioned earlier, business investment declined in the first three quarters of 2015. It’s also been relatively weak for at least the last three years.

So, are small business tax cuts really the best way to help small business and the Canadian economy? The short answer is no. Moving the small business tax rate from 11% to 9% does not address the main reasons why small business may not be investing in growth and innovation; it simply gives professionals who are incorporated as a small business an extra two percentage points of deferred income–money they can invest in the stock market and other forms of capital for a rainy day. It may sound nice, but for any waged workers it would also be illegal.

Canada’s failed experiment with corporate income tax cuts


After a generation of comparatively high corporate income tax (CIT) rates, in the late 1980s Canadian governments at the federal and provincial levels began a series of corporate income tax reforms. According to many mainstream (‘neoclassical’) economists, reducing CIT rates was a wise public policy. A reduced CIT rate means a reduction in the cost of capital, thus inducing a greater supply of capital. And because investment is a key driver of growth, reducing CIT rates leaves firms more (after-tax) earnings to plough into growth-expanding industrial projects. Did the halving of the Canadian CIT rate spur higher levels of investment and more rapid growth?

The short answer is no: far from improving economic outcomes, there is evidence to suggest that corporate income tax reductions depressed Canadian GDP growth. I present a detailed explanation of why that’s the case in a forthcoming study to be published by the Canadian Centre for Policy Alternatives. Given the election debate around raising the CIT rate, I thought it worthwhile to summarize my findings. The study contrasts three Canadian corporate income tax rates—the effective federal CIT rate, the combined Canadian statutory CIT rate and the weighted average effective rate on the top 60 Canadian-based firms—with five growth variables, namely investment in fixed assets, employment, GDP per capita, labour compensation and productivity. I conclude that there is no empirical or statistically significant relationship between CIT regime and growth. Business investment is a key determinant of GDP growth, employment and labour compensation, but over the long-term it is unresponsive to changes in the statutory or effective CIT rate.

Consider Figure 1, which plots the combined statutory CIT rate for Canada and the weighted average effective CIT rate on the largest 60 Canadian-based firms (ranked annually by equity market capitalization). The first round of significant corporate income tax reform came in 1988, spearheaded by the Brian Mulroney Progressive Conservatives. Federal rates fell from 36 percent to 29 percent. The second round of corporate income tax reform came in 2001 with the Jean Chretien Liberals, which saw the federal statutory rate reduced from 28 percent to 22 percent in 2004 (where the rate already stood for manufacturing, resources and other ‘trade sensitive’ sectors).

CAN CIT Rates - Top 60 and Corporate Universe


The most recent round of corporate income tax reform was initiated by the Stephen Harper Conservatives in 2008, which saw a straight reduction to the statutory rate. In a five-step reduction program, statutory federal CIT rates fell from 21 percent in 2007 to 15 percent by 2012 (excluding the surtax of 1.1 percent, which was also scrapped by Harper). Over the past three decades the provinces have also taken a kick at CIT rate reduction can, cutting the statutory rate from an average of 14 percent in the late 1990s to 11 percent more recently. Both CIT rates in Figure 1 have been halved in the past three decades, with the bulk of the reduction coming since 2001. Did these reforms spur higher levels of investment and more rapid GDP growth?

Figure 2 plots the deep history of Canadian GDP growth and business investment in fixed assets. The decade average rate of GDP growth is adjusted for inflation and population and the decade average level of fixed asset investment is measured as a percentage of GDP. Even though CIT rates began to be reduced in the 1980s, the 1990s and 2000s performed worse in terms of economic growth, not better.

CAN GDP Growth and Biz Investment


The first few decades of the postwar era experienced an upward trend in investment. Significantly (and ironically), not only has investment failed to increase in recent decades in tandem with CIT rate reductions, the pattern that investment takes mirrors the CIT rate. Far from the CIT regime and growth being strongly and inversely related, there appears to be a positive association between the two variables, such that CIT rate reductions are historically associated with lower levels of investment.

Fixed asset investment averaged 13.7 percent of GDP in the postwar decades to 1980, but in the past three decades (whilst governments were fixated with corporate tax cuts) business investment fell to an average of 12.8 percent of GDP. In sum, when we contrast the experience prior to the CIT rate reduction era (1945–1988) with the CIT rate reduction-obsessed era (1988–2012), we see a move from heightened industrial capacity expansion and relatively robust GDP growth to capacity stagnation and the slowest GDP growth in post-Depression history.

Not only did Canadian CIT rate reductions fail to lead to faster growth, my study unearthed evidence which suggests that CIT rate reductions contributed to slower growth. By reducing CIT rates, Canadian governments contributed to the increased income position of large firms. Rather than investing their enlarged earnings into expansionary industrial projects, Canada’s corporate sector—especially its largest firms—have increasingly stockpiled cash on their balance sheet. This ‘dead money’, as former Bank of Canada Governor Mark Carney put it, is one ingredient in the heightened stagnation of recent times.

Figure 3 contrasts the income position of the top 60 Canadian-based firms, measured as net profit divided by GDP, with corporate cash—the latter measured as domestic and foreign currency and deposits as a percent of the total assets amongst all private non-financial corporations. The two series are tightly intertwined over half a century. The fact that Canada’s largest corporations have doubled their income share in the past two decades in tandem with excessive cash hoarding indicates that the growth of corporate power itself might be one determinant of cash stockpiling, and hence, of slower growth.

Top 60 Income Share and Cash Hoarding


As the leading firms claim a larger share of national income through enhanced size and market power, their capacity to stockpile cash increases. By hoarding cash these firms stabilize dividend payments, thus reducing risk, and this leaves them with more liquidity for acquisition activities and to hedge against market downturn. One consequence of the stockpiling of cash, then, is that a smaller share of national income is deployed to expand employment and industrial capacity.

There is another aspect to this story that bears investigation. The income share of the largest firms captured in Figure 3 is net of corporate income taxes. This means that the effects of changes in the CIT regime are built into the picture. If the hoarding of cash by large firms in an ingredient in slower growth, what is the relationship between the CIT regime and corporate hoarding? Figure 4 contrasts the level of corporate cash with the weighted average effective CIT rate on the top 60 firms. Note that the CIT rate is positioned on an inverted scale to facilitate its comparison with the level of cash.

WAE CIT Rate Top 60 Firms and Cash Hoarding


There is a very tight, persistent and negative relationship between the level of corporate cash and the CIT rate. With every reduction in the CIT rate, rather than investing its enlarged earnings into expansionary industrial projects, corporate Canada stockpiled an ever greater proportion of cash on its balance sheet. This means that, counterintuitively, the government frenzy for CIT rate reductions has exacerbated corporate cash hoarding and depressed growth.

Despite being factually supported, this line of reasoning is entirely at odds with neoclassical doctrine. If the findings contained in the forthcoming CCPA paper are true, then corporate tax cuts will go down as one of the great Canadian public policy blunders of the past generation. Far from spawning higher levels of investment and growth, the government fixation with corporate tax cuts has indirectly fostered slower growth.

Jordan Brennan is an economist with Unifor and a research associate of the Canadian Centre for Policy Alternatives. Follow him on Twitter @JordanPWBrennan. An attenuated version of this post can be found on the CCPA’s ‘Behind the Numbers’ series.


GDP Recession a Symptom of Deeper Failures

There were surely more people (myself included) watching Statistics Canada’s GDP release at 8:30 am Tuesday, than any other release in recent history! This reflected the political significance of the possibility that an official recession would be confirmed by the numbers, right smack in the middle of an election campaign — all the more so given the Conservatives’ self-congratulatory rhetoric about their supposed “economic credentials.”

The data did indeed confirm a second consecutive quarter of real GDP contraction, hence a recession by the traditional definition.  Of course, Conservatives and their friends immediately tried to discount the importance of the recession.  Stephen Harper dismissed the recession as “a couple of bad months,” and even heralded the StatsCan report as “good news” (since it showed a positive change in GDP in June, the last month of the quarter).

While there was a lot of suspense over that particular result, that shouldn’t obscure us from considering the broader weaknesses in Canada’s economy — weaknesses that would have continued to drag us down, far below our economic and social potential, even if no actual “recession” had been declared. Read more »

Balanced Budget Myopia Breaks Both Ways

Opinions on deficit budgeting have become a short-hand litmus test in Canadian politics. Deficits are left-wing and balanced budgets are right-wing austerity.  Economists know that there is virtually no difference between a small surplus and a small deficit, but politicians and voters are a different story.

I have spent the past three and half years railing against premature Conservative budgetary tightening, so when Thomas Mulcair said he wasn’t entertaining the possibility of a budget deficit in 2016, I was among those progressive economists who groaned and rolled their eyes in frustration.

When we reduce policy discourse to “deficits good vs. deficits bad”, we miss talking about the whole host of choices that go into budgeting. One can imagine deficit spending that *isn’t* progressive, and balanced budgets that would make Tommy Douglas proud.

For example, let’s look at the Conservative record. While many hands have been wrung over their obsession with balanced budgets, Harper & Co.’s insistence on low corporate and personal income taxes has severely hampered their ability to actually balance the books. Big ticket commitments such as the F35 boondoggle weigh on the books at the same time that services to veterans have been cut.

Rather than simply be happy or upset that the Conservatives have run mostly deficits, we should analyse spending and taxing choices on their own merits.

The same should be true of opposition promises. Rather than be happy that Trudeau has promised three straight deficits, and upset that Mulcair has promised to balance the books, let’s take a closer look at what the two parties are actually promising.

Public Transit

Liberal promise: “We will boost investment in public transit by nearly $6 billion over the next four years, and almost $20 billion over ten years.”

NDP promise: “$1.3 billion annually over next 20 years to ensure stable, transparent public transit funding for municipalities.

Municipal / Green Infrastructure

Liberal promise: “We will boost investment in green infrastructure by nearly $6 billion over the next four years, and almost $20 billion over ten years.”

NDP Promise: “$1.5B annually for local infrastructure, including roads, water treatment, and public transit.”

(Note: These promises don’t exactly overlap, but municipal infrastructure upgrades certainly qualify as green, and the Liberal website includes water and wastewater in their green infrastructure plan.)

Social Infrastructure

Liberal promise: “We will also boost investment in social infrastructure by nearly $6 billion over the next four years, and almost $20 billion over ten years.”

NDP Promise(s):

  • 370,000 childcare spaces by 2019 ($1.9B annual cost), 1,000,000 million childcare spaces by 2023 ($5B annual cost).
  • $2.7B annually for affordable and market-rental housing units, including incentives for co-op housing.

If you notice a trend in the Liberal promises, you’re not alone. For simplicity they seem to have identified three priority areas, and split the spending evenly between them. The New Democrat promises are messier, if you will, but the commitments add up to equal or better than the Liberal promises, at least over a 4 year timeline. Looking here, you can see the Liberal numbers get smaller near the end of the first mandate, and then bigger as we go into the future.

How to Balance?

Mulcair has said he will make different choices than the Conservatives or the Liberals. These promises include raising corporate income taxes and changing how stock options are taxed. Trudeau has said he won’t raise corporate taxes, and indeed mused about lowering them further.

While the Liberals have said they’d raise personal income tax rates on high earners, their cut in the $44,401 and $89,401 tax bracket means nothing for most workers, and results in lower overall taxes for those in the $150,000 – $200,000 range.

We don’t know the whole picture, though, because no party has put out their full costed platform.

Beyond Simple Numbers

The Liberals have also promised alternative financing of infrastructure, which means more P3s and user pay models, such as the 407 toll highway in Ontario. It’s hard to make the case that these are progressive policy choices.

While I stand by my belief that deficit spending is sometimes a good idea and better for long term growth, I also stand for more context in policy analysis than just ‘balanced budgets equal austerity’. That kind of analysis is as shallow and incorrect as ‘deficit spending will turn us into Greece’.

Mulcair is wrong on the deficit: cozying up to the neocons

Louis-Philippe Rochon
Associate Professor, Laurentian University
Co-editor, Review of Keynesian Economics
Follow him on Twitter @Lprochon


First, it was his enthusiastic support and admiration of Margaret Thatcher; now it is his overzealous support of balanced budgets. What’s next? What is Mr. Mulcair ready to do to get the keys to 24 Sussex? How close is he willing to get to neocons to move in?

It turns out, there is nothing NDP-ish anymore about the NDP. That old party is gone. Buh-bye!

Read more »

“Taking Care of Business,” by Stephen Harper and the Senators!

At the big Unifor Canadian Council meeting in Montreal last weekend there was a surprise appearance by a new musical group, called “Stephen Harper and the Senators”, featuring Stephen Harper on guitar and vocals, Patrick Brazeau on drums, Pamela Wallin on bass, and Mike Duffy on lead guitar and general spiritual advising.  They played a short but lively set, consisting of one song.  Lyrics reprinted below, with apologies to BTO.  Don’t hold your breath waiting for the soundtrack!

Read more »

When Bad News is Good News: Harper’s Call to Poloz

Was there any concrete economic reason for Stephen Harper to call Stephen Poloz yesterday, as global stock markets continued their gyrations?  And then to have his office subsequently issue a cryptic and rather foreboding statement about the conversation? Read more »

Job Vacancies

Congratulations to Statscan on the occasion of the first release from the National Job Vacancy and Wage Survey, with data for the first quarter of this year. The survey received funding from HRSDC to put some hard numbers on job vacancies, and the first tranche of data are impressively granular, providing detail on vacancies at a detailed occupational level and by economic region as well as by province. (In addition to what is published in the Daily and on CANSIM, Statscan will provide detailed tables on request.)

If you ever wanted to know how many vacancies there are for accountants or retail clerks in Winnipeg or wherever, this is the place to  go. The Survey provides information on how long vacancies have existed, and what wages were offered to fill vacant positions. (The latter data are not yet available.)

Knowledge of job vacancies is essential to good labour market policy. In addition to the information needed to select temporary workers and economic immigrants to fill bona fide shortages of Canadian workers , job vacancy data should guide government training programs and the decisions of individuals re fields of study and possible occupational futures.

The data released put some hard numbers on job vacancies for skilled workers, showing that there are a significant number of jobs sitting vacant for three months of more, likely due to lack of enough qualified workers. This seems to be the case for some skilled trades and health occupations among others.

My overall sense, however, is that many vacancies may simply reflect a reluctance on the part of employers to raise wages to fill empty positions. Fully 37% of all vacancies – 149,9880 out of 400,000 – are in the lowest paid and least skilled occupational category of sales and service workers. When we have the data it will be interesting to see the wages offered to fill these positions.

And the new data do not suggest significant overall labour shortages. The overall vacancy rate is calculated to be 2.5%, but only one half of the vacancies in the first quarter had been unfilled for more than one month. Our biggest problem by far remains a slack job market.

Canadian recession will go beyond first half of 2015

Canadian recession will go beyond first half of 2015

Louis-Philippe Rochon
Associate Professor, Laurentian University
Co-Editor, Review of Keynesian Economics

With news of economic turmoil in China and other emerging economies, repercussions for Canada will be quite “atrocious”. Expect the recession to continue beyond the second quarter of 2015.

This raises questions about the supposed recovery in the second half of 2015. Currently, Canada is in recession. Most pundits are predicting that it is a mild recession, and that Canada will fully recover in the third and fourth quarters of 2015. But those predictions are surely wrong and are based on faulty economic logic.

Read more »

Harper’s housing promises and the crisis of affordability

Over the past two weeks, Stephen Harper has made three new housing-related promises on the campaign trail. However, they won’t help the crisis of affordability. The pattern is familiar: make things worse and prepare to blame others.

  1. First, there’s the promise to allow first-time home buyers with RRSPs to take an extra $10,000 out of their retirement savings for a down-payment. This will likely have only a small effect, but whatever effect it does have will further heat up the housing market by increasing demand here and there. This makes the housing crisis worse. (Bonus negative effect: it eats into retirement savings.)
  2. Second, Harper promised to bring back a home renovation tax credit: people who own homes and spend $1000 to $5000 on renovations will be eligible to get 15% back at tax time. Again this isn’t much (and it’s poor tax policy too), but ultimately it helps drive up property values. This too makes the housing crisis worse.
  3. Finally, Harper says he would gather data on foreign real estate buyers. While there is certainly lots of capital sloshing around the world and some of it is landing in places like Vancouver and Toronto housing, it’s unclear how much of our bubble is due to foreign money and how much of these fears are a xenophobic blame-game. Data will be good, but given how Harper has been blaming all of Canada’s economic woes on external factors, this looks more like an exercise in something similar.

It’s certain that we are in the midst of a housing unaffordability crisis—that much Harper gets right. His proposed solutions, however, continue in the pattern of the past few decades, a pattern that has created bubbling housing markets that have left many shut out and scrambling. Read more »

Quality Public Child Care: An Economic No-Brainer

Child care will be a major issue in this federal election campaign. The NDP has pledged to create 370,000 new $15-per-day spaces through joint federal-provincial initiatives by 2017-18, at an estimated cost of around $2 billion per year (growing that to 1 million spaces by 2023). The Liberals have not yet announced their child care platform, but have indicated it will also include significant funding for federal-provincial initiatives. The Conservatives, in contrast, have launched an ideological war on the very concept of publicly-funded child care, claiming it is unaffordable and that families should be allowed to spend “their money” on whatever priority they choose.  Read more »

Would an NDP win mean the end of Canada?

Louis-Philippe Rochon
Associate professor of Economics – Laurentian University
Founding co-Editor – Review of Keynesian Economics

Follow him on Twitter – @Lprochon

This story from the CBC on August 14, 2015.  See story here.


With the NDP riding high in a number of national polls at the moment, there is an increasingly real possibility the New Democrats will form the next federal government. Some are predicting, however, an NDP win would be catastrophic for Canada and would spell economic doom for the country.

After decades in third-party obscurity, an NDP win would certainly be one for the history books, and mark either the beginning of the end for the Liberal Party or quite possibly the beginning of a healthy three-party system.

Democratic issues aside, some pundits have begun the fear-mongering, warning of catastrophic events if the NDP would indeed form the government. In many ways, this is not surprising.

Read more »

This election, let’s have a real debate about legalizing marijuana

On the campaign trail, Prime Minister Harper repeated assertions that relaxing pot laws will lead to terrible, horrible things: ““When you go down that route, marijuana becomes more readily available to children, more people become addicted to it and the health outcomes become worse.” The Conservative response is to escalate the “war on drugs,” even though this moral crusade has utterly failed in its attempts to eradicate drug use, while wasting public resources on law enforcement and the justice system.

This fear mongering is far behind the times. Social acceptance of pot, in spite of decades of negative propaganda, is on the rise. In a poll conducted last year for the federal government, 71% of Canadians supported loosening of the country’s pot laws (37% supported full legalization). In Vancouver, pot is already rampant through medical dispensaries and is de facto decriminalized. But the big shift is, of course, happening south of the border, with legal pot in Washington, Colorado, Oregon and Alaska, while being decriminalized in 16 other states, while still more allow medical use. Ballot initiatives in 2016 will likely see the number of states with legal pot increase again, including heavyweights like California. It’s not hard to imagine pot being legal everywhere before long.

PM Harper’s antiquated tough-on-drugs rhetoric may resonate with his social conservative base, but may prove divisive for other conservative supporters of a more libertarian stripe. That is, people should be free to do something they choose as worthwhile as long as it does not harm anyone else. And to the extent that there is harm from pot, that comes precisely from the fact that it is illegal – theft, damages, injuries and death resulting from organized crime.

In terms of human health, if anything, medicinal marijuana’s positive health impacts have taken the spotlight. A wide range of health applications (glaucoma, multiple sclerosis, treatment of nausea arising from chemo, and increased food intake for AIDS patients) are known. But there is tremendous untapped potential for better research studies on health applications, which would arise in a legalized environment.

There is also scope for better understanding health impacts of recreational use. While smoking pot implies some health risk of lung cancer, the evidence on this is actually inconclusive, while some research reports anti-cancer properties from active ingredients, THC and CBD. Plus, the advent of vaporizors and edibles eliminates potential harm from inhaling carcinogens in smoke. No overdose deaths are attributable to pot, although it is possible to eat too much of that cookie and end up in Emergency. Impaired driving is also a concern.

What about addiction? Pot is not considered to be physically addictive. Daily users can go off it without feeling withdrawal symptoms. This is different than alcohol, tobacco or even coffee, all of which produce negative physical symptoms during withdrawal. That said, pot can become habitual and in extreme circumstance this could lead to problems for users in managing work and personal relationships. Gambling addiction is a much more serious problem, but last I checked our governments were pushing for ever more casinos and lotteries.

Would use increase if drug laws were loosened? Probably. But if adverse health impacts of pot are minimal, this is only a problem if you buy into a “drugs are bad” morality. And if you are there, the only consistent position is to eliminate all drugs from society, including legal substances such as alcohol. This was the drive of the early 20th century temperance movement that led to alcohol prohibition, and we all know how that turned out.

What about the children? For recreational purposes pot should be kept away from kids, and be treated the same as alcohol. But the reality for teenagers is that it is hard to imagine pot becoming more available than it is currently. At least under a legal regime the door would be open to honest education and conversation among teens about the pros and cons.

So the real debate is whether we should decriminalize or legalize pot. My sense is that legalization is the best approach, if accompanied by appropriate regulation and taxation policies. Decriminalization stops making users into criminals, but it won’t stop harms associated with organized crime. Moreover, it presumes that usage is a negative. Having a drink after work and having a toke should be treated the same in the eyes of the law.

Legalization also opens up the economic potential of pot. A legal market for pot would facilitate growing (domestic market and export), retail outlets and Amsterdam-style coffee shops (including tourism potential), and various value-added activities (vaporizors, edibles, oil products, etc). That means new demand for commercial and industrial real estate, gains in (legal) employment, and for governments, increased taxes (personal and corporate income taxes on new activity, plus sin taxes on sales) and reduced expenditures (law enforcement, courts and incarceration).

Time will tell what regulatory and tax regime makes the most sense, as US states experiment. In Colorado, a state about the same size as BC, legalization yielded $76 million in revenues in 2014. Loosening of pot laws has been accompanied by a slight decline in usage by youth and a reduction in traffic fatalities. And thousands of jobs have been created.

So the case for legalization is that it shines daylight on an activity for which there is already widespread civil disobedience; it cuts organized crime out of the picture; could drive new innovations in health; creates new centres of economic activity; and provides revenues to governments, while reducing or reallocating public expenditures arising from criminality.



Canada After Harper

Here is the link to buy a new book, Canada After Harper,  edited by Ed Finn and with an introduction by Ralph Nader, just published by Lorimer.

Most Canadians know that Stephen Harper has had a tremendous impact on the country since becoming prime minister in 2006. But few have the in-depth knowledge of how far his transformation has gone — what has already been done, and what the consequences will be in the future.

This book brings together Canadian experts in a wide variety of areas. They document key changes put in place by the Harper government. There have been dramatic changes in education, health care, women’s rights, science and research, guiding the economy, labour unions, water and natural resources, and aboriginal affairs. Most of these measures have been designed to be difficult, if not impossible, to reverse.

Readers will for the first time grasp the breadth and depth of the Harper attack on institutions, policies, and programs that embody values and principles shared by most Canadians. Each chapter documents the dangers of a government fixated on the needs of corporations and the one percent, blinded to our environmentally unsustainable lifestyle, and expanding surveillance and security measures to intimidate and threaten opponents.

The contributors to this book believe that engagement in public affairs by the citizenry can trump the power of the elites and the giant corporations who are the winners of the Harper era. As activists in public life, they propose strategies and measures to create a Canada that champions fairness, social justice, real democracy in our government institutions, action to reverse global warming, and a constructive role in world affairs.

The contributors to this book come from every corner of Canada: David Suzuki, Maude Barlow, Joyce Nelson, Peter Robinson, Andrew Jackson, Scott Sinclair and Stuart Trew, Lynne Fernandez, Linda McQuaig, Colleen Fuller, Kate McInturff, Nora Loreto, Larry Kuehn, Ed Finn, Art Manuel, Duff Conacher, Alex Himelfarb, Kevin Page, James Turk, Trish Hennessy, and Murray Dobbin



Harper has the worst economic record in history

Louis-Philippe Rochon
Associate Professor, Laurentian University
Co-Editor, Review of Keynesian Economics

Follow him on Twitter @Lprochon


Mr. Harper and the Conservatives never miss an opportunity of reminding Canadians that we should vote for them in October in order to ensure economic prosperity in the future. At the heart of this argument is the belief that they are the best equipped political party to manage the Canadian economy. Yet a new study arrives at the very opposite conclusion: Mr. Harper’s government has the worst economic record of all federal governments in Canada since 1946 (Oops I said history before, mea culpa!).

Read more »

Bribing people with their own money: the home reno tax credit

The first major election promise from the federal Conservatives: a permanent home renovation tax credit. On the surface this looks like an astute manoeuvre, given that home renovation has been booming in recent years. Canadian Press called the proposed credit a “big budget campaign promise,” but on closer inspection it is pretty underwhelming.

Estimated at $1.5 billion per year, Canadians won’t see this new credit for some time. In part that is because of the weak Canadian economy and correspondingly weaker federal budget position, stubbornly headed for deficit this year in spite of bold claims made by the feds at budget time. This election promise is not likely to happen until at least 2017, if not later.

The inspiration for the proposed credit is the 2009 “stimulus” budget, which brought in a temporary credit, although with a higher ceiling of $10,000 worth of work. At least in 2009 the intention was to stimulate new work (although there were likely many free riders, those who would have done the work anyway). For a new credit the effect will be the opposite: households will delay home renos in 2016 so they can claim the credit in 2017 (or whenever).

It is also notable that a home renovation tax credit benefits already affluent home owners, those who least need a tax break. More than 30% of Canadian households are renters, so this tax break means nothing to them. Another portion of homeowners, including those with hefty mortgages, are not likely candidates either.

But even for those who are homeowners, the credit is capped at $5,000 worth of work, meaning a maximum tax savings of $750. For those contemplating any serious renovation, this credit will be only of modest help – unless you spread your reno across multiple years.

When you look closely, it is puzzling why this should be a priority at all for our federal government. It is similar to the crass tax credit politics we see with children’s sports and arts programs. Where exactly is the pent-up demand for home renovations that cannot go ahead without that extra $750?

If stimulating the housing sector is the objective, how about committing federal funds for construction of new affordable housing. $1.5 billion per year would be a great first step at a time when housing affordability is a top issue for families.

Harper’s economics and geocentrism

Harper’s economics and geocentrism

Louis-Philippe Rochon
Associate Professor, Laurentian University
Co-Editor, Review of Keynesian Economics

What a month it’s been. While the first half of 2015 has not been kind to Canadians and the economy, July has proven to be worse.

On the economic front, we have had a tumultuous month capping a tumultuous first half of the year. When Bank of Canada governor, Stephen Poloz, described Canada’s economy as ‘atrocious’, little did we know how atrocious it was going to get.

Read more »

Canada’s new recession and the push for alternatives

The Bank of Canada cut its benchmark interest rate two weeks ago to nearly record lows, now just 0.5%. In the face of an oil shock and other weakness, monetary policy is expected to do the heavy lifting of beating an economic funk. Today’s move reflects a poverty of economic policy from the ruling Conservatives and much of the political class.

Harper has been adamant that Canada’s downturn—now very likely a recession, about which his own Finance Minister  remains in denial—is the result of global forces. There’s nothing that can be done to counteract a host of external problems but to button down. The best a government can hope for is to maintain a fabled fiscal discipline.

However, there’s a disjoint between saying that policy couldn’t have been used to avert downturns like this one and screaming bloody murder anytime someone raises the prospect of even mildly activist, redistributive, old-school social democratic economic policy. If current policy is that ineffective, then perhaps it’s high time to try something else? “There’s nothing we could have done” is just a fatalistic cover for political choices. Read more »