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The Progressive Economics Forum

Federal Budget Refried

Was it worth the wait?  Hardly.   Today’s federal budget is about as appetizing as two month-old pizza warmed up in the microwave.  I guess they deserve high marks for consistency, though not for economic policy or a long list of other things.

The Harper government’s June Budget is almost entirely a reprinted version of the budget they tabled two and a half months ago in March with a few additions and changes highlighted in blue.   They didn’t even update the economic projections, even though the world economy appears to have weakened considerably in the last two months.  Is this what we can come to expect from a diminished public service under Harper?  Outside of $2.2 billion for Quebec’s sales tax harmonization, the elimination of federal support for political parties, and accelerated deficit plan there’s really nothing new in the budget—and that’s the problem.

While the budget includes a few positive measures, included to try and get the NDP to support the last budget—such as increases to GIS payments for seniors, reintroducing incentives for energy retrofits—they are overshadowed by what’s negative and what’s not there.

Most troubling are the $5 billion in cuts to public services for Canadians that will pay for their over $6 billion in corporate tax cuts with much of those tax benefits going to banks, finance and oil companies.  When public investments provide six times as much economic boost and jobs as corporate tax cuts, this type of trade-off will endanger an already faltering economy and do nothing for the many millions of Canadians out of work or struggling with their household finances.

Minority governments forced the Harper government to introduce positive measures to deal with the economic crisis over the past two years; now they have a majority we can only expect more of the same bankrupt economic policies that got us into this economic mess.

What’s in the budget?  First the few good news: mostly measures included as a result of pressure from the NDP before the election:

  • An increase in the Guaranteed Income Supplement with a maximum top-up of $600 a year for low income seniors and $840 for a low income couple.   This is similar to what was included in the March budget.  It provides much less than what seniors need for a decent retirement and has a steep clawback rate, but it’s still a small step in the right direction.
  • $400 million for a one-year renewal of the ecoENERGY retrofit program for houses.  This too was pushed by the NDP and brings back a successful program that the Conservatives eliminated last year, but they’ve only committed to funding for one year.
  • A range of research, innovation and post-secondary education and training programs.   Much is for promotion of the digital economy and funding grants.   However, there’s little additional money here.  Much will be paid for through $250 million in unspecified cuts to other programs at Human Resources and Skills Development Canada and it also includes more money for commercialization of universities and colleges.
  • A limited extension of the Employment Insurance work-sharing and other EI pilot projects.   There’s also a tax credit of up to $1,000 for small business against increases in EI premiums, but everyone else will have to pay for the EI premium increases they are going ahead with.
  • No reduction in the 6% escalator for health care transfers, agreed to by Harper after the other political leaders committed to this during the election.

This is pretty much all the good that’s in the budget.   It’s heavily overshadowed by what’s negative, and by what was left out.

Even though 80 per cent of Canadians are opposed to further corporate tax cuts, the Conservatives have stubbornly refused to reconsider their plans to cut Canada’s corporate tax rates.  The Harper government’s cuts will cost the federal government over $6 billion a year in lower revenues, with the lion’s share—over $2 billion a year—going to already highly profitable banks, finance and oil companies and to their well-compensated executives.

Ordinary Canadians will also pay $2.2 billion for the Conservatives’ regressive tax policies through this budget.   This is the amount Harper promised during the election campaign to pay Quebec to match the $4.3 billion and $1.6 billion given to Ontario and B.C. to induce them to introduce Harmonized Sales Taxes last year.

The only other new measure different from the March budget is fulfillment of Harper’s long-awaited desire to eliminate federal subsidies for political parties.    This will help to entrench the Conservative party’s power and make it more difficult for smaller political parties to operate.

While the increase in health transfers is welcomed, more of these public health care dollars will be making their way into the profits of private health care companies.   Harper clearly stated in the election he wants provinces to experiment more with “alternate service delivery”, code for privatized health care.

This budget also adds to the bevy of boutique tax credits Harper is so fond of.   Now there’s a new tax credit for children’s art activities, for volunteer firefighters, examination fees and family caregivers.  These may sound great in their press releases and appear like they are actually doing something in these areas, but they accomplish little except complicate the tax system and create work for accountants.   The reality is a so-called $500 tax credit really provides a maximum of $75 in lower taxes.   They benefit most those who need it least and do nothing to increase services provided.   It’s much more effective to actually increase public spending in these areas.  Even right wing policy institute have recently criticized Harper’s Tax Boutique.”

Just as there wasn’t in the last one, there’s nothing in this budget to reduce poverty, nothing for homelessness, nothing to improve child care, and nothing to help communities provide clean water systems and pay for the cost of meeting new federal wastewater standards.   There’s very little for Aboriginal communities—only a few million for replacing fuel tanks and for First Nations policing.

The challenge of climate change was ignored once again: there’s a minor change to reduce some of the tax subsidies for the oil sands, but it amounts to far less than the $1 billion total tax subsidies that go to this industry—and it’s far less than the $700 million plus the oil, gas and mining industry will gain from Harper’s corporate tax cuts.

Also missing from the budget is any solid commitment to provide retirement security for all Canadians by improving the Canada Pension Plan and Quebec Pension Plan (CPP/QPP).   Every province except Alberta supported a plan to double the benefits provided through the CPP but at the last minute Harper’s government reneged on their support following pressure from the banks and business lobby who didn’t want to lose the lucrative profits they get from peddling RRSPs.

Canada’s cities and communities are facing a $120 billion plus bill needed to pay for upgrading their municipal infrastructure with little but regressive property tax revenues to pay for it.  The Conservatives could have redirected more federal tax revenues to help municipalities, but have only provided vague promises to consider a long-term plan.   Meanwhile, federal support for public infrastructure is set to decline in the next few years, with the Harper government increasing pressure on municipalities to privatize and engage in expensive public-private partnerships.

There’s nothing in this budget to help really create jobs for the 1.4 million Canadians out of work and many more struggling with low wages and the rising cost of living.   On the contrary, the rapid phasing out of stimulus spending and hard turn towards cutting public spending will lead to an increase in unemployment.

This budget reiterates Harper’s election promise to eliminate the deficit one year earlier than they had previously committed, but there’s no real detail on how we’re going to get there.  We know that they’re planning to cut $5 billion a year from federal program spending and that federal departments have been asked to prepare budgets outlining where they would cut of 5% and 10%.

Before they gained a majority in the last election, they were playing nice, and claimed all the job losses could come from attrition of public servants, with no word on who would provide these public services after they retire.    Now Harper’s new hatchet man, Treasury Board head Tony Clement has admitted that many whole programs will be chopped.  But where are they and what they—we don’t know yet.

What’s disturbing is that the Harper government was re-elected partly on its image of being good economic managers.   Economic reports show that our economy has grown almost entirely because of public stimulus and increased consumer spending.   With government spending being cut, high consumer debt loads, slow employment and wage growth and our trading partners struggling, there’s little to drive our economy forward.   Businesses aren’t going to invest their excess cash unless someone’s going to buy their product.

The past two years should have provided a serious warning against the neo-conservative supply-side economic policies that resulted in the financial and economic crisis.   Instead, the large deficits it created (inflated by tax cuts and spending on military hardware) and Harper’s new majority now finally gives him both the excuses and the power to cut public services and persistently shrink the positive role of government in Canada.

Enjoy and share:

Comments

Comment from Erin Weir
Time: June 11, 2011, 12:01 am

Good analysis of the budget.

A point tangential to this post but of broader relevance to the labour movement’s messaging is that banks do not peddle RRSPs. They peddle mutual funds and other financial products that one could hold in an RRSP or other type of account.

Banks do use the RRSP contribution deadline to advertise these products. Like most successful advertising, this approach features an important truth: it is financially advantageous for most people to maximize their RRSP contributions.

Within an RRSP, one could hold securities with no fees and no risk like Canada Savings Bonds. Rather than suggesting that RRSPs are a scam, our criticism should be focussed on the high-fee and possibly high-risk securities promoted by banks. The issue is the financial products, not the type of account in which they are held.

Of course, there is a public-policy argument against raising the maximum RRSP-contribution limit to the benefit of high-income earners at the expense of the public treasury. However, that is quite different than suggesting that RRSPs are a bad deal for individuals.

Comment from Toby Sanger
Time: June 13, 2011, 10:00 am

Good points. However, it should also be noted that RRSPs aren’t always beneficial for those with lower incomes. They may face a higher tax rate as seniors when they have to convert the RRSPs to RRIFs.

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