Designed to Fail: Harper’s Nickel and Dime Budget

The 2011 federal budget was clearly designed to fail and provoke an election. 

It only went part way to meet some of the opposition parties’ priorities while also showering the country with dozens of different politically opportunistic relatively minor spending measures, extensions of expiring programs and boutique tax cuts.   Quite appropriately, it became D.O.A.–and now we’ll soon be into an election.

What’s concerning is what it bodes for the future if the Harper Conservatives are re-elected.  Even in this sweetened pre-election version, they are planning steep cuts to federal program spending, as Armine noted previously.   A post-election version is likely to be a lot more bitter.

The following is a shortened version of the initial overview and summary I have posted on the CUPE website.   

Designed to Fail: Harper’s Nickel and Dime Budget Overview and Summary

The 2011 federal budget is billed as the “low-tax plan for jobs and growth,” but there is little of substance new here—either on spending to create jobs or tax cuts. At most, it includes a lot of bits and pieces in a politically opportunistic bid to stay in power.

There’s no change to the Harper Conservatives’ irresponsible decision to continue with further corporate tax cuts that will cost the federal government over $6 billion a year once they are fully phased-in. More than a third of the benefits from the Harper corporate tax cuts will go to highly profitable banks, oil and gas companies and other finance and resource sector firms.

Federal support for infrastructure spending will decline significantly over coming years as stimulus spending expires and there’s no money left for new spending under Building Canada Plan infrastructure programs. The result, together with major cuts to federal program spending in future years, is a job-killing budget that provides little hope for Canada’s over 1.5 million unemployed.  

It also doesn’t provide anything for child care, affordable housing, nothing significant on health care, for aboriginal peoples, or to reduce poverty.

Fair Taxation

• There’s more of Harper’s boutique tax credits and tax cuts for even more activities— children’s arts credit, volunteer firefighters, family caregivers, examination fees, and for studying abroad—even when direct public spending has been shown to be more effective.  The budget also extends the accelerated capital cost allowance for the manufacturing sector.
• More than a third of the benefits from Harper’s annual $6 billion corporate tax cut will go to highly profitable banks, oil and gas companies and other finance and resource sector firms.  Previous federal budgets acknowledged that corporate tax cuts generate less than a third of the jobs that are created by public spending.
• There are a few limited measures to tighten up tax loopholes, including anti-avoidance measures for RRSPs and the ability of partnerships to defer corporate taxes. However, these plug up only a few of the many tax loopholes that exist and leave the much larger ones untouched. 
• The budget signals ongoing major shifts in the tax load:  corporate tax revenues are expected to shrink to less than 13 per cent of federal revenues within five years, down from 16 per cent when Harper Conservatives came to power. Meanwhile, federal revenues from personal income taxes will rise to almost 50 per cent of total federal revenues: that’s up from approximately 40 per cent 25 years ago.

Federal Program Spending

• The Harper Conservatives’ agenda of shrinking the federal government will become even more severe with this budget. There’s little detail, but the impacts for future years will be major. In addition to the cuts announced in previous years, this budget announces a comprehensive one-year Strategic and Operating Review across the federal government this year. The aim is to cut direct federal program spending by 5 per cent or $4 billion a year by 2014/15. After accounting for inflation, this will amount to at least a 10 per cent cut.  
• Operating for federal budgets will not be increased by 1.5 per cent this year to pay for wage increases, and will be frozen for the next two years. The freeze on operational spending will be effectively extended to federal Crown corporations such as CBC and Canada Post. The government plans to meet with unions to discuss “all compensation costs.”
• This will result in major reductions in federal public sector employment levels and likely many further—but unspecified—cuts to programs in all different areas.

Jobs and Employment

• * The budget is called “a low-tax plan for jobs and growth” but there isn’t much new in it to create jobs. The only new targeted measure for jobs is a very limited one-time tax credit for small business of up to $1,000 against an employer’s increase in their EI premiums for 2011. 
• This budget also extends the EI supported work-sharing program, renews the EI pilot projects for “working while on claim” and the best 14 weeks pilot project. The targeted initiative for older workers has also been extended and the wage earner protection program modestly extended to cover employees who lose their jobs as a result of an extended restructuring.
• Phasing out of the stimulus spending and reduced federal support for infrastructure, as well as major unspecified cuts to federal spending in future years will mean fewer jobs generated by federal spending in coming years.
• Despite the budget’s title as a “low-tax plan for jobs and growth” and the “next phase of Canada’s economic action plan” there are no calculations of the economic and jobs impact of the budget. The budget relies on previously announced cuts to corporate taxes to create jobs, even though previous federal budgets admitted they have the smallest immediate impact on creating jobs.

Employment Insurance

• The federal government will be consulting with Canadians on how the EI rate setting mechanism can be improved to ensure more stable rates going forward.
• The budget extends the EI supported work-sharing program for one year, renews the EI pilot projects for “working while on claim” and the best 14 weeks pilot project until June 2012.

Environment

• The main measure here is $400 million for one year of the ecoENERGY retrofit program for houses, funding for which expired, but there is very little information on this and the budget notes state that “details regarding this program will be announced in the near future.”

Municipal Infrastructure

• There’s virtually nothing new in this budget to address Canada’s $120+ billion municipal infrastructure deficit. The annual $2 billion gas tax transfer will be legislated at that amount, dashing hopes for it to be indexed so its real value doesn’t continue to decline.  
• The government has announced it will work with provinces, territories, the Federation of Canadian Municipalities and other stakeholders to develop a long-term plan for public infrastructure to extend beyond the expiry of the Building Canada Plan in 2013/14.
• There are some modest announcements for extra funding—for the Dempster Highway, for rail service from Toronto to Peterborough (through Minister Flaherty’s riding) and for some bridges.
• At the same time, federal support for infrastructure spending is set to decline in the next few years with no new commitments as a result of the acceleration of infrastructure spending through the stimulus program. All the funding for future years under the communities component and virtually all of the funding under the major infrastructure component of the Building Canada Plan through to 2013/14 has already been allotted.  

Pensions

• The main new measure here is an increase in the Guaranteed Income Supplement (GIS) with a maximum top-up of $600 per year for individual seniors and a maximum of $840 per year for couples. The maximum will only be available for the lowest income seniors—those with an annual income (outside of Old Age Security and GIS) of less than $2,000 a year for individuals and less than $4,000 a year for couples. This only works out to a maximum increase of about 7.5 per cent a year—half of what had been called for.
• The federal government has made no commitments to improving the Canada Pension Plan (CPP)—except to say that they will continue to explore options for modest enhancements to CPP with provincial and territorial governments. Instead, the federal government is promoting its proposal for a privately-run pooled defined contribution RPP plan.    

Post-Secondary and Training

• The 2011 federal budget includes funding for a list of different programs for research, innovation, post-secondary education and training. Much of this is for promotion of digital economy in universities and businesses and for commercialization of projects through universities and colleges. However, the money for this isn’t additional: it will come from unspecified cuts to the budget for other programs from Human Resources and Skills Development Canada. It also includes an additional $37 million a year split between the three research granting councils, more funding for research chairs and other funding for scientific research.    
• The income exemption allowed to full-time students from Canada student loans and grants is to be doubled from $50 per week to $100 per week and family income thresholds for part-time students are also to be increased.
• The cost of examination fees for all occupational, trade and professional exams is to be made tax deductible, eligible for the tuition tax credit.

Water

• The 2011 federal budget was tabled on World Water Day, but it includes barely a drop in the bucket to help communities ensure clean water. The only specific measure is $5 million over two years to improve nearshore water and ecosystem health. Meanwhile, new federal regulations will increase the cost for communities to upgrade their wastewater facilities by over $20 billion during the next decade. 
• CUPE had joined together with environmental organizations and municipalities in calling for the federal government to provide $1 billion a year for a national clean water fund in this budget. First Nations had also called for the federal government to provide $1 billion a year to provide safe drinking water in First Nations communities. The budget ignored these requests.

The Harper Conservatives’ 2011 federal budget reads like a laundry list full of relatively small measures: extensions of some programs, a few new programs, half efforts, more boutique tax cuts, and tinkering with taxes and tax loopholes. 

It doesn’t address any of the big issues or priorities of Canadians in any substantial way: health care, unemployment, making Canada’s tax system fairer for Canadian families, or reducing Canada’s infrastructure deficit. At the same time, the budget signals steep cuts in federal program spending in order to pay for the cost of their corporate tax cuts.

This nickel and dime budget does not fully meet the priorities highlighted by any of the opposition parties. It was designed to fail: it’s no surprise that all the opposition parties rejected the budget shortly after reading it.