Federal budget worsens inequality, high unemployment future

The 2012 federal budget, which purports to deliver “jobs, growth and long-term prosperity,” does nothing of the kind. Make no mistake, this is an austerity budget— spending cuts outpace new measures 7:1— that worsens income and inter-generational inequality, destroys jobs and locks in a slow growth, high unemployment future.

Let’s start with jobs. It mandates $5 billion in cuts to the public service phased in over three years. The government claims this budget only axes 19,000 jobs, but that’s truly just the tip of the iceberg. Combine this year with the previous two year’s spending cuts, they will have resulted in over 70,000 full-time job cuts over the next three years (35,000 in the public sector and 37,000 in the private sector), adding 0.3% to Canada’s unemployment rate.

Notwithstanding the public service cuts, the job and economic growth claims the government makes are contradicted by the rather gloomy long-term forecasts in its own budget. Average annual growth is projected at 2.3% and unemployment averages 7% over the next five years.

Compare this to the magnitude of Canada’s unemployment problem. Since the recession began in October 2008, only 179,000 jobs have been created. (In recent months 37,000 jobs have actually disappeared.) This is less than the number of new workers who enter the labour market every year.

As of February, 1.4 million (7.4%) Canadians were officially unemployed. Statistics Canada’s broader definition of unemployment [including discouraged workers and involuntary part-time workers] bumps Canada’s jobless to two million (10.6%).

Add to this the hidden unemployed—calculated by comparing the employment/population rate at the outset of the recession to its current rate— the 541,000 workers who have exited Canada’s work force since the recession began.

How is the government dealing with this dire situation? It continues to rely upon a corporate tax cut experiment that has largely been a jobs failure. It is slashing thousands of federal and related private sector jobs. Mix in few boutique tax incentives, the empty promise of free trade jobs and a few odds and ends, and that’s about it.

What is left is an unrealistic hope that the corporate sector will step into the void. Its priority is its own profits and share prices, not solving Canada’s unemployment problem—witness its (non job-creating) cash stockpile of $500 billion and counting.

How does this budget worsen inequality going forward?

First, it sets the mold for dismantling of Old Age Security (OAS), one of our most successful social programs. Raising the age of eligibility to 67 will be phased in beginning a decade from now – a message to future generations not to rely on government for help when you’re vulnerable.

To get a concrete picture of what that means, pension expert Michael Wolfson calculated who would bear the cost and who would benefit, if this measure were brought in immediately.

He calculates that the federal government would save $3.5 billion. Roughly 700,000 seniors would suffer reduced incomes. The number of seniors below the poverty line would increase from 50,000 to 220,000– representing a more than doubling of Canada’s poverty rate.

This callous measure is a betrayal of the inter-generational bargain at the very foundation of the Canadian social contract.

Secondly, the quickened pace of deficit reduction means the budget will essentially be balanced in just two years, allowing the government to bring in its promised family income tax splitting, and to double the allowable amount that can be stashed in tax-free savings accounts (TFSAs) from $5,000 to $10,000.

Both these measures will disproportionately benefit upper-income Canadians.

According to our calculations, the richest 10% of Canadian families will get almost a third of the total benefit from this tax splitting deal. And Canada’s wealthiest 1% will get approximately 100 times more of the benefit than Canada’s struggling families.

Thirdly, past cuts to Canada’s Employment Insurance (EI) program mean that only 39% of the officially unemployed are eligible to receive benefits. Another 860,140 unemployed people are barred from EI benefits and have to rely on provincial welfare or their families.

What is the government doing to change this deplorable situation? Virtually nothing apart from minor mean-spirited tinkering: like enforcing job search requirements which add pressure to take low wage jobs, and cutting staff who administer the employment insurance program, creating backlogs and hardship for recipients.

For the 1% who inhabit a different universe: this is a good budget.

For the rest: it represents the slow motion dismantling of our collective commitment to care for each other that generations of Canadians built. It embodies an insidious mix of policies that will keep unemployment high, wages suppressed and inequality rising for years to come. This totally unnecessary austerity budget was a staunchly ideological choice by a government bent on changing Canada as we know it.

This article was originally published in the Hill Times. 

Bruce Campbell is the Executive Director of the Canadian Centre for Policy Alternatives.