What a progressive federal budget would look like

January 1, 2000

There is something profoundly sad and uninspiring about recent federal budget debates. For the better part of two decades now, we have been preoccupied with issues of deficits, debt, cutbacks and now tax cuts. But budgets should, in an ideal world, be a reflection of a society's values and priorities. What does it say about us when the main budget debates are centered around tax cuts? The new century, which we enter with a record and growing federal surplus, represents an opportune time to reaffirm our most attractive values, and to recommit ourselves to making right the most shameful legacies of the last century.

According to Finance Minister Martin, Canada's economic "fundamentals" have never been better. Whose fundamentals? Unemployment and underemployment still plague us, poverty and child poverty are on the rise, economic inequality is growing, municipalities have declared homelessness a national emergency, medicare is in crisis, universities and colleges face severe underfunding and student debt is soaring, and the environment has virtually dropped off the political radar.

Surely by now corporate policy prescriptions face a credibility gap. Having promised at various times over the past 15 years that free trade, the elimination of inflation and the eradication of the deficit would result in prosperity for all, the goal-posts have once again been moved. Now the promise hangs on tax cuts. Surely we can do better than another leap of faith.

Here, for the record, is a collection of more hopeful, exciting, humane, and perfectly do-able policy ideas that a progressive government could implement. Many of them are drawn from the Alternative Federal Budget (AFB), which for five years now has insisted that, even in the era of globalization, we do still have choices.

The AFB maps out a vision for federal government that refuses to consign over a million Canadians to unemployment, about 18 per cent to poverty, and our public institutions and programs to decay.

Putting the surplus back to work

Next year's federal budget surplus will be almost $12 billion. There can be no more excuses for failing to address the social, economic and environmental deficits that plague our communities. The polls consistently tell us Canadians are more concerned with social re-investment than with debt reduction or tax cuts, and Canadians are right. Most people understand that we need government to correct for market failures, such as the lack of affordable housing and child care.

It is not enough to set targets for balancing the budget. A progressive government would also set clear targets for lowering unemployment, poverty and homelessness, and would go about meeting these social targets with as much determination as was shown in the campaign to eliminate the deficit.

So, how can that be done?

  • double federal transfer payments to the provinces for health, education and welfare over the next two years, and invest in new public services, thereby restoring some 100,000 public sector jobs;
  • create a National Investment Fund to finance economic development projects in hard-pressed regions, capitalized by small but compulsory deposits by the private banks;
  • increase spending on our social, environmental and physical infrastructure (such as social housing, long-term care facilities, child care spaces, parks, and energy conservation projects);
  • assist in the redistribution of working time (it's crazy that some are working themselves silly while others are jobless), by banning compulsory overtime and reducing the statutory working week; and
  • restore EI benefits and coverage, and increase the time available for paid parental leave.

It's not enough to simply re-invest in existing public programs. We need new public programs that address the challenges and difficulties of modern life--programs like public home and community care and public pharmacare (recognizing that health care is increasingly moving outside the walls of the hospital), and public child care (recognizing that most parents, whether by choice or necessity, work outside the home).

Much as the Right would have us believe otherwise, healthy families are more than our after-tax incomes. We need more than an increase in our disposable income. We also need help providing our children with quality care and education (from early childhood right through to post-secondary) and time to spend with our families, help looking after our parents in their old age, help finding work when the market fails to provide adequate employment at a decent wage, and help finding homes when the market fails to provide sufficient, affordable and decent housing.

Fair tax reform

All the above could be paid for out of the growing federal surplus. But that's not to suggest the tax system should remain unchanged. The tax system is grossly unfair, lacks progressivity, and is in dire need of reform.

Across-the-board tax cuts, however, are not what a progressive government would offer. That we are even discussing such tax cuts when 20 per cent of Canadian children live in poverty and homelessness is a national emergency is, quite simply, a moral outrage. The federal surplus is largely the product of some painful and unnecessary spending cuts--cuts that have hurt the poor, the unemployed and students the hardest. To now use the surplus for tax cuts that would disproportionately benefit the wealthy is Robin Hood in reverse, and just plain wrong.

Now, more than ever, with the market producing a growing gap between the haves and have-nots, we need a progressive tax system that mitigates this inequality. We need tax changes that will lower the taxes paid by low and middle-income earners, while increasing the taxes of those earning over about $100,000 (who are generally better able to claim various deductions). And we need changes that will better meet society's environmental goals.

A few ideas:

  • tax capital gains at the same rate as income (yes, money comes to money, but surely investment income does not merit special tax status over hard-earned labour income);
  • re-establish two upper-income tax brackets, for those earning over $100,000 and $150,000 (hey, even the U.S. has five federal income-tax brackets);
  • institute an inheritance tax, at the same rate as the U.S., on transfers of wealth over $1 million (that would raise about $3 billion);
  • broaden the personal and corporate income tax base by closing various loopholes like the meals and entertainment deduction and the political lobbying deduction, and eliminate subsidies like the special tax treatment afforded oil and gas production;
  • bring in a minimum corporate income tax (so corporations can't stack their deductions and eliminate their taxable income);
  • apply the GST to brokerage fees and commissions (money can still make money, but why treat that service any different than a haircut for the average wage earner?); and
  • establish new "green tax" measures, such as a tax on carbon emissions.

But on the other side of the ledger:

  • increase the GST tax credit, and disability tax credits;
  • significantly increase the child tax benefit by $2,000 per child per year, and ensure this benefit goes to all low and modest-income families (it is currently clawed back from families on welfare in most provinces);
  • increase the basic personal exemption; and
  • index tax brackets to inflation, thereby ending the "bracket creep" that disproportionately hits low and middle income earners.

Ultimately, we are more than individual consumers. A progressive government would remind its citizens why we pay taxes--they are the price we pay for goods and services we have chosen to provide for one another collectively, and they are an expression of our commitment to care for one another and to pursue some of our aspirations as citizens together.

New global rules and financial re-regulation

"But this cannot be done," claim the spokespeople of the Right. How would financial markets respond to a government with the audacity to try such a program? Is this agenda still possible in the era of globalization?

In truth, it may be difficult. But if we still believe we live in a democratic society entitled to map its own policy course, the more appropriate question is: if globalization and financial markets stand in our way, what are we going to do about it?

Again, a few ideas for lessening our dependence on the global economy and re-regulating volatile financial markets:

  • oppose any further liberalization of trade and investment rules, including at the World Trade Organization; demand a full review of the social, economic, cultural and ecological consequences of WTO and NAFTA decisions to date; and work for the establishment of new global agreements aimed at regulating the activities of transnational corporations and global investment;
  • push for an international Tobin Tax on currency exchanges, to cool down the casino economy; and
  • freeze and slowly lower the limit on foreign investment for RRSPs and other tax-subsidized pension plans (so that tax-deductible capital stays at work in Canada).

I recommend the AFB to those looking for progressive alternatives. It is not just a wish-list of the programs needing funding; it's a workable budget. It says what should be funded, how much money can be spent, and how to pay for it. Yes, Virginia, there are alternatives.