Government's Forgone Income

Huge tax cuts, uncollected taxes starve our social programs
July 1, 2012

“Where’s the money coming from?”

That’s the question thrown at any individual or group seeking increased funding for Medicare, education, child care, or pensions; for more battered women’s shelters, more social housing; for a genuine effort to eliminate or at least reduce the rates of poverty and homelessness in Canada.

The presumption underlying this question is not only that the federal government really is strapped for cash, but also that the Canadian economy is failing to generate enough tax revenue to support an adequate social security system.

The facts and figures disprove these suppositions.

Canada’s gross domestic product (GDP), as measured on a per capita basis by the OECD, stood at $46,236 in 2010. That’s $46,236 for every man, woman, and child in the country – an amount that put Canada in ninth place on the list of 34 OECD countries. We were behind Norway, Sweden, Denmark, the United States and Switzerland, but ahead of Finland, the Netherlands, Britain, France, and Germany. The average per capita GDP for the European Union in 2011 was $35,116, more than $11,000 behind Canada’s.

Of course there are several ways of calculating per capita GDP, but the slightly different methods used by the World Bank and the CIA also place Canada comparatively high on their lists of industrialized countries.

Making historic comparisons is complicated by having to take the effects of inflation into account; but it’s safe to say that the per capita income generated by Canada’s economy today – in constant dollars – is at least 50% higher than it was back in the 1970s. That’s when Canada’s major social programs, such as Medicare, CPP, and UI, were at their peak.

So we now have a country that in constant dollars is far wealthier than it was in the mid-70s, but one that somehow allegedly can’t afford to improve or even maintain the social programs we managed to fund with far less national income four decades ago.

The share of its GDP that Canada devotes to social spending has dropped steadily and when last measured stood at just 16%, a dismal 22nd out of 30 OECD countries. The average OECD nation spends about 23% of GDP on its social programs, and some countries, such as Sweden and France, spend as much as 27%.

Clearly the problem in Canada is not one of revenue insufficiency, but of revenue maldistribution. The underfunding of Medicare and other social programs has been a matter of choice, not necessity. The money is readily available – or could be made available – for any project or program that is considered important enough to deserve it.

Where, for example, is the money to come from for the Harper government’s purchase of F-35 fighter planes, which could eventually cost $25 billion or more? It’s not an expenditure that could be justified on a national security basis (or any other basis), but Harper wants the planes, so the money to buy them will be provided. Allocating the same amount for health care, child care, or child poverty reduction would also be financially feasible, but don’t expect that to be done by a government that puts the broader public interest so low on its “to-do” list.

However, the question “where’s the money coming from?” still suffices to mislead most Canadians. Why? Because both Conservative and Liberal federal governments have deliberately kept their spendable revenue billions of dollars lower than it would be without the massive tax cuts and “tax expenditures” both parties have implemented while in power.

The federal corporate tax rate has been slashed from 28% in 2000 to 18% in 2010, depriving the government of $745 billion in revenue over 10 years.

Corporate income tax expenditures – a euphemism for uncollected taxes -- have transferred at least another $100 billion annually from the federal Treasury into corporate coffers. If you look up Corporate Income Tax Expenditures for 2010 on the Finance Department’s website, you’ll see items such as: dividend refund $6.65 billion, refundable taxes on investment income $3.5 billion, capital gains deferrals $3.32 billion, tax on dividends exempted from non-resident withholding tax $1.8 billion, investment tax credits $287 million, meals and entertainment expenses $265 million, management fees $120 million, etc., etc. There’s also a listing for the non-taxation of life insurance companies’ world income, but the amount is cited as NA (not available). 

Add to this list of uncollected corporate tax amounts the sum of $88 billion a year that Canadian corporations and wealthy individuals are estimated to sock away in overseas tax havens every year. Most of this tax-avoided hoard could be taxed if the government really wanted to track it down – or, better still, prevent it from being tax-havened in the first place.

To sum up, the creation and maintenance of a strong social safety net in Canada is a matter of choice and preference, not a matter of available money. Most of the countries in Europe, many with less income than we potentially have at our disposal, have been able to establish a wide range of social programs that far surpass ours in quality and accessibility. 

Our political leaders could match the Europeans in social spending if they truly wanted Canada to have a just society. They could do it by restoring some of the tax revenue they have unnecessarily and unfairly forgone.

And then everybody would know where the money is coming from.

(Ed Finn is the CCPA’s Senior Editor.)