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Progressive Economics Forum

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The Progressive Economics Forum aims to promote the development of a progressive economics community in Canada. The PEF brings together over 200 progressive economists, working in universities, the labour movement and activist research organizations. Visit our website here.

Conservatives' small-minded budget kills jobs and fails Canadians

| March 30, 2012
Photo: Cody Lanktree

Despite its size and the hundreds of measures it details, Harper's 2012 budget demonstrates just how small-minded their vision is. Canada faces major challenges, with 1.4 million unemployed, stagnant productivity growth, a crisis in retirement security and growing inequality.

Instead of addressing these challenges, what this budget provides is more of their failed economic policies, deep job-killing budget cuts, cuts to public pensions and a highlight: getting rid of the penny.

Not only is Harper using his new majority power to reduce the size and scope of the federal government and shrink public pensions, he is also using it to eliminate a number of iconic programs and reduce dissent from some of their potential adversaries, no matter how small. While headlines might focus on the ending of production of the one-cent coin, the budget also eliminates funding for the Katimavik program and the National Roundtable on the Environment and the Economy. The National Council of Welfare will have $1.1 million cut, which eliminates this valuable agency standing up for social assistance recipients.

These are just a few of the programs eliminated, many more will become apparent as more details emerge. The budget also announced plans to further restrict charities from engaging in political activities and to disclose their funding from foreign sources.

Federal spending cuts will amount to $5.2 billion a year, eliminating close to 5 per cent of federal public sector employment, including an over 10 per cent cut to the CBC, NFB and Telefilm. This will not only lead to the elimination of hundreds of jobs at these agencies, it will also rob the Canadian public of important cultural programs.

In addition to the over 19,000 jobs slated for direct elimination from the public sector, many thousands more will be cut from other agencies and the private sector as these job losses spill over. A reasonable estimate is that this scale of cuts will lead to a loss of 60,000 jobs in both the public and private sectors.

No more details on the job losses by department were available, but these will become apparent as the cuts take effect. The only one where there is a guarantee of no job losses is the Canadian Forces, where the number of regular and reserve forces will be maintained.

While it's billed as a budget to promote jobs, growth and long-term prosperity, spending cuts announced in this budget will soon exceed new spending by a factor of eight to one.

All departments will face cuts, with reductions in spending. Total program spending will be cut by 1.9 per cent, but as transfers and other programs were excluded, the cuts are equivalent to 6.9 per cent of the spending base reviewed.

The forecast for economic growth in this budget is appropriately low, with GDP increasing by no more than 2.4 per cent in the next five years and unemployment not falling below 7 per cent until 2014.

The federal deficit for 2011/12 is $6 billion lower than had been forecasted six months ago and it's expected to be eliminated by 2015/16, a year ahead of schedule. However, we can fully expect it to be eliminated in two years, by 2014/15, which will then allow them to proceed with their plans for tax cuts through income splitting and doubling the Tax Free Savings Plan before the next election.

Instead of proceeding with these damaging cuts, the federal government should have restored corporate income tax rates to the level they were when they came into office, which would have generated over $10 billion a year. The elimination of regressive tax loopholes and a high income tax rate could generate another $20 billion a year.

This would have prevented the need for these cuts and also provided funding for important new social programs, infrastructure funding, and investments in the economy.

Instead, this budget will take Canada even further down on the path of Harper's failed economic policies of privatization, free trade, deregulation and corporate tax cuts. These have failed to create employment, led to the elimination of thousands of decent jobs, reduced public services and increased economic insecurity for Canadians.

Austerity budgets have plunged many countries in Europe back into recession -- and not just the ones dealing with a Euro debt crisis. Cuts in the U.K. turned growth negative in the last quarter of 2011 and more bad news is on the way.

Retirement security

This government is adding to the crisis in retirement insecurity by increasing the retirement age for Old Age Security to 67, which will particularly affect low and middle incomes and download costs to provinces. These cuts are not necessary, as the Parliamentary Budget Officer recently affirmed that the OAS program is fiscally sustainable. Instead of being done for fiscal reasons, these changes are being made to force Canadians to stay in the labour force and work longer, which business groups have lobbied for.

- Age of retirement for collecting Old Age Security will be increased from 65 to 67 years. This change will affect anyone born after March 1958: e.g., for those retiring after 2023 and will be phased in over four years, so the retirement age will reach age 67 for those born in 1962 and later.

- Starting next year, the government will allow voluntary deferral of the OAS beyond age 65 for up to 5 years, allowing people to receive a higher pension if they retire later.

- Contributions by employees in federal pension plans will all be increased to 50 per cent matching with employer.

- The budget closes the door on improvements to the CPP and highlights its proposal for voluntary pooled registered pension plans.

- The normal minimum retirement age for new hires in the public service will be increased from 60 to 65.

These changes will particularly hurt younger and middle-aged workers, who are already struggling with reduced wages, higher costs for housing and public services and limited prospects in the future. Since OAS is a basic building block of our retirement system, it will force more seniors into poverty, particularly those who simply aren't able to continue working, particularly those in lower-paid manual labour and trades occupations.

The Harper government rejected a proposal by the CLC, CUPE, supported by pension experts, a majority of provinces and many thousands of Canadians to double CPP benefits, that would have ensured retirement security for all working Canadians at very little cost to the federal government.

Jobs and training

There's very little in this budget to help the close to 1.5 million Canadians who are unemployed and approximately 2 million who are unemployed or who have given up looking for work. The only new measures are:

- Extension of the hiring credit for small business of up to $1,000 per employee for another year.

- $50 million over two years in additional funding for the Youth Employment Strategy

- $2 million a year to help seniors connect with job opportunities through on-line forums.

- An additional $10 million a year for the Labour Market Opportunities program for Canadians with disabilities.

- Additional funding for First Nations education and to increase incentives for First Nations on reserves to participate in the labour force.

There's nothing targeted for the many thousands unemployed in Canada's manufacturing sector.

There's some money for the forestry innovation and market development, but otherwise their vision of economic growth remains focused almost entirely on resource development, extraction and export and reducing regulations and taxes. The budget streamlines approval for pipeline development by eliminating regulatory approval, highlights the rising number of free-trade agreements, takes further actions to reduce regulations and to promote foreign investment.

There's no acknowledgement or measures to help the thousands of workers who have recently been thrown out of work at Aveos aircraft maintenance or Electro-Motive industries as their jobs have been shifted overseas.

The budget signals the government's intention to require businesses to look to the domestic labour market first before accessing the temporary Foreign Worker program, but this will also be linked with greater compliance aimed at requiring those on Employment Insurance to take available jobs. Details on exactly how this will be enforced will be forthcoming later.

As in most of their budgets, there is more funding announced for R&D through various funding bodies, but with a stronger focus on commercialization and collaboration with the private sector. The National Research Council will have a greater focus on business-led, industry relevant and tax credits for private sector R&D will be reduced slightly.

Resources and environment

As expected, the budget paves the way for more resource development, including in the oil sands, by eliminating one layer of environmental assessment and streamlining the process with tighter timelines for completion. These measures are clearly aimed at advancing the Northern Gateway Pipeline project designed to take oil from the oil sands to west coast tankers and Asian markets.

The budget also provides funding to pipeline agencies to help conduct their reviews, extends tax credits for mineral exploration and provides other funding to assist offshore oil and gas exploration as well as diamond exploration.

Not content with just promoting resource development and export, Harper's 2012 budget also takes steps to reduce dissent by those speaking up for the environment. The National Roundtable on the Economy and the Environment is being eliminated after its 20-year history of producing excellent research, bridging business, economic and environmental concerns.

This budget also announces that they will further restrict charities from engaging in political activities and to disclose their funding from foreign sources -- a very clear shot at environmental groups that spoke out against the Northern Gateway pipeline project.

Free trade

This budget also trumpets the numerous free-trade deals Harper is circling the globe to complete with whoever he can. The Harper government has already concluded free-trade agreements with nine countries, including the less than savoury governments of Columbia, Panama and Honduras. There are also agreements proceeding with Costa Rica, South Korea, India and now Japan, Thailand and perhaps China. In their frenzy to sign agreements only on the basis of a free trade ideology, Canada is negotiating bad deals that don't achieve any overall positive strategic results. Many of these agreements have investor-state provisions that restrict the powers of democratically elected governments.

These agreements, like the Comprehensive Economic and Trade Agreement (CETA) with the EU, provide very little upside for Canada. Instead they make us even more dependent on exporting our raw resources, accelerate de-industrialization of our economy, and severely limit our ability to diversify our economy, create jobs locally, and determine our economic and social future.

While the budget highlights these free-trade agreements as part of their plan for jobs, growth and long-term prosperity, Canadian workers have found that free trade is not a good jobs policy. Instead of generating good quality jobs for Canadian workers, they are being thrown under the bus by this government, as the 450 workers at the Electro-Motive plant in London found after they refused to take the 50 per cent wage cut insisted upon after their plant was bought out by a U.S.-based company. Another 2,600 workers have lost their jobs as Air Canada's maintenance company Aveos shipped the work overseas.

Telecommunications will be opened up to more foreign investors, with the government eliminating the restrictions for companies that hold a less than 10 per cent share of the Canadian market.

Employment insurance

There's little or nothing to help the close to 600,000 people collecting employment insurance and the hundreds of thousands of other unemployed who don't qualify.

- EI premium rate increases will be limited to 5 cents per year.

- For those working while on claim, EI benefits will be reduced by a smaller amount.

- Plans to notify EI claimants when there are employers applying for Temporary Foreign Workers in their region who match the required qualifications, with plans for stronger compliance, to crack down on the unemployed not accepting these positions.

Infrastructure

With all funding allotted under the Building Canada Fund to 2013/14 already committed, there's very little in new federal infrastructure dollars available to municipalities to reduce their $120 billion plus infrastructure deficit. Until the federal government puts in place the long-term infrastructure plan it has promised, all that's provided in this budget is $150 million over two years for small public infrastructure facilities through the Community Infrastructure Improvement Fund. The budget also includes a small number of commitments for federal public infrastructure.

This budget has also signalled that they want their long-term infrastructure funding to involve more private sector involvement and increased use of public-private partnerships.

Communities

There's very little in the form of new investments for communities and in this area, some of the emphasis is on increased privatization. The federal government will explore with interested First Nations the option of legislation to allow private property on reserves.

Human Resources and Skills Development is exploring "community-led partnerships," including pay for performance agreements and leveraging private finance, such as "social impact bonds." Details will be announced later, but these proposals, while they may appear attractive at first, can also be highly problematic, resulting in commercialization of social services, increased risk for agencies and questionable results.

There's very little increased funding for communities:

- As with previous years, there's a commitment to provide additional funding to build and renovate water infrastructure on First Nations reserves, this time $330 million over two years.

- The budget also announces $99 million over three years in support to provinces and territories for flood mitigation measures.

Tax changes

The tax changes announced in this budget are limited. Major changes include some reductions in the Scientific Research and Experimental Development tax credit, as had been recommended by a federal review panel, and a tightening up of some foreign taxation provisions. The budget includes another one-year extension of the mineral exploration tax credit for flow through shares.

Of relevance for workers, employers' contributions to group sickness or accident insurance plans will need to be included in an employees' income in the year the contributions are made and not in some cases when the benefits are received. This is expected to generate another $100 million a year in revenue for the federal government and will mean higher taxes for workers.

The federal government is also planning to restrict the amount that can be contributed through Employee Profit Sharing Plans to ensure that these amounts aren't excessive.

In a more political move, this also announced plans to further restrict charities from engaging in political activities, by restricting the amount contribute to other organizations, increasing the fines and requiring them to disclose their funding from foreign sources. This is a naked attack on environmental groups that opposed the Northern Gateway Pipeline, but it will of course further restrict other charities from engaging in political advocacy.

Summary

There's no question: this is a job-killing budget with a narrow and shrinking vision of what Canadians hope for and expect. It needlessly reduces retirement security, eliminates important programs and will worsen inequality.

There's been no job growth in Canada in the five months since September. Instead we've lost thousands of jobs and the unemployment rate has continued to rise. It would be even higher if more people hadn't dropped out of the labour force and given up looking for work. The "real" unemployment rate, including discouraged job seekers and involuntary part-time, is estimated by Statistics Canada to be 11.4, with over 2 million unemployed and underemployed.

Higher unemployment, spending cuts and public sector wage constraints have also led to slow growth of wages in the private sector. Wage increases for workers in all regions and sectors of the economy fell behind inflation last year, translating to declines in real wages. But this was all part of the plan, according to Flaherty's Associate Deputy Minister of Finance, who stated in court in late 2010 that one of the main policy objectives of their expenditure restraint act was to "to reduce undue upward pressure on private sector wages."

The squeeze on workers' wages all around together with another round of corporate tax cuts helped propel corporate profits to a 15 per cent increase last year, following a gain of 21 per cent in 2010. This hike in profits did little to boost Canada's economic growth: corporate surpluses grew by another $60 billion in 2011, as profits outpaced real investments and more money went into financial and speculative activities, adding to the over $500 billion in excess cash held by Canada's non-financial corporations.

These funds would be much better put to use in real investments in the economy. Canada's communities are struggling with an over $120 billion municipal infrastructure deficit, resulting in congestion and unsafe facilities. Reversing Harper's corporate tax cuts, bringing the rate back to 21 per cent, would restore an additional $10 billion a year to the federal government.

Meanwhile, Canada's CEO and the top 1 per cent haven't felt any pinch: average compensation for the top 100 CEOs in Canada increased by 27 per cent to an average of $8.4 million in 2010. And much of that income is in the form of stock options which is taxed at half the rate that the rest of pay on our hard-earned employment income. The income share of the top 1 per cent in Canada has doubled since early 1980s while average incomes and wages for most of the rest of us have remained stagnant in real dollar terms.

Instead of generating good quality jobs for Canadian workers, Harper's government is throwing them under the bus, as they did with the 450 workers at the Electro-Motive plant in London who refused to take the 50 per cent wage cut insisted upon after their plant was bought out by a U.S.-based company. Another 2,600 workers have lost their jobs as Air Canada's maintenance company Aveos shipped the work overseas.

Here's the budget analysis I prepared for CUPE's website.

This article was first posted on The Progressive Economics Forum.

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