Hill Dispatches

karl nerenberg's picture
Karl Nerenberg has been reporting on federal politics from Parliament Hill for rabble.ca since September, 2011. In his long career, he has won numerous awards as a broadcaster and documentary filmmaker.

Hill Dispatches: A budget that favours the environment, the poor and the struggling middle class

| March 15, 2012

A federal budget has just come out that will reduce unemployment to 6 per cent, close tax loopholes, repair cities and institute a forward-looking green strategy.

It is not Jim Flaherty's budget. We will only get that on March 29.

This one is the Alternative Federal Budget (AFB) and it comes from the Canadian Centre for Policy Alternatives (CCPA).

The CCPA has been in the alternative budget business for 17 years now.

The Centre undertakes this detailed, labour-intensive exercise in an effort to show, each year, that Canadians have evidence-based fiscal policy options.

There is nothing inevitable -- ordained by the infallible logic of economic science -- about the government of the day's prescriptions or forecasts.

Budgets are designed -- or, at least one hopes they are -- in accordance with economic principles.

But they are also profoundly informed by values and goals.

A budget built to deliver greater equality

If you are untroubled by a society in which the gulf between rich and poor grows, the opportunities for the middle class shrink and environmental degradation proceeds apace, as long as the stock indexes and corporate profits grow, then you will make one set of choices.

And from what we can tell, Finance Minister Flaherty is intent on making those sorts of choices at the end of the month.

The Alternative Federal Budget outlines measures based on other values and other goals.

Those goals include: creating employment, improving social services, doing something about challenges to the environment and reducing inequality.

Flaherty will not pay much more heed to CCPA's proposals this year than he has in the past, or than his Liberal predecessors did.

The CCPA is used to that.

However, this year -- the first in which we get a budget from the Conservative Party, in its majority incarnation -- is different from the rest.

The gulf between what we can expect from the government and the alternative budget has never been greater.

Even the IMF advises against unbridled austerity

As the Alternative Budget's authors put it in the foreword to their document:

"Never have the values, priorities and visions that underlie the AFB and the choices that flow from them, been so at odds with those of a government in power."

They then quote a recent report from 11 international organizations, including those bastions of radical egalitarianism, the World Bank and the IMF, which advises countries to "manage fiscal consolidation to pro­mote rather than reduce prospects for growth and employment. [Fiscal consolidation] should be applied in a socially responsible manner."

To combat rising inequality, the same report calls for "heightened consideration of more inclusive models of growth."

Instead of heeding this prudent advice, Flaherty has signalled that his budget will adopt a strategy of "expansionary austerity."

That means there will be major cuts to public services in order to reduce the deficit, while continuing to cut corporate income taxes. The impact of this strategy is supposed to be greater business and consumer confidence, accompanied by increased spending and investment.

The trouble is, the Alternative Budget argues, "it doesn't work."

Tax measures aimed at greater fairness

Instead of "expansionary austerity," the CCPA proposes a growth-based scenario, fuelled by targeted government investment and fairer taxation.

On the tax side, the Alternative Federal Budget proposes a new tax bracket of 35 per cent for incomes over $250,000, restoring the general corporate tax rate from the current 15 per cent to 21 per cent and raising the rate on the hugely profitable oil and gas sector to 28 per cent. Taken together, the CCPA projects that these measures would yield $14 billion in additional revenue, annually.

The Alternative Budget also tackles some costly tax loopholes.

First, it would close the stock option deduction that allows higher-income Canadians to pay half the tax rate of ordinary wage-earners on a significant portion of their income.

Second, it would get rid of the meals and entertainment deduction, which, again, benefits a corporate elite and nobody else.

Third, it would tax capital gains at the same rate as other income, after adjusting for inflation.

And fourth, it proposes that we get rid of fossil fuel tax subsidies.

The combined effect of all these loophole-closings would be an annual revenue gain of over $8 billion per year.

Taxing the financial sector, large estates and carbon

As a new revenue-generating measure, the CCPA suggests instituting the IMF-proposed financial activities tax, to compensate for the exemption of financial transactions from the GST or HST.

The Alternative Budget proposes a 5 per cent tax on financial sector profits and compensation and a 0.5 per cent tax on equity transactions through the Toronto Stock Exchange.

These two new taxes, the CCPA projects, would generate about $9 billion in additional revenue, annually.

In addition, the CCPA advocates for a federal tax on inherited wealth -- 45 per cent on estates in excess of $5 million -- and a national carbon tax, offset by a scaled green tax refund to take into account the fact that carbon taxes hit those with lowest incomes the hardest.

Spending to increase jobs and decrease inequality

On the spending side, the Alternative Budget includes a great range of targeted new programs and enhancements to current programs.

These include: aboriginal education, housing and water; early childhood education and child care (with the co-operation of the provinces); an enhanced Re-Build Canada Fund, to upgrade municipal infrastructure; increased investment in arts and culture; increased employment insurance benefits; and modernizing rural broadband.

The Alternative Budget does suggest spending cuts in one federal government program area, one which has experienced rapid growth over the past few years: the defence and security establishment.

Overall, the Alternative Budget projects that its measures would result in 240,000 to 330, 000 new jobs per year, for the next three years, and a drop in the unemployment rate to below 6 per cent by 2014.

Winners and losers: it's all about choices

This year's Alternative Budget is bold and ambitious -- as bold and ambitious in pursuing its goals as Flaherty's is likely to be in pursuing rather different objectives.

If implemented, the Alternative Budget would elicit outcries of pain from the military and allied industries, the oil, gas and other carbon fuels sector, the financial industry, the "investor class," and from people who stand to inherit more than $5 million dollars.

That may be a minority of Canadians; but it would still be a loud and vociferous minority.

Any government that tried to implement this budget would need a healthy dose of courage to withstand the inevitable noisy backlash.

Nobody is planning to adopt the Alternative Federal Budget this year, of course.

However, perhaps the greatest purpose this exercise serves is to show how a plan focused on environmental protection and increased equality would play out.

The Alternative Federal Budget tells it like it is, and does not sugarcoat the message. The unavoidable fact of life is that any fiscal plan has both winners and losers, and it is best to be honest and transparent about that.

We know who the winners and losers are in the CCPA's plan.

Now we can wait and see who will win and who will lose in Finance Minister Flaherty's budget.

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Comments

Austerity is the worst thing that can happen to the canadian budget. This is something what prof. Stiglitz commented quite well in Financial Times.
I also read very interesting article about the relationship between GDP growth and debt. It generally said that debt is not influencing the growth as we think it does. So the austerity and fiscal discipline won´t help the productivity and creation of the new jobs in the economy.
Financial sector is the most corrupted and vicious part of our economy. I lost any hope that it would change peacefully, when Obama bailed out the biggest corporations. Stiglitz commented it as a Privatizing Profits, Socializing Losses. The common citizen is no longer protected by government. We live in predator environment, which is trying to suck every dolar from our pockets.

Too bad we don't have a free press in this country. You have to think the AFB would be on the front page of every newspaper and the lead item in every news broadcast. Sigh.

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