The Broadbent Blog


Budget 2015-16 preview: Top 10 ways the Harper government has boosted inequality (11 actually)

budget-jakerust.jpg1. Family Income Splitting

The federal government plans to spend about $2-billion per year on family income splitting that will mainly benefit high-income, traditional families with a stay at home spouse, to a maximum amount of $2,000 per year. There is no benefit at all from income splitting for single parents, or for two parent families in which both earners are in the same tax bracket, including the middle and bottom income tax brackets; these families with children under 18 represent over half of all families that are the apparent target of the scheme, according to the Broadbent Institute study, The Big Split. Meanwhile, the large savings will go to families with one partner in the top tax bracket and a stay at home spouse with a tax rate of zero. This big pre-election tax cut will directly increase income inequality.

 

2. Doubling contribution limits to Tax-Free Savings Accounts – Taxing Wages Not Investment Income

The Harper Conservatives appear set to double the annual contribution limit to $11,000, despite warnings about how this will disproportionally benefit wealthy families, reduce the progressivity of federal and provincial tax system, and cost the government additional billions annually. Investment income earned in these accounts is not taxable. While it is reasonable to exempt modest amounts of savings from tax, the expansion of TFSAs as planned will eventually result in the near elimination of taxation of investment income. Wages will still be taxed, but not the income from capital gains and dividends, which is mainly received by the wealthy. Persons with incomes of more than $250,000 currently receive more than one half (53%) of all taxable capital gains income and 38% of taxable income from dividends. 

Economist Rhys Kesselman, who was the co-author of the 2001 study that laid the foundation for the TFSA (and who objects to the doubling of the limits), shows that after 42 years of maximum contributions, accumulated TFSA balances for an individual would reach $780,000 based on a 5% rate of return, and federal income tax revenues could fall by over $15 billion per year. And that is before the planned doubling of contribution limits. Kesselman found that the current combined contribution limits for RRSPs and TFSAs allow ample room for the lifetime saving requirements of all workers earning up to at least $200,000 annually. Further, of individuals aged under 60 years and holding a TFSA in 2012, fewer than 16 percent had used their full contribution limits – clear evidence that the current TFSA limit is more than adequate for the overwhelming majority of Canadians. Usage of the current TFSA provision already displays a skew favouring individuals at higher incomes, and this bias would be accentuated and accelerated by a doubling of the contribution limits, according to the Broadbent Institute report, Double Trouble, authored by Kesselman.

 

3. No Increase in the National Child Benefit Supplement (NCBS) to Reduce Child Poverty

The NCBS is Canada's major program to combat child poverty. The current maximum NCBS supplement per child for a one-child family is $2,241 a year ($186.75 a month); for a two-child family it is $1,982 a year ($165.16 a month) per child, phased out if family net income is more than $25,584. These benefits still leave one Canadian child in five living in poverty. The NCBS is indexed to inflation, but has not been increased under the Harper government despite the repeated urgings of child poverty experts and activists.

 

4. Deep Corporate Tax Cut

The Harper government has proudly put corporate tax cuts at the very heart of its so-called growth and jobs agenda. Since taking power in 2006, it has cut the general federal corporate tax rate from 22.1% to 15%. According to the Parliamentary Budget Officer, each one point reduction costs $1.85 billion in lost annual revenues, so the total annual cost is some $12 billion. Corporations are owned by shareholders, so an increase in after-tax profits resulting from a corporate tax cut will boost the value of shares (capital gains) and raise dividends paid out to shareholders. Half of all taxable gains and 38% of dividends go to taxpayers with incomes over $250,000.

Corporate tax cuts certainly boost after-tax corporate profits, but they have had no impact on actual business investment in machinery and equipment, human capital formation, and in intellectual property, which are the key building blocks of our future prosperity. In fact, Corporate Canada is currently sitting with over $600 billion of “dead money” on their balance sheets. An analysis of business investment and cash flow since 1961, and, using econometric techniques, “finds no evidence in the historical data that lower taxes have directly stimulated more investment.” Further, the latest data show that business spending in these vital areas has been flat for the past three years, and remains below the pre-recession level

 

5. More Employment Insurance Cuts

Under the Harper government, the proportion of unemployed workers eligible to collect EI benefits has fallen well below 40%. This is mainly because part-time and temporary workers as well as new entrants to the work force do not get enough hours of work to qualify when they are laid off. While this is mainly due to tough eligibility requirements dating back to the 1990s, the Conservatives introduced new rules in 2013 that force so-called frequent claimants to accept jobs at just 70% of their previous wage after a six week job search, and to travel long distances to work. These changes have also driven down wages in low-wage jobs.

 

6. Temporary Foreign Workers and Low Wages

The Harper government presided over a huge increase in the number of so-called low skill temporary foreign workers, who have only a temporary right to stay in Canada and must remain with a single employer. Many economic experts argue that this program helped push down wages for Canadian and recent immigrant workers who could have done the work at a decent wage. 

While the government has since tightened up the rules, the temporary foreign workers program continues, and such a one-sided employer-driven program helps maintain low-wage jobs, costing all workers (to say nothing of the inequitable treatment of TFWs themselves).

 

7. Delayed Eligibility for Old Age Security (OAS)/Guaranteed Income Supplement (GIS)

The OAS and GIS in combination provide a guaranteed annual income that is close to the poverty line. The program provides a significant boost in income to many older Canadians, especially persons with disabilities, when they are age 65 and over. The Harper government has hiked the eligibility age for OAS and GIS from age 65 to age 67, phased in from the year 2023. Lack of access to the GIS at 65 will impact approximately the poorest one third of seniors who qualify for the additional benefit.

 

8. No Support for Indigenous Canadians

The Harper government has failed to address abhorrent inequities between Indigenous and non-indigenous Canadians. Indigenous Canadians remain the country’s most marginalized people, living with high rates of poverty including, often appalling housing conditions, polluted water, serious chronic health issues and high unemployment. The Harper government turned its back on the Kelowna Accord reached between First Nations and the previous government, which set out an action plan for education among other issues. 

A tentative agreement on increased funding of $1.9 billion for First Nations education was reached in 2014 but was rejected by many First Nations due to concerns that it gave them insufficient control. Access to education can be a great equalizer, and yet funding per student on reserves is well below the level of provincial school systems.

 

9. Health Care: Privatization in the Pipeline

Canadians are equal in one very fundamental sense. The Canada Health Act guarantees everyone free of charge access to provincially provided medically necessary care. But this is under threat if the federal government does not pay a reasonable share of rising health care costs.

The Harper government has said that health care transfers to the provinces will rise only in line with the rate of growth of the economy after 2017, even though health care costs are expected to rise faster than GDP due to an ageing population. The provinces will have to pay for the difference, posing an especially severe challenge for the have-not provinces. Reduced federal funding will increase pressures to introduce user fees, undermining the universality of the program and disproportionally hurting low-income Canadians.

 

10. The Attack on Labour Rights

Unions help create a more equal society and a shared prosperity by raising wages and improving benefits, especially for lower paid workers. But the Harper government has been a consistent foe of basic labour rights, notwithstanding continued rulings by the Supreme Court that such rights are protected by the Canadian Charter of Rights and Freedoms. The Harper government has denied workers the right to strike by imposing collective agreements and by making it harder for workers to join unions in federally regulated industries, and is baking legislation to seriously limit political advocacy by the labour movement; no such restrictions would apply to business and professional associations. 

The bottom line is unions helped build the middle class, and weakening them destabilizes the middle class and exacerbates income inequality.

 

11. The Attack on Information for Democratic Debate

If we are to fight inequality, we need the facts. Yet the information base for social analysis and advocacy has been seriously undermined by the Harper government. The end of the long-form census means that we have little or no reliable Statistics Canada data on recent trends in income inequality and poverty. And the government has eliminated important sources of expertise such as the National Council of Welfare, which produced valuable reports and studies on poverty in Canada.

Photo: jakerust. Used under a Creative Commons BY-2.0 license.