Former Finance Minister Jim Flaherty will be rightly remembered for the 2009 federal Budget which provided much-needed fiscal stimulus to boost a crisis-ridden Canadian economy and helped set the stage for recovery.
While the government was reluctant to act, domestic political as well as international pressure from the G20 forced even strict fiscal conservatives such as Prime Minister Harper and Minister Flaherty to find their inner Keynes.Read more
This week has been a watershed moment in the battle against income inequality in Canada.
The curious twist is that it was comments made by Jim Flaherty – who, as Finance Minister, has actually exacerbated income inequality – that illuminate a fundamental shift in Canada’s political imagination.
Sometimes, the world works in mysterious ways.
A lot of ink has already been spilled about Mr. Flaherty’s unexpected decision to publicly repudiate family income splitting, the day after tabling a budget that set up the Conservative government to deliver on precisely this tax cut. After all, it’s not every day that a finance minister chooses to oppose a key electoral promise of the prime minister.
Mr. Flaherty’s comments immediately split the Conservative caucus, forcing Prime Minister Stephen Harper to cast doubt publicly on what was expected to be the core goody in the Conservative’s re-election arsenal.
While the political questions surrounding Mr. Flaherty’s decision to speak out are intriguing, it is the precise words that Mr. Flaherty used to articulate his opposition to income splitting that matter most.
“It benefits some parts of the Canadian population a lot. And other parts of the Canadian population virtually not at all,” Mr. Flaherty said. Earlier, he had mused that the tax measure needed “a long, hard, analytical look” by experts “to see who it affects in this society and to what degree. Because [he wasn’t] sure that overall it benefits our society.”
Given this government’s clear track record of introducing boutique tax initiatives that favour the wealthy, this sudden concern with equity is striking.
Mr. Flaherty, of course, is right about this $3-billion Mad Men giveaway.
Family income splitting would benefit only a small minority of families, giving a significant tax break to high-income traditional families with one earner and a stay-at-home spouse, while delivering little or nothing to middle- and lower-income families and nothing to single parents.
According to the Canadian Centre for Policy Alternatives, the top 5 per cent of all families would see more benefit from this tax change than the bottom 60 per cent – and 86 per cent of families would see no benefit at all. It would, in effect, actively make income inequality, not to mention gender inequality, worse.
But the Conservatives surely knew these troubling facts when they made the promise (emphatically and repeatedly) to introduce income splitting back in their election platform in 2011. So something changed in the world around Mr. Flaherty.
And that something, I believe, is the maturing of income inequality as an issue in the imagination of the Canadian public and, as a result, in the considerations of the politicians that serve us.
It is this maturing that allowed Mr. Flaherty not only to recognize that income inequality is a serious problem deserving of attention; but also to acknowledge that government – even Conservative governments – should not enact tax policy that deliberately makes the situation worse.
The story of how this change came about is yet to be told, but it no doubt has its roots in the tireless work and advocacy of citizen and civil society groups, academics, brave politicians and other equity-seeking voices. This change remains a tentative victory, as Conservative cabinet ministers continue to pop up this week to split with Mr. Flaherty and defend family income splitting and its genesis in the determined lobbying of social conservative pressure groups.
And the unfortunate reality is that we are still becoming ever more unequal, a trend due in large measure to political choices. Many countries have found ways to mitigate the growth of income inequality, while in Canada the policy response has tended to reinforce rather than offset the trend.
We know that since the mid-1990s, the social role of government has been dramatically cut back and its redistributive impact has faded. According to the OECD, government taxes and transfers lowered the gap between rich and poor most in Canada, Denmark, Finland, and Sweden in the late 1980s and the early 1990s. By the early 2000s, we joined Switzerland and the U.S. as the countries with the smallest redistributive impact.
That’s why I take caution not to overstate things here. But I do believe Mr. Flaherty’s remarks signal some hope that there is growing public support and political will to address income inequality. At the very least, important public policy will now be tested against a simple and compelling principle: Does this make income inequality better or worse?
This article originally appeared in the Globe & Mail.
Presumably, Jim Flaherty considered the same economic picture of the country as the rest of us when planning the 2014 budget.
That picture is not rosy.
Almost one and half million Canadians are currently out of work. The unemployment rate remains stubbornly high at 7% and the employment rate (the proportion of the working age population with a job) has yet to recover since the great recession. For youth, the unemployment rate is almost double that, at 13.9%.Read more
Budget sets the stage for income splitting, a costly and unfair tax giveaway
OTTAWA—Despite its commitment to eliminating the national deficit, Stephen Harper's 2014 budget denies Canadians the help they need to reduce inequality and create good jobs. The budget also prepares the way for the implementation of income splitting, a $3 billion tax giveaway that offers no help to the Canadians who need relief the most.
With almost 1.5 million unemployed workers and a record 13% youth unemployment rate, Canadians need a government that prioritizes productive investments and secure, well-paying jobs over attacks on unions and ads for a phantom jobs grant. A lack of much-needed infrastructure investment further compounds problems for Canada's municipalities.Read more
In last year’s Speech from the Throne, the Harper government promised to introduce legislation to require “balanced budgets during normal economic times, and concrete time lines for return to balance in the event of an economic crisis.”
This proposed legislation makes little sense in terms of sound economic policy. But it will likely be introduced as part of the federal budget, expected early next month.
As Christopher Ragan argued in a previous Economy Lab commentary, it is simplistic to think we can set out firm rules for responsible fiscal policy, the conduct of which demands a nuanced understanding of the state of the economy and of public finances.Read more
The job numbers for the end of 2013 could not have been much worse than this. But don't expect the Harper Conservatives to do anything about it in a February federal Budget which will be all about 2015 pre-election politics.
In December, the Canadian economy lost 60,000 full-time jobs, and the national unemployment rate rose sharply from 6.9 per cent to 7.2 per cent. The youth unemployment rate jumped from 13.4 per cent to 14 per cent.
While the Conservatives have bragged about the strength of the recovery, the proportion of Canadians with jobs was down in December from a year earlier, and the unemployment rate was up, from 7.1 per cent to 7.2 per cent.
In short, no progress was made in 2013.
The prospects for 2014 are not rosy. Most forecasters expect little improvement on the jobs front as the housing boom slows and households, now with record-high levels of debt, slow down their spending. The hard-hit manufacturing sector continues to shed jobs as new plant closure announcements multiply.
There is a lot that the federal government could do to help sustain and create jobs, especially for hard-hit young people and recent immigrants.
We could take advantage of still very low interest rates to finance major new investments in public and environmental infrastructure, including public transit, which would both create jobs and reduce carbon emissions.
We could invest in innovation, skills, and research and development to transition from our overreliance on resources to a more sophisticated Canadian economy.
We could lighten up on cuts to public services which kill jobs even as they harm Canadian families.
But the federal budget will do close to nothing along these lines since the Harper Conservatives have only one goal: to set the stage for pre-election tax cuts in the 2015 budget.
They can't cut taxes till they have balanced the budget. So this year, the order of the day will be no new programs, and even more cuts to jobs and services. Watch for new austerity measures on top of already announced cuts which will see federal direct program spending (program spending minus transfers to persons and minus transfers to provinces) fall by $5.3 billion from 2013-14 to 2014-15.
These deep cuts are being imposed in spite of the fact that the federal debt is already falling as a share of the economy. Even bank economists say that there is no particular hurry to eliminate our remaining modest deficit.
The race to balance the federal budget is motivated not by economics but by the political determination of the Conservatives to deliver a big personal tax cut just before the 2015 election in the form of income-splitting for families with children.
No one is against a break for hard-working families, or measures that would allow parents to spend more time with children – but is income splitting the way forward? We could, for example, expand parental leave benefits under the Employment Insurance program so more parents could afford to take up to a year off work after the arrival of a child.
But the Conservative proposal to allow a shift of up to $50,000 between partners in a family with children up to age 18 is deeply flawed.
There would be no benefit at all to the one in four children who live in single parent families, nor would there be much (if any) benefit to lower-income families with two earners where neither earns above the $50,000 needed to move out of the lowest tax bracket. Stephen Harper is essentially proposing that we transfer more of the tax burden onto single-parent and lower- and middle-income families.
Finance Minister Jim Flaherty says the economy is too weak to support a modest, phased-in increase in Canada Pension Plan (CPP) premiums divided between employers and employees.
This is disputed by experts, and also contradicts Conservative messaging in two important ways.
First, in every other context, from the Speech from the Throne, to the recent Economic and Fiscal Update, the Conservatives have bragged about Canada's economic performance and highlighted the chances of a strong recovery. Except when it comes to the CPP debate, "the land is strong."
The Parliamentary Budget Office has come out with a report suggesting that the Conservatives will likely balance the budget ahead of schedule. But, and it’s a big but, they also found there would be no balanced budget in 2016 if there were no Employment Insurance (EI) surplus.
The Conservatives' use of the EI surplus to pay for a balanced budget deserves closer scrutiny.Read more
Finance Minister Jim Flaherty thinks the provinces are wasting $2-billion in federal funding to support worker training, and says skills training will be “a priority of the budget.”
While employers tend to exaggerate the real extent of skills and labour shortages, there is no doubt that dealing with the growing issue of “jobs without people” is of central importance.Read more
Finance Minister Jim Flaherty is said to be considering extending funding for public infrastructure investment in his forthcoming budget, as urged by the Official Opposition, the provinces and municipalities. Let’s hope, for the sake of jobs and the environment, this is a significant, long-term initiative.
On the eve of the 2013 federal and provincial budget season, public sector austerity is still the order of the day, even though the economy is rapidly slowing down.Read more