Social Security and Development on Hold: CCSD Analysis of the 2001 Federal Budget

December 11, 2001

Actions fall short of objective

In the Budget speech, Finance Minister Martin said it was the government's intention "to support Canadians through difficult times while continuing our long-term plan to build the future." Unfortunately, the actions in his Budget that are relevant to social development fell short of this laudable objective.

The Budget made no new commitments at all to affordable housing, to income supports for low-income Canadians, nor to health care programs. To be sure, existing programs – the Canada Health and Social Transfer to the provinces for health care, the Canadian Child Tax Benefit and the Early Childhood Development program, and a recently announced housing program – were protected from possible cuts. But there was no signal that increased social investment would be forthcoming when Canada returns to more 'normal' times.

The CCSD recognized before the Budget that national security needs would have to be funded, and that the federal surplus had shrunk. But we argued that there was room for selected initiatives that would meet social needs and help protect lower-income Canadians by spurring economic growth and job creation at a time of mounting economic uncertainty and unemployment.

Mr. Martin did provide some very modest funds for health research, Aboriginal children, international assistance, adult basic education, and students with disabilities. These measures are all welcome (details below), but were collectively disappointing.

The Budget will make little difference in terms of cushioning Canadians from the economic downturn which is expected to continue until mid 2002. Growth will slow to just above 1% in 2002, and unemployment is expected to rise to an average of 7.6% in 2002, according to Department of Finance officials. (This figure is – unusually – not found in the Budget.) Employment Insurance benefits are forecast to jump sharply by $2.7 Billion this fiscal year compared to last, because of the deteriorating economy in combination with some recent improvements to benefits. But the provinces will have to pick up the slack in terms of any further income support to Canadians hit by recession, and they are unlikely to be very "generous," given that they are all quickly falling into a deficit position, propelled in part by rising health care costs.

Provincial posturing is overdone, especially among those provinces that have squandered their own recent surpluses on tax cuts. But the fact remains that the federal government is – despite rising needs – doing nothing in this Budget to help support social programs that are delivered at the provincial and municipal levels.

As a result of measures announced in this Budget, total federal spending will increase by $2.6 Billion both this fiscal year (2001-02), and next, with about half of the total increase going to enhanced national security. Tax measures in the Budget are minimal. (All previously announced tax cuts remain intact.) Economists from across the political spectrum agree that this total spending and tax cut package is so small in a $1 Trillion economy that it will have virtually no impact on the forecast level of unemployment.

Ultra-cautious approach

In fairness, the federal government will be providing some stimulus and support by moving from a $17 Billion surplus last fiscal year (2000-01) to close to a balanced budget this year. Mr. Martin has decided that he will not continue to pay down the debt this year or, likely, next year either. All of the "reserve" fund this year will be spent, and the reserve fund for next year has been cut from $3 Billion to $2 Billion. Also, the Budget is closer to a true "balanced budget" because the economic assumptions are not as overly conservative as in the past.

In essence, this Budget is a cautious, stay-the-course document in which some of the "automatic stabilizers" – such as increased Employment Insurance benefits – will be allowed to operate, so long as the Budget remains balanced and deficits are avoided. As the Minister of Finance also notes, recent large cuts in interest rates will help promote an economic recovery next year.

To illustrate Mr. Martin's ultra-cautious approach, note that this Budget includes an accounting trick to shift $2 Billion for this year's surplus to next year's revenues. (This is done by allowing small businesses to pay their corporate taxes three months late, pushing the revenues into the following year.) This change will be of marginal benefit to small business, but it increases the government's "wriggle-room" next year by $2 Billion. That makes a balanced budget much more likely, even in the face of slow growth and rising unemployment. But a portion of the $2 Billion could have been allocated to a housing fund this year if the government had wanted to boost the economy and meet social needs, as was recommended by the CCSD and others.

Some good news

The Budget does, as noted, finance some modest but worthwhile spending programs.

Most importantly, $185 million over two years is allocated to programs for Aboriginal children, effectively complementing the Early Childhood Development Agreement between the federal government and the provinces. The money will be spent on child care and head start programs, programs for Aboriginal children with special needs, and initiatives to reduce fetal alcohol syndrome. The needs of Aboriginal children – both on and off reserve – are enormous and the increase is to be commended.

International assistance spending will increase by $1 Billion over three years, with specific allocations for aid to Africa and rebuilding Afghanistan. The government is to be congratulated for starting to reverse years of cuts in support for social development at the international level, and the commitment to an African Fund may help lever concerted international action at the G-7 summit next year. However, we remain well below our stated commitment to spend 0.7% of GDP on development programs.

The government confirmed funding for an affordable rental housing program announced last month, but just $85 million of the earmarked $680 million will be spent in 2002-03. This marks a small step forward, but will hardly make a dent in the rising number of poor families who cannot meet their basic needs because of rapidly rising rents in most large cities.

Health research receives $170 million in additional funding, allowing for the continuation of the important Canadian Institute for Health Information program which is providing useful indicators on the health of Canadians, as well as increased funding for clinical health research. There is, however, no indication at all of further increases in federal transfers to the provinces for primary health care, and no word of support for expansion of Medicare to include community health care, elder care, or pharmacare.

Funding for the skills and learning agenda is very modest and only tiny amounts are allocated to groups with pressing needs. Students with disabilities will be eligible for higher grants to help finance supports and services, costing an extra $10 million per year. But there are no indications of forthcoming federal support for the In Unison agenda of genuine inclusion of persons with disabilities. Minor initiatives are taken to help support adults on EI access basic education programs.


To conclude, the 2001 Budget is very much a cautious, stay-the-course document. Mr. Martin ruled out any significant economic stimulus beyond the "automatic stabilizers" and made only extremely modest new commitments in the area of social development. More disappointing, the Budget failed to articulate any longer term vision of our collective social future. One is left with the uncomfortable impression that, for the federal government, investments in children and in health care are achievements of the recent past, rather than pressing challenges of the immediate future.


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