Submission: Priorities for the 1999 Federal Budget
September 28, 1998
Submission to the Standing Committee on Finance
Charles Birchall, Past President
Susan Carter, Associate Director
Pierre Laliberté, Senior Research Associate
The Canadian Council on Social Development welcomes once again this opportunity to make recommendations to the Finance Committee regarding the next federal budget. As you may know, the Canadian Council on Social Development (CCSD) is an independent, national, non-profit organization. Led by a volunteer board of directors from across Canada, the CCSD has a broad mandate focused on issues of social and economic security. We form a national network that includes professionals in human service organizations, volunteers, union members, business, academics, and provincial government departments, who share a commitment to improving the lives of Canadians.
As in previous years, the CCSD's overarching concern remains the economic security of Canadians. On this score, one would have to admit that the 1990s have not been the best of times for Canadians. As is now widely recognized, the current economic expansion is not generating the usual income growth and it is leaving a distressingly large number of Canadians in precarious positions.
The signs of economic hardship are abundant. In the sixth year of a recovery, the percentage of people unemployed or out of the labour force remains stubbornly high, especially for young Canadians. As a result of slow growth and the decrease in government transfers, Canadians' real disposable income has not yet recovered to its 1980s level. This is reflected in a worsened financial position, as the average consumer debt of Canadian households now represents over one-quarter of their disposable income, as compared to one-fifth in 1990. The savings rate has also fallen dramatically over the same period from 11 per cent to less than two per cent of disposable income. It comes as no surprise that despite economic growth, the proportion of Canadians living with low incomes --about 18 per cent-- has shown no sign of declining, leaving nearly 1.5 million children in poverty.
As the last United Nations' Human Development Report reminds us, we can take legitimate pride in being number one in terms of ‘human development,' but we should also acknowledge our less than stellar performance in dealing with poverty issues. Just as our top ranking is a testimony to the investment made by past generations in health, education and income support programs, our ranking in poverty indicators is an ominous forewarning of a slippage in this commitment. In short, we cannot ignore the fact that our drive for global competitiveness, coupled with deficit reduction measures, has left many Canadians on the sidelines.
Thus, in spite of the current economic uncertainties, the CCSD believes that the federal government should use a large portion of its developing surplus to carefully reinvest in the social fabric of the country. We believe that only such an approach can address both the growing social needs of Canadians as well as stimulate our economy.
It should be said from the outset that we take strong exception to calls for immediate across-the-board personal income tax cuts. In our view, some groups are opportunistically using the recent upheavals in the currency markets to ‘fast-track' their own agendas, at the cost of hampering the federal government's long-term ability to make a difference in the lives of Canadians. We feel compelled to remind the Committee that there are no short-term expedients to economic growth and a strong currency. Tax cuts, just like any government actions, have to be carefully examined for their possible impacts on society as well as on the economy. Moreover, given the fact that much of the current surplus originates from the surplus in the Employment Insurance Account, an income tax cut would end up being financed from a regressive payroll tax.
The CCSD also questions the sudden urge to pay down the federal debt. Unquestionably, the fact that a large portion of the federal debt is in foreign hands leaves our currency more vulnerable to the mood swings of speculators. However, very little would be gained by trying to speed up debt repayment. As long as Ottawa can keep on balancing its books, and even with modest economic growth, the debt will take care of itself. The CCSD believes that the best role for the federal government is to invest in Canadians and lay sound foundations for our future economic security, while keeping a level of program spending that is sustainable in the event of an economic downturn.
This is why we believe that the federal government should pursue the line of program priorities that was evident in its last budget: alleviating the burden on low- and modest-income families, improving the well-being of children and further investing in education and training. In addition, we feel that in the next budget, the federal government should give its full consideration to measures which would help job creation while addressing the growing needs of our communities. To these ends, we believe the federal government should consider :
- A significant investment in job creation.
Forgotten in the last budget, this area calls for stronger leadership on the part of the federal government. Just as it did with its investment program in infrastructures, Ottawa should consider a commitment to the so-called third sector economy; that is, investing in community organizations that provide jobs and much needed social and health support services. This could be done through the creation of a well-endowed National Community Development Fund that would work with provincial and municipal governments to provide financial and technical support to local initiatives throughout the country. Much like the infrastructure program, federal investment could be made contingent on a pre-determined level of provincial commitment. Not only would such an investment fund create more jobs than any across-the-board tax cut, it could address glaring gaps in Canada's social infrastructure, such as the need for affordable housing and child care. At a minimum, consideration should be given to improving the ability of the non-profit sector to increase employment through an increase in the charitable tax credit.
Further investment in improving children's well-being.
The new Child Benefit no doubt constitutes the most important social initiative undertaken by the current government and, so far, a success story in terms of federal-provincial co-operation. Given the increased needs in the area of child poverty, it is crucial that the government uses some of its current margin of manoeuvre to consolidate the new benefit. We thus fully subscribe to the call for an additional investment of $850 million by the year 2000 and for the full indexation of the benefit. This additional investment would produce an annual additional $850 million in July 1999 and in July 2000.
It is, however, important to remember that the benefit is but one piece of a comprehensive plan of action around children and youth. Other issues such as adequate child care, early childhood development, safe communities, transition to adulthood and early and continuous education also deserve Ottawa's full attention, especially in view of the willingness of provincial governments to advance on the children's agenda. Again, much could be achieved in this area if the federal government gave its full support to community-based initiatives which deliver integrated services to meet the needs of children, youth and families in their community.
A coherent, long-term approach to health care.
While media and public attention seem to be focused on emergency care and waiting lists, the CCSD would like to call attention to the socio-economic determinants of health. Programs that address the root causes of poor health, such as public health promotion programs, community health services and adequate incomes would be far better long-term investments than spending only on the acute care system. This and the under-provision of home care are areas where the federal government should be playing more of a leadership role. If the federal government is to consider a significant re-investment in CHST for health care, we suggest it should also work towards establishing a set of outcome indicators in co-operation with the provinces and other groups concerned with the health of Canadians.
Making the tax system more equitable.
While not politically glamourous in the short-term, a full re-indexation of tax brackets, credits and benefits would go a long way in maintaining the long-term equity of the tax and benefit systems. It is patently obvious that low and middle income families have been the main victims of these hidden cuts and disguised hikes. We strongly believe this issue should be addressed before tax cuts are considered.
If the next budget is to contain tax relief, we believe consideration should be given to increasing the basic tax exemption; such a measure would provide relief to all, but a most visible one to low income earners. Moreover, consistent with the realities of raising children, we encourage the federal government to consider re-introducing a universal non-refundable child tax credit. Such a measure would go a long way towards helping low- and middle-income families cope with the costs of raising children.
More generally, the CCSD could support broader-based reductions in personal income tax, if they were accompanied by simultaneous countervailing measures to end some of the current inequities in the tax system. Specifically, we believe the federal government should consider abolishing the current preferential tax treatment of capital gains, reducing the ceiling for RRSP contributions and re-introducing a modest inheritance tax. Such measures would not only make our tax system fairer, but also afford Ottawa some measure of fiscal flexibility.
Increase funding to post-secondary education.
Past cuts in CHST and in provincial funding have left the post-secondary education system bursting at the seams. One consequence has been the major increase in both tuition fees and student debt across the country. Paradoxically, in the age of the knowledge-based economy, increasing fees and uncertain job prospects are preventing worthy young people from pursuing post-secondary education and technical training. Therefore, we stress the need for the federal government to work with the provinces to re-establish needs-based grants as a form of financial support for low-income students. We heed calls from the Canadian Federation of Students for a conversion of the Millennium Scholarship Fund from a merit-based program to a needs-based one. The CCSD further recommends that the federal government considers a partial restoration of the CHST transfers for post-secondary education, as well as a restoration of funding to national research councils.
A full review of the Employment Insurance Program.
In view the of surplus generated and the low coverage it now affords, the Employment Insurance program is in great danger of losing its legitimacy with premium payers. However, once again, we take exception with insistent calls to reduce EI premiums. In our view the alleged job creation potential of such a cut is greatly exaggerated. Of more concern to us is the major decline in the number of unemployed currently covered by EI (a proportion that has dropped from 89 per cent to 43 per cent since 1990), including the steep reduction in the number of maternity/parental leave beneficiaries. It is apparent that the last round of restrictions to the eligibility criteria and the benefits of the EI program have had a far deeper impact than first envisioned.
In these circumstances, we believe the responsible course of action for the government is to proceed to a full review of the impact of the last reform before moving ahead. Such an assessment should examine not only the impact of past reforms on the unemployed and other beneficiaries, but also its corresponding repercussions on welfare rolls and provincial budgets. The CCSD recommends that Ottawa contemplate not only a restoration of coverage and benefits, but also ways to extend coverage to ill-protected classes of workers such as part-time workers and the self-employed. Moreover, this could be an opportunity to re-structure employers' contributions so as to encourage hiring, as opposed to the use of overtime.
Finally, we renew our call for the construction of a social indicators framework that would complement the current standard economic indicators. The growing divergence between broad economic and social outcomes makes this initiative all the more meaningful and urgent.