The 1999 Federal Budget: A Report Card

March 1, 1999

Overall Assessment: B-

After years of cutbacks, the Canadian Council on Social Development (CCSD) was pleased to see the federal government finally re-investing in much-needed social programs and starting to address the hardship of low-and modest-income Canadians. However, the 1999 budget once again erred on the side of caution. The government could have easily committed an additional $5 billion to social investments and targetted tax relief without putting future budgets in jeopardy.

The CCSD was particularly disappointed that Ottawa is continuing to use the Employment Insurance surplus for subsidizing tax cuts and program spending, rather than paying benefits to the thousands of contributors who find themselves out of work but ineligible for benefits.

In addition, given the urgent needs in the areas of social housing and homelessness, the lack of federal action on these issues was also disappointing.

However, the government's efforts to re-invest in health care and to provide some modest tax relief for low- and middle-income Canadians are laudable. The CCSD gives Finance Minister Paul Martin an overall B- for his budget performance.

What the CCSD was looking for:

A significant investment in job creation

Our grade: C

Due in part to years of retrenchment at all levels of government, the Canadian economy is not even close to achieving its full potential growth rate. Now that Ottawa is back in the black, the CCSD was hoping to see bolder measures to stimulate the economy. Clearly, re-investments in health care and in the Canadian Opportunities Strategy, as well as the modest tax relief offered in this year's budget are steps in the right direction.

However, more could and should have be done. Ottawa should not be dedicating $3 billion per year to debt repayment, when each $1 billion spent on the debt reduces the burden by a mere 0.11 per cent. Provided the Canadian economy grows, the debt will take care of itself. Even the Department of Finance acknowledges this. The purpose of the budget should be to stimulate the economy. We believe the federal government could easily have committed at least $5 billion more in additional tax cuts and expenditures without jeopardizing its balanced budget for next year. Expenditures in child care and social housing would have helped to build Canada's social infrastructure as well as create jobs.

Investment in improving children's well-being

Our grade: B

Much of this year's tax relief for low- and middle-income Canadians will come in the form of an improved Canada Child Tax Benefit. The maximum benefit for a family's first child will rise from the current $1,650 to $1,805 in July 1999, and to $1,975 by July 2000. Meanwhile, the maximum benefit will be available to more families as the threshold for net family income will rise from $25,921 to $29,590 by the year 2000.

The CCSD welcomes this development as an important step in recognizing the need to help parents (particularly those with low incomes) make ends meet. However, given the federal government's improved finances, the CCSD hoped for more on this front: an additional $850 million would have brought the benefit closer to $2,500 for the first child, a threshold at which families on social assistance, conspicuously absent from this budget, would begin to receive some direct benefits from the CCTB.

A coherent, long-term approach to health care

Our grade: B

The federal government deserves credit for recognizing the urgent needs in health care and for making a renewed commitment to health research and the health information system. Keeping in mind that many of the problems with health care funding across Canada were due to cuts in CHST over the past four years, the amount committed for the next few years will bring health care funding back to 1995 levels.

However, the CCSD had hoped that the additional support for health would be designated to developing a coherent, comprehensive long-term approach to health, which would include more support for preventive health and a population-based health approach. As Canada's aging population and the high cost of modern medicine place higher demands on the health care system, alternative approaches will be needed. Therefore, it is heartening to see Ottawa invest more to improve health information systems, to promote health research, to improve First Nations health services and preventive initiatives.

The CCSD gives Paul Martin a good mark in this area, but only with the understanding that such increased funding is a first step. The federal government and the provinces need to work together to develop home care, pharma care and health promotion programs.

A more equitable tax system

Our grade: C

The increase in the basic personal exemption announced in the 1999 budget was long overdue. Thanks to partial de-indexation in 1986, the basic exemption was $6,456 in 1998 instead of the $8,000 it otherwise would have been. By increasing the basic personal exemption to $7,131, Ottawa is thus about halfway to compensating for tax increases due to inflation over the past 13 years. Canadians paid an additional $10 billion in personal income taxes in 1998 as a result of partial de-indexation. This is why the CCSD is recommending a full indexation of tax rates, credits and benefits – a measure which would be especially affordable now due to the low rate of inflation.

The CCSD also notes that the two tax initiatives contained in the 1999 budget – the increased basic exemption and the elimination of the 3 per cent surtax – will disproportionately help Canadians in the highest-income brackets. The CCSD recommends that future changes in the personal income tax system be designed to spread tax savings more fairly among Canadians at all income levels.

Increased support for post-secondary education

Our grade: D

Education is widely acknowledged as the key to Canada's future economic success. This budget, however, does nothing to improve Canadians' access to post-secondary education. Also, last year's set of budget measures (notably, the Millenium Scholarship Fund and RESPs), were ill-inspired and insufficient to meet the needs in this area. With tuition fees rising and with record numbers of graduates struggling with high debtloads, the government should add a needs-based grant component to the Canada Student Loans program. On the positive side, we welcome the increased funding announced in the budget for Canada's research bodies, which should translate into greater funding for research on our university campuses.

A full review and improvements to the Employment Insurance Program

Our grade: F

Seven billion dollars of the 1998 budget surplus comes directly from Employment Insurance premiums. In view of this fact, and considering that EI is now available for far fewer unemployed people, and benefits limits have been reduced, the CCSD had recommended that Ottawa widen eligibility requirements and increase the benefits provided by EI. This was apparently not even considered. The federal government's use of the EI surplus to subsidize tax cuts and program spending while hundreds of thousands of Canadians are without EI coverage is unacceptable. It also runs the risk of undermining the original purpose of unemployment insurance program. The CCSD therefore repeats its call for a full review of the EI program to maintain its integrity and to restore its original purpose. This review should be done with an eye to extending coverage to the most vulnerable workers in the economy: part-time employees and the self-employed.


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