In the current macro-economic environment, the Bank of Canada and others are encouraging the federal government to limit spending increases, suggesting that any increase in spending would be inflationary. But some types of spending help lower prices and ease overall inflation. A great example of this is $10/day childcare, especially if it’s delivered by the public or not-for-profit sector. It not only makes life much more affordable for families that need child care, but it also helps to lower the consumer price index (CPI). Other examples include increasing the supply of deeply affordable social housing, reducing the cost of public transportation, and any investments that help to mitigate the impacts of extreme weather.
Every year the Canadian Centre for Policy Alternatives publishes an alternative federal budget (AFB) that imagines different choices that we could make to build a better economy and take better care of each other. There are several investment choices in the AFB that could make life more affordable without increasing inflation.
Increasing public ownership of deeply affordable housing is the lowest cost item on the list shown in the chart but is one of the most impactful. The cost is low because only the interest costs count as spending, but this investment would finance more than 160,000 new deeply affordable non-market units per year. Funding public services like child care and home care creates good jobs and provides more affordable services for families. Implementing a climate retrofit program would reduce energy costs for low-income households while helping us meet our climate targets. A national universal pharmacare program saves money for households and governments. Finally, infrastructure funding for cities and Indigenous communities helps address a wide variety of needs for communities, including water and transportation. Together, these items are estimated to cost $57 billion per year.
The federal government could finance this spending through borrowing, but the current federal government has signaled that they are unwilling to increase the federal deficit. The solution is to increase government revenue by improving tax fairness. Three of the tax measures proposed in this year’s AFB would raise just over $57 billion each year. The first is a wealth tax of one per cent on net worth above $10 million, two per cent above $50 million, and three per cent above $100 million. This tax would raise $28.8 billion annually on its own. Then, including 75% of capital gains as taxable income would increase revenue by a further $9.5 billion each year. Finally, implementing a 25% tax on foreign profits to address profit shifting to tax heavens would raise a further $19.3 billion each year, totaling $57.6 billion.
These revenue measures make our tax system fairer and raise substantial revenues that can be used to make life better for everyone. The AFB proposals shown in the chart would make our economy stronger and life more affordable while also combating inflation and making progress on climate action. We can have a federal budget that makes different decisions that work better for workers and our communities.