Summary
The Liberals have titled their 2018 federal budget ‘Equality + Growth.’ It has a strong emphasis on reducing inequalities, particularly for women and Indigenous peoples. But unfortunately, it provides little support for programs and public services that would make a significant difference to the lives of most working women, such as a national child care program or a federal minimum wage of $15 an hour.
Additional funding of $4 billion over five years for Indigenous child welfare, education, clean water, housing, health care and Indigenous organizations is a welcome surprise. However, the Trudeau government appears to be delaying any substantial action on child care, pharmacare, poverty reduction and climate change until at least next year’s budget, or possibly even until the 2019 election campaign.
There’s also very little on tax fairness, and the government appears to be backing away from its platform promise to eliminate regressive and ineffective tax loopholes for top income earners. Budget 2018 also fails to level the digital playing field by eliminating tax loopholes that primarily benefit foreign digital giants like Google, Facebook and Uber at the expense of Canadian businesses and workers.
On the issues
Pay equity
Budget 2018 announces that the federal government will introduce proactive pay equity legislation in the budget implementation bill. The legislation will be based on the Ontario and Quebec model. It will apply to federally-regulated workplaces of 10 or more employees, and to contracts of $1 million or more through the Federal Contractors Program (FCP). It will also “ensure a robust application of federal employment equity law,” cover seasonal, temporary, part-time and full-time positions, and involve compulsory maintenance reviews.
- CUPE has over 30,000 members in federally-regulated sectors who could benefit from federal pay equity. They work in airlines, rail, ports, communications and at the RCMP as civilian staff. We’ve urged the federal government to introduce proactive pay equity legislation consistent with the recommendations of the 2004 Pay Equity Task Force. The limited details of the Budget 2018 commitment are consistent with these recommendations. However, there’s no money set aside for the process of achieving pay equity, and we look forward to further details. CUPE will be looking for this legislation to include a transparent process, worker participation, union representation on comprehensive joint committees, a stand-alone pay equity commission, a hearings tribunal, specific timelines for implementation, and compulsory maintenance reviews. Iceland has gone further, requiring employers to prove that they’re providing equal pay, levying fines of $500 a day if they don’t. The government of Iceland has committed to eliminate the pay gap by 2022.
- We’re concerned that federal pay equity and employment equity requirements will only apply to contracts of $1 million and more through the FCP. The federal government should instead restore the $200,000 threshold in place before the Harper government gutted the program in 2012. It should also establish measurable goals and clear guidelines for both the pay equity program and federal employment equity legislation.
Parental leave
The budget introduces a dedicated “use it or lose it” second parent leave through the EI program that will provide an additional five weeks of coverage, for a combined total of 40 weeks parental benefits at 55 per cent of earnings. Families that have opted for the extended leave option will be eligible to take up to eight weeks of additional leave at 33 per cent of earnings. This second parent leave will be available to same-sex and adoptive parents, but there won’t be any additional benefits for single parents.
- We’re happy to see the dedicated second parent leave, which will help to promote greater gender equality in parenting and employment. However, after those extra weeks, parents and particularly mothers, still need accessible child care to join the paid workforce. We’re also concerned that low-income parents, workers in precarious jobs and those who either don’t qualify for EI or can’t afford to live on the low level of benefits won’t be able to take advantage of this new leave. We hope that in implementing this new leave, the government will take a close look at the Quebec plan and expand eligibility and improve the benefit level. CUPE has urged the government to provide 12 weeks, as several other countries do, and to ensure that single parents are not disadvantaged and instead are provided with similar benefits.
Gender equality
Budget 2018 is billed as a gender equality budget, which together with commitments to pay equity and a new parental leave program also includes:
- a “Gender-based Analysis Plus” (GBA+) approach and commitment to entrench this analysis in future budgets;
- programs to increase women’s participation in higher-paid science, technology, engineering and mathematics occupations;
- funding for women’s organizations;
- funding for racialized and immigrant women; and
- a number of new initiatives for women entrepreneurs and women in business.
Notably, this budget also announces that the Status of Women Agency will now become a full department.
- The strong emphasis and actions on gender equality are certainly welcome. However, to really make a difference, these measures need to be combined with other actions that will improve working and living standards for the vast majority of Canadian women, including substantial additional investments in a national affordable child care plan, significant additional funding for continuing care in the health sector, additional funding for social services, improved access to CPP and EI for women, the elimination of regressive tax expenditures (which primarily benefit high income men), and the introduction of a $15/hour federal minimum wage. This is all MIA in this GBA.
Violence against women
This budget includes a number of significant measures to address violence against women. These include:
- an additional $86 million over five years towards a Gender-Based Violence Strategy through Status of Women Canada and the Public Health Agency of Canada;
- $50 million over five years to address sexual harassment in the workplace, with half going to legal aid funding, and half to develop an outreach program to inform workers, especially the most vulnerable, about their rights in the workplace;
- $5.5 million over five years for sexual assault crisis centres on university and college campuses;
- additional funding for the RCMP to investigate the many sexual assault cases that were originally coded as unfounded, and to provide better support for these survivors;
- a proposal to amend the Canada Labour Code to provide five days of paid leave for survivors of domestic violence or their parents; and
- funding for community women’s organization as well as funding to promote gender equality among young Canadians as well as men and boys.
- CUPE has supported and endorses a Blueprint for a National Action Plan on Violence against Women. We welcome these additional commitments and funding in this budget. However, a fully-resourced national action plan to address violence against women, based on the Blueprint for a National Action Plan is estimated to cost $500 million annually. We also particularly welcome the plan to provide five days of paid leave for survivors of domestic violence. It isn’t the 10 days of paid leave that CUPE called for, but it is better than the 10 days of unpaid leave the government had originally planned.
Indigenous peoples and communities
Budget 2018 provides significant additional funding for Indigenous peoples in Canada, a total of an additional $4.7 billion over five years. This includes:
- $1.4 billion over six years for First Nations child and family services. This will go towards compliance with a Canadian Human Rights Tribunal order to fund First Nations services for children on reserve at the same levels as non-Indigenous children and youth living off-reserve;
- $447 million over five years for revamped Indigenous skills and employment training with different streams for First Nations, Inuit, Métis and urban Indigenous peoples;
- $1.5 billion over five years for Indigenous health programs; and
- $173 million in additional funding over three years for clean and safe drinking water on reserves.
The budget also includes an additional $100 million and a reallocation of $900 million for Indigenous housing programs ($1 billion in total), and $249 million over three years in health programs for survivors of residential schools.
- The additional funding for Indigenous peoples in this budget is significant and more than what was expected. But it is still less than what is needed. This budget outlines $1 billion for all Indigenous-specific housing. The Assembly of First Nations, however, estimates that at least $1 billion annually is needed for on-reserve housing alone.
- A significant portion of this housing funding, $500 million over the next 10 years, is for Métis housing. This is one of the most substantial commitments ever made by the federal government for multi-year Métis-specific funding. Along with $16 million in other Métis-specific commitments, this represents a significant shift in federal Métis policy.
- The federal government will stop making loans to Indigenous governments to fund land claim negotiations. These loans have often caused First Nations to incur large debts to settle land claims. The loans will be replaced by non-repayable grants.
- The 2016 budget committed $1.8 billion over five years for First Nations water infrastructure and Budget 2018 provides an additional $173 million beyond that funding. But estimates are that $5 billion is required over ten years. While the Liberals have pledged to remove the two per cent cap on funding for First Nations services, most increases are still below two per cent. This cap has meant a $9 billion shortfall in funding over the last 20 years.
- Two of the biggest questions left unanswered in this budget are how the dismantling of Indigenous and Northern Affairs into two separate departments – one responsible for Crown-Indigenous relations and one for Indigenous services – will be implemented, and how this change will affect the flow of funding to Indigenous peoples and governments. While Budget 2018 offers some vague ideas on responsibilities, it doesn’t lay out any timelines for implementing legislation.
Other equality measures
In addition to the prominent actions on pay equity, gender equality and support for Indigenous peoples, the budget also includes a number of other measures to support racialized Canadians and equality-seeking groups. These include:
- $31.8 million over three years to support programming for newcomer racialized women;
- $7.8 million over five years to community organizations that help newcomers, Indigenous peoples and persons with disabilities access government funding;
- an additional $23 million for multicultural programs;
- $19 million over five years to local community supports for youth at risk in the Black Canadian community;
- long-overdue federal funding of $198 million over five years to help protect the rights of temporary foreign workers, including $3.4 million over two years in pilot funding for a network of support organizations for temporary foreign workers;
- $81.4 million over five years for Canada to develop its own Passenger Protection Program, which will hopefully meet concerns that racialized people, including children, have been unfairly targeted by relying on a US no-fly list;
- $12.8 million to provide legal aid for asylum seekers; and
- $6.7 million over five years for Statistics Canada to create a new Centre for Gender, Diversity and Inclusion Statistics.
- The budget includes a more extensive Gender-based Analysis Plus (GBA+) of its measures. It clearly demonstrates consideration of the impact of its measures on equality-seeking groups and vulnerable populations, and explicitly recognizes that many are marginalized in multiple and intersecting ways. And, promisingly, the government says it will introduce new GBA+ legislation to enshrine gender budgeting in the government’s budgetary and financial management processes, as well as extending the analysis to examine tax expenditures, federal transfers and the existing spending base.
- This budget also includes funding to obtain additional data on diverse and intersecting groups. CUPE has urged the federal government and Statistics Canada to collect and disseminate much more disaggregated data on gender, race, and other intersecting identities and we’re glad that this is finally happening.
Canada Workers Benefit
This budget both renames and provides the detail on how the government will improve the Working Income Tax Benefit (WITB), which had been promised in the Fall Economic Update. The renamed Canada Workers Benefit (CWB) provides a larger maximum benefit of $1,355 annually, $170 more than the WITB and phases out at a more gradual rate of 12 per cent rather than 14 per cent. There’s also an additional $160 increase to the CWB disability supplement. And because many eligible low-income people don’t claim this on their income tax forms, they are planning to have the CRA automatically enroll low-income tax filers.
- Expansion of this tax benefit is welcome and will increase incomes for some working poor. Auto-enrollment is a positive measure, as the WITB is currently paid out after the fact, based on the previous year’s income, and take-up has been low. The Alternative Federal Budget proposed an expansion to the GST credit instead of the WITB. This would provide benefits to all people on low incomes and would not be tied to employment income. While the WITB has a role to play, bringing in a federal minimum wage of $15/hour would do more to help the working poor - and at a lower cost to the government.
Child care
Unfortunately, Budget 2018 only includes a small additional amount for child care, just $100 million for “early learning and child care innovation” and $95 million to “close data gaps in order to better understand what child care looks like in Canada.”
- CUPE and child care advocates have called on the federal government to increase funding for childcare by $1 billion annually until the internationally-recognized benchmark of one per cent of GDP is met. The government must also ensure that all funding goes to public/non-profit services. We appreciate the government’s stated commitments and actions on gender equality, but the lack of real funding and further progress on child care in a ‘gender equality budget’ is a monumental gap.
Pharmacare
Lack of concrete action on pharmacare is a major shortfall of this budget. The budget announces the creation of an advisory council to consult and “begin a national dialogue” with former Ontario health minister Eric Hoskins as the chair. But there’s no timeline and no funding set aside for this work.
- For years, CUPE has been calling on the government to establish a universal pharmacare program to assist the millions of Canadians who don’t have prescription drug coverage, and too often have to choose between paying for rent and groceries or refilling their prescriptions. After studies by the Parliamentary Budget Officer, the Standing Committee on Health, and a motion in Parliament to implement pharmacare which the Trudeau government voted against in October 2017, CUPE believes the time for more study on pharmacare is past. It’s time for the federal government to make a real political and financial commitment to making this program a reality.
- CUPE is extremely concerned by Finance Minister Bill Morneau’s statements immediately following the budget that a national Pharmacare plan would only address gaps in the system and wouldn’t be universal. This statement contradicts the overwhelming evidence and expert advice on this issue, which has recommended a universal system. It also presupposes the outcome of the consultation. Finally, it places Minister Morneau in a conflict of interest, given that his family firm, Morneau Shepell, is one of Canada’s largest private providers of employee health benefits. The government should step back from these comments and Minister Morneau should recuse himself from involvement on this file given his perceived conflict of interest.
Environment and climate change
The environment section in this budget is relatively small but delivers $1.3 billion over five years to increase nature conservation on land and water, including $500 million from the federal government for a new $1 billion Nature Fund in partnership with other public and private organizations. This Nature Fund will, among other things, help secure private land for conservation. The budget also includes an additional $1 billion to support environmental impact assessments.
- This funding meets the recommendations of the AFB and the Green Budget Coalition for $1.4 billion over three years to expand protection to cover at least 17 per cent our lands and waters, and at least 10 per cent of our oceans, by 2020.
- It will be important to ensure the new Nature Fund isn’t used to enrich private landowners and corporations.
- Unfortunately, the budget is silent about urgent priorities. These include:
- contributing more to global climate protection;
- eliminating remaining fossil fuel subsidies;
- providing funding to improve energy efficiency for homes;
- providing funding for Just Transition for workers and communities affected by the shift away from fossil fuels;
- additional funding for climate change mitigation and adaptation, and
- shifting our automobile fleet to electric vehicles.
Fair taxation
Budget 2018 represents a disturbing retreat by the federal Liberals from their promises to eliminate regressive tax loopholes. The budget includes a small amount of new funding to combat tax evasion – work that will provide an almost five to one payback.
The budget also includes a further retreat from the government’s proposals to fairly tax the income gained from passive investments in private corporations, by phasing out the small business deduction for passive income investments of over $50,000 per year. The wealthy individuals who control these private corporations won’t be hard done by because they’ll still only be taxed at the general corporate rate of 15 per cent rather than the top personal income rate of 33 per cent.
- Budget 2018 once again fails to fairly tax foreign digital companies such as Google and Facebook. It also maintains a tax bias that hurts Canadian businesses and kills jobs in all sectors, particularly in the media and broadcasting. For several years, CUPE has urged the federal government to level the digital playing field. Most other countries have taken steps to address these problems. It is disturbing that the Liberal government still hasn’t, preferring instead to appease foreign digital giants at the expense of Canadian businesses and workers.
- We’ve also urged the federal government to eliminate regressive tax loopholes, including getting rid of the stock option deduction, increasing the tax rate on capital gains, and increasing the federal corporate tax rate. CUPE has also called on the federal government to combat international tax evasion by taxing multinationals on the economic substance of their activities in each country. These measures would provide the federal government with many billions more in annual revenue and would substantially increase provincial government revenues as well.
Media and culture
Instead of taxing foreign digital companies fairly and requiring digital broadcasters such as Netflix to contribute to the Canada Media Fund, which is suffering from declining revenues, this budget elects to provide public subsidies to compensate for the loss of funding from these foreign digital companies. It includes $10 million annually over five years for a fund to support local journalism and “ensure trusted, local perspectives as well as accountability in local communities.” It also commits to maintain the level of funding in the Canada Media Fund at 2016-17 levels.
- Canada’s media and cultural industries are being severely damaged by the tax loopholes that benefit foreign digital companies and platforms at the expense of Canadian producers and workers. Dozens of papers and media outlets in different communities have closed, hundreds of workers have been laid off, and funding for Canadian films and programs has declined with the rise of Netflix. These tax loopholes include not charging GST and sales taxes on imports of digital services (including the more than $3 billion in Canadian advertising dollars that go to Google and Facebook), allowing businesses to fully deduct advertising spending on these foreign digital platforms, not taxing foreign companies on the substance of their economic activity in Canada, and not requiring digital broadcasting services to contribute to the Canada Media Fund. All these measures benefit foreign digital giants at the expense of Canadian broadcasters and jobs and also cost federal and provincial governments more than $1 billion in lost revenue every year.
- It’s perverse that in this budget, the federal government once again fails to fairly tax some of the largest and most profitable foreign corporations in the world on their business in Canada. Instead, Budget 2018 uses public subsidies to deal with some of the damage this lack of fair taxation is causing. A subsidy of $10 million annually for local journalism is minor in relation to the scope of the damage and there could be problems with third parties disbursing these funds. It would be much better if the federal government simply addressed some of the underlying problems, which include tax loopholes that benefit foreign digital giants and that hurt Canadian businesses and workers, instead of applying a publicly subsidized band-aid to the problem.
International development assistance
Budget 2018 increases international development assistance by $2 billion over five years, with a particular emphasis on women and girls through a “Feminist International Assistance Policy.” It also redirects $1.5 billion in international assistance funding over five years into “innovative” financing tools such as guarantees, equity and repayable contributions.
- The AFB and the Canadian Council for International Cooperation are calling for substantial increases to Canada’s international development assistance funding until it reaches 0.7 per cent of gross national income (GNI). This additional funding is welcome, but at the end of five years, our international assistance will still be less than half of this target as a share of our GNI. We can and should do more. The Canadian government has also unfortunately become a major proponent of private finance and privatization through international development assistance, including of ‘social impact bonds.’ Instead, we should emphasize the expansion of public services and co-operatives. Canada should also use its presidency of the G7 in the coming year to spearhead international cooperation on tax fairness and combatting tax havens. We need an international agreement to tax multinational corporations on the economic substance of their activities in each country. It has been calculated that developing countries lose far more through tax evasion than they receive through international development assistance.
Infrastructure
Budget 2018 doesn’t include any additional funding for provincial or municipal infrastructure. It does provide infrastructure funding for Indigenous communities, universities, digital infrastructure, a National Archives/Ottawa Public Library joint project, and the National Capital Commission.
This budget confirms a considerable delay of planned infrastructure spending, with over $2 billion delayed last year and another $2 billion expected to be delayed this year. Even more of the planned spending will be back-end loaded with four times as much planned for spending in 2027/28 than in the coming fiscal year.
The Canada Infrastructure Bank is also taking much longer to become operational than originally planned. The Bank has not yet hired a CEO and might not approve any projects until the end of this year.
Affordable housing
The budget includes some additional funding for Indigenous housing for First Nations, Inuit and Métis peoples, a total of $1 billion over five years. But most of that comes from existing funding. The government will also allow the Canada Mortgage and Housing Corporation to increase the loans it can provide under its Rental Construction Financing Initiative from $2.5 billion to $3.75 billion to increase the supply of housing. However, there isn’t anything more for low-income or social housing.
- This budget does very little to clarify or operationalize the commitments made in the government’s National Housing Strategy.
- While the government projects that the addition funding for the Rental Construction Financing Initiative will result in 14,000 additional rental housing units and relieve pressure on moderate and middle-income families in large metro areas like Toronto and Vancouver, it will do nothing to clear the backlog of repairs and renovations necessary to maintain the existing affordable housing stock.
- The Canadian Housing and Renewal Association (CHRA) called for the federal government to provide dedicated funding for repairs and renovation of existing social housing, and dedicated funding for new social housing. This does not appear in the budget.
- The Federation of Canadian Municipalities has noted that this budget missed the opportunity to kick-start the National Housing Strategy and delays the necessary funding for critical social housing repairs that are currently ready to go ahead.
- Introducing an energy retrofit program for low-incomes households would both reduce expenses for low income earners and be good for the environment. There is no money budgeted for this.
Trade
The budget discusses the importance of diversifying trade, but it also reveals that the government expects to lose over $2 billion in tariff revenues over four years as a result of joining the Trans-Pacific Partnership trade and investment deal.
- This is especially concerning given that even the federal government forecasts only modest economic gains for Canada from this deal, while independent analysts expect it to result in about 58,000 jobs lost and increased inequality.
Poverty
The two main anti-poverty initiatives in this budget are the Canada Workers Benefit and funding for Indigenous peoples. There’s also an additional $12 million proposed to improve the measurement of poverty and a lot of discussion about addressing and measuring poverty in relation to international development and the government’s Gender-based Analysis Plus approach. But there’s little else aimed at reducing poverty in this budget.
- The AFB called on the federal government to adopt and implement a comprehensive poverty reduction plan to reduce poverty by 50 per cent within three years, re-establish the National Council of Welfare or similar federal anti-poverty agency, introduce a new $4 billion poverty reduction transfer, increase the GST credit, increase disability benefits and tax credits, and re-introduce a federal minimum wage of $15/ hour.
Research, science, innovation and post-secondary education
Research, science and innovation is the other big-ticket item in this budget. It includes an additional $1.7 billion over five years for the granting councils, including a new tri-council fund, additional funding for Canada Research Chairs, and $231 million for a Research Support Fund. The budget doesn’t provide all the funding that the Fundamental Science Review recommended, but it does allocate funds in most of the areas identified in the review.
In total this budget allocates an additional $6.4 billion over five years for research, science, innovation and business-oriented programs. However, additional funding for graduate scholarships is notably absent. The budget does provide:
- $763 million over five years for the Canada Foundation for Innovation;
- $572 million to “harness big data;”
- a new College and Community Innovation Program;
- $540 million more for the National Research Council;
- additional funding for the Industrial Research Assistance Program; and
- additional funding for the regional development agencies.
- While there’s a lot of money in this budget for science, research and innovation at universities and colleges, there isn’t much else for students, precariously employed sessional staff and other education workers. CUPE has urged the federal government to introduce a Post-Secondary Education (PSE) Act that sets national standards, enshrines the right to PSE, and provides a dedicated transfer to address funding shortfalls and the rising cost of tuition.
Pensions and retirement security
The budget doesn’t have any specific provisions around to pensions and retirement security.
- CUPE has called for the federal government to further expand the CPP and the GIS, to amend the enhanced CPP legislation to allow for child rearing and disability drop-out periods on all CPP benefits, and to withdraw Bill C-27 which allows for retroactive conversion to less secure target benefit plans. Federal and provincial ministers agreed in December 2017 to increase retirement benefits starting in 2019 under the CPP Enhancement for people who had previously been penalized for child rearing or having a disability. However, this will likely be inferior to the drop-out provisions that apply through regular CPP benefits.
Employment insurance and wage protection
Budget 2018 proposes to make the EI ‘Working while on Claim’ program permanent, and to allow those receiving EI maternity and sickness benefits to participate. This will allow EI claimants to keep up to 90 per cent of their income. There’s also a commitment to provide $230 million to provinces through the Labour-Market Development Agreements to help seasonal workers who may not qualify for EI, as well as an additional $128 million over three years to improve claims processing at the EI call centre. This budget announces that the federal government plans to increase the maximum payout under the Wage Earner Protection Program to seven weeks of pay from four weeks and to also cover vacation, severance and termination pay.
- These measures are positive and welcome. The additional funding for EI claims processing will hopefully make a difference in the unacceptably long wait times currently faced by many applicants. However, it’s disappointing there is no funding to fix the appallingly broken appeals process through the Social Security Tribunal, which was established by the previous government. The government has said they are committed to finding the right solution, but there is an urgent need to act. There are many small changes that could be made immediately and that would make a significant difference.
- We’re disappointed that the Wage Earner Protection Program hasn’t been expanded to also ensure pensioners have the same protections and are prioritized in bankruptcies.
Training, apprenticeship and literacy
Beyond the funding for Indigenous peoples, there isn’t a lot more for training, literacy or direct job creation in this budget. It does include:
- An additional $449 million over five years for the Canada Summer Jobs program;
- An Apprenticeship Incentive Grant for women in Red Seal Trades occupations that will provide up to $3,000 annually for two years of training;
- A new Pre-Apprenticeship Program to encourage underrepresented groups—including women, Indigenous peoples, newcomers and persons with disabilities–to explore careers in the skilled trades;
- $32 million over three years in a pilot program to help racialized newcomer women with literacy and other skills to join the workforce; and
- $7.8 million over five years in a pilot program to help community organization that assist vulnerable people with literacy and other skills access further government funding.
The budget also announces that the federal government is conducting a review of its literacy, numeracy and skills training programs. So, we can expect further changes in these areas.
Security and cybersecurity
Budget 2018 includes additional funding in various areas for security and cybersecurity. Notably for workers in this area, it includes $50 million to address mental health and post-traumatic stress for public safety officers, including at the RCMP. The budget recognizes that the public security sector is male-dominated, that women and minorities have been subject to harassment, that the sector needs to have a more diverse workforce, and that there’s a need for on-going anti-harassment programming and action.
- We’re pleased to see the federal government is expanding their support for RCMP officers, with $21.4 million over five years to support their mental health. However, other front-line workers at the RCMP such as telecom operators and intercept monitor analysts also experience a great deal of stress in the workplace, which has led to a high level of burnout. The federal government needs to support the mental health of all RCMP workers, both officers and civilians, so everyone can continue to provide the public with excellent emergency response services.
Deficits, revenues and spending
There’s been a lot of criticism from Conservatives and business groups that deficits continue under this budget, that it doesn’t include tax cuts for business and that it increases spending, particularly given that the economy has grown faster than anticipated over the last year.
The facts are that this budget’s deficit projections over the next five years are very similar to what had been projected in the government’s 2017 Fall Economic Statement, are considerably lower than what was projected in the 2017 budget and are somewhat on par with what was projected in the 2016 budget.
As a share of GDP, the federal government’s debt is expected to be consistently lower than previous projections, declining below 30 per cent in the 2019/20 fiscal year and down to 28.4 per cent in five years. This is considerably lower than what had previously been expected.
Governments can continue to run annual deficits in a fiscally sustainable manner with a declining debt/GDP ratio (where the overall debt declines as a share of the economy), as long as the economy is growing faster than the government’s debt. That’s the position Canada is in right now. In fact, it appears that the economic growth was stronger than expected last year in large part thanks to increased progressive spending by the government. Public services and the Child Benefit provided greater stimulus to the economy than the Conservative government’s tax cuts and infrastructure spending.
In fact, what should be more of a concern is the projected decline in the federal government’s program spending as a share of the economy from 14.2 per cent of GDP in 2017/18 to 13.6 per cent of GDP in 2022/23. This will represent an effective $15 billion reduction in federal program spending relative to current levels. In fact, if federal program spending and the federal government’s revenues were at their 50-year average of 15.4 and 16.4 per cent of GDP respectively, they would both be $50 billion higher in 2022/23 than this budget projects.
The government’s fiscal forecast also reveals what may be a concerning trend: a declining reliance on corporate tax revenues, and an increasing reliance on personal income taxes. Corporate tax revenues are expected to grow by 1.6 per cent annually, while revenues from personal income taxes are expected to grow by three times as much, or 4.5 per cent annually over the next five years. Corporate income taxes used to provide the federal government with as much or more revenue as personal income taxes until the early 1950s, but now they provide less than a third as much.
There are many ways to increase federal revenues in a progressive way, as the Alternative Federal Budget demonstrates. Over $12 billion could be generated by closing the stock option and capital gains loopholes and another $12 billion by restoring corporate income tax rates to 2006 levels. Considerably more could be generated by closing other regressive tax loopholes, ensuring multinational corporations—including foreign digital giants—pay their fair share of tax, and introducing a financial transactions or financial activities tax.
The 2018 federal budget has a strong and very welcome emphasis on equality. However, its actions fall short in some of the key areas where the federal government could really make a difference to improve equality, including childcare, pharmacare, anti-poverty measures, improving other public services and making our tax system fairer. The Trudeau government has one more budget before the next federal election in 2019 to demonstrate concrete action—and not just promises—in these areas.