Dissenting Opinion

Of the New Democratic Party

To the Standing Committee on Industry, Science and Technology

SERVICE SECTOR REPORT

Respectfully submitted by:

Peggy Nash, MP

Introduction

The Industry Committee has considered the key challenges facing the service sector and worked hard to find agreement on report recommendations.  This we were able to do with some proposals, but with others there were strongly divergent views on the issue.  Some recommendations would, in our view, take Canada in a fateful direction and do irreversible and unnecessary damage to our country’s economy. Hence, the need for this dissenting report.

Economic overview: the Growing Gap

The exuberant description of the Canada’s economy in the Committee report is contradicted by many economists and by the lived reality for many Canadians.  While some industries have expanded and experienced a labour shortage, others like manufacturing, forestry and tourism are facing serious challenges, especially as key centres and sectors of our economy move into an extended downturn. The most recent labour market reports show unemployment of seven percent or more in seven major urban centres.

The manufacturing sector is in crisis.  More than 350,000 good paying jobs have been lost since 2002. The pace of the job loss is actually accelerating with 112,000 of these jobs lost in the year since April 2007.  These are for the most part replaced by lower paying service sector jobs and increasingly by self-employment masquerading as job creation.

Most revealing was a recently released Statscan report showing that over the last 25 years in Canada, the gap between rich and poor is widening.  While the rich accumulated 16% more wealth, the income of the poorest Canadians declined by 20%.  The large group of Canadians in the middle found themselves working longer and harder just to stay in place. ¹ Their incomes were stagnant.  Meanwhile  personal savings are the lowest in a generation and personal debt is at an all-time high.  The Canadian economy may have been growing, but many Canadians were denied the benefits

Canada’s Service Sector

Canada’s Service Sector is an important part of our changing economy and the Committee’s recommendations to promote and support this sector are vital.  While some segments such as dentistry and investment banking are characterized by professionals making good salaries, others such as retail, food service, tourism, and personal service are characterized by precarious jobs with low wages and irregular hours. This is a great challenge to those who work in these industries and to the industries themselves.

Some key segments of the service sector are in the public domain. The NDP believes that our social programs and public infrastructure require secure, stable investments to recover from years of neglect. They should not be undermined by corporate tax cuts. We are deeply troubled by tax giveaways that erode our fiscal capacity to properly fund social services and infrastructure. 

Tax Strategy:

The NDP accepts as a general principle that personal taxes have to be fair, balanced and progressive. Corporate tax rates should also be balanced, high enough to contribute to the public good, but not be so high as to be an economic disincentive.  The report’s tax proposal is far too one-sided in favour of across the board tax reductions for individuals and corporations. 

Statutory Personal Income Tax

A blanket reduction as proposed by the report would reduce taxes paid by all individuals regardless of income. Therefore rather than targeting aid to low income earners, high income earners with little need for the reduction would also be included and drain significant revenue from the public purse. This would lead to a reduced capacity for government to invest in social programs and benefits that are disproportionately needed by these same low income earners.

Corporate Tax

The Federal Government has already introduced two budgets that have significantly reduced corporate tax rates following on similar cuts by previous governments. This approach with reduce Canada’s fiscal capacity by $15 billion a year by 2012 and shifted a greater burden to the individual as personal income tax continues to increase. Billions of these corporate tax reductions went to sectors such and the petroleum and bank industries that are fairly isolated from international pressures and did not require any stimulus. This has left little surplus to bolster sectors such as manufacturing that is experiencing a very serious downturn.

More importantly it has reduced the capacity to invest in our cities and social programs. The Federation of Canadian Municipalities estimates that there is a 60 to 100 billion dollar infrastructure deficit in our country. There are also other financial needs in heath care, housing, education, childcare, and the environment which are all essential to our economic and social prosperity.

As the American economy enters a downturn, economists have predicted a further Canadian slowdown. In this uncertain economic context, coupled with industrial sectors in need of fiscal support and social spending deficits, the report’s recommendations on tax reductions cannot be supported.

To encourage the best social and economic environment for the service sector, the government of Canada must stop the parade of tax cuts that are so damaging to the country’s fiscal capacity.  The government must also end its flirtation with the wholesale privatization of public resources through Public Private Partnerships (P3’s); it would only further undermine our fiscal capacity. While some initiatives require the public and private sectors to work together, such as in commercializing new technologies, P3’s often leave the public on the hook for future costs while surrendering most benefits to private interests.

Inter-Provincial Trade:

With little study or research, the Committee recommended sweeping support for inter-provincial trade, investment and labour mobility agreements. The NDP appreciates the committee’s concern with inter-provincial barriers but we cannot support a policy that would provide unconditional support for the removal of all provincial barriers to trade, investment and labour mobility. This is particularly true with regards to the committee’s unconditional endorsement of British Columbia and Alberta’s Trade, Investment and Labour Mobility Agreement (TILMA).

Governments often place limitations on private investment. In some cases this is done in order to provide designated services of importance. In other circumstances governments use subsidies and procurement policies that support local economic development.

TILMA leaves very little room for public interest policy making of this kind. The agreement creates unparalleled constraints on the provincial governments in question, and does so regardless of whether there is a level playing field for companies in either province.

Agreements like TILMA create excessive pressure to deregulate. The requirement to reconcile regulations and standards is problematic in that the private sector would more often favour and launch complaints over regulations because they are too high – not because they are too low. Equally troubling, sectors such as health and education are not specifically exempted, and this includes agriculture, tourism, parks, heritage conservation, consumer protection, land use planning.

Such broad areas of authority are particularly worrisome as they are coupled with punitive dispute mechanisms that can cause a “chill” effect whereby governments abolish measures or refuse to introduce new ones in fear of TILMA challenges. The NDP cannot support the endorsement of such far-reaching inter-provincial agreements. They pose far too many challenges to the capacity for local governance and public interest decision-making.²

Lastly, on the matter of federal leadership in reducing economic barriers between provinces, it appears unrealistic and undesirable for the federal government to assume a leadership role. Any agreements between provinces in this regard would have to be spearheaded and negotiated largely, if not completely by provincial governments and local institutions. The federal government should not take a firm position or leadership role on such matters without a thorough consultation of the provinces.

International Trade

The report asks the government of Canada to build on previous multilateral and bilateral trade deals such as NAFTA. This recommendation is based on the faith that bilateral and multilateral free trade will create sustainable and positive prosperity and employment, despite the facts pointing to greater disparities in wealth and the existence of alternative trade models that differ in both assumptions and solutions.

We remain concerned about the lack of transparency and public discussion about the Canadian government’s position in the current Doha talks which include the expansion of the GATS (General Agreement on Trade in Services) with potentially great consequence for services ranging from post secondary education to energy services, and from health insurance to gambling services.

NAFTA, Bilateral and Multilateral Trade

Recent and long standing reports show that despite being a part of NAFTA, Canada has seen a growing disparity in wealth creation. Those in poverty have slipped further behind, those at the top have continued to climb, and the middle class is barely treading water. Whatever other debates might exist about its impacts, NAFTA has decidedly reduced the policy space available to Canada’s governments.

Bilateral deals of the NAFTA type have led to an increase in fiscal, social and environmental dumping, causing downward pressure on taxes, social programs and environmental standards, as investor’s demands persistently trump social development, worker’s rights and environmental priorities.

Under NAFTA the Government of Canada conceded privileged US access to Canada’s strategic oil and gas, water and forests resources, in return for a binding dispute settlement mechanism that failed to work, as evidenced throughout the softwood lumber crisis.

With so many unresolved issues and concerns with the impact of treaties such as NAFTA on areas like our environment and labour standards, future agreements like it should not be blindly endorsed.

Balanced Trade

The NDP believes a Canadian Trade Strategy should be inclusive and not surrender control over key elements of Canada’s industrial development and energy policy which ensure that the goals of the market are consistent with the broader public good.  A Canadian trade policy must balance the needs of business with those of Canadian citizens and civil society and must be accompanied by flanking policies that ensure public investment in health, education and infrastructure.³

Culture and the Arts:

The NDP is pleased that the committee included recommendations that will directly benefit Canada’s artists and cultural industry.

New Democrats have called for tax averaging, particularly for artists, for quite some time. Cultural professionals are at a considerable tax disadvantage. Their incomes fluctuate greatly from year to year. In the years they do well, artists pay income tax at a high bracket which means they have little opportunity to save for the very lean times in between. More importantly, this is an issue of tax equity in that many artists can also end up paying more taxes than someone who has earned the same overall income over a set period of years.

We are equally supportive of regulations that would encourage Canadian content and ownership in media. Canada is bombarded on a daily basis by the US, which is the largest and most effective cultural exporter in the world. Canada’s cultural workers are at a significant disadvantage in the face of American competition and it is important that such regulations be adopted in order to protect and further develop a distinct Canadian identity and strong cultural sector.

Canada has many creative industries that are successful here and internationally.   However we still too often fail to develop a strategic plan with sound funding and aggressive distribution for much of our culture and too many Canadian artists live in poverty.  

Labour Shortage:

Some industry representatives spoke of problems with a labour shortage, particularly in the West.  For this reason they argued that it should be easier for seniors to return to the workplace by lowering penalties such as clawbacks on GIS.  We are not opposed to seniors working if they so choose.  But Canada has built a successful system of pension income for seniors that, if anything, should be improved.  Expectations that seniors will return to the workplace can undermine this retirement income system and must be avoided.

It was also suggested by some in industry that the Temporary Workers Program be expanded.  Canada needs immigration for continued economic success.  Our multicultural society is based on people coming to Canada with the right, not only to work, but also to settle here.  People succeed best when they live with their family and in a community.  That’s why, as well as competing with other countries for skilled immigrants, Canada’s family sponsorship program has been a very successful way to help newcomers into Canada.  Temporary workers are isolated and are often exploited. This must not be the future path for Canada. 

A good way to help address the labour shortage is to provide good family supports such as childcare, flexible hours and benefits to encourage more women into the workforce.  Quebec has the strongest provision of family supports and the highest participation of women in the labour market.

Conclusion

Our study of the Service Sector has provided an opportunity to examine the breadth of the service sector and the important contribution it makes to Canada and the world.    

It should not be used to overlay a wish list of corporate tax cuts, free trade and cheap labour.

It is an opportunity for Canada to address some of the shortcomings of the Service Sector in a very specific way.  We hope that this Committee report and our dissenting report can contribute to the success of Canada’s service sector.