FINA Committee Report

Dissenting Opinion

NDP Response to Pre-Budget Report of the Standing Committee on Finance

Security and Interdependence

In the wake of September 11th, there is increasing insecurity in the world economy. An existing downward trend has deepened and may be prolonged. Higher unemployment is already affecting industrial economies not just in North America but also in Europe and Japan, and economists who keep revising forecasts downward fear the prospect of a global recession. With consumer confidence eroding, identifying a source of demand to revitalize the economy has become problematic.

In five weeks of Committee hearings throughout Canada, hardly anything at all was heard about tax cuts or paying down the debt. What concerns Canadians today is security – securing their country and its borders, sustaining the economy, and providing economic security for their families and their communities. If September 11th held an economic message for Canadians – it was to remind us that our own security (economic and otherwise) is critically dependent on the security of those around us. And in an increasingly interdependent world, reliance on market forces alone does not solve every problem. There is, indeed, a role for government. And that role goes well beyond the obvious imperatives of public safety, defence, intelligence etc., to broader issues of human security and social justice at home and abroad.

In the immediate term, the role for government is also to build economic security here by determining how to kick-start a sagging economy back to life. A major concern for us is that our economic fortunes rest largely on riding the wave of a U.S. rebound at a time when all signs there point to a deepening slowdown. U.S. unemployment is at its highest level in five years, and October’s job loss was the largest one-month decline on record. In Canada unemployment is at its highest level in two years, and new layoff notices are posted daily. Several provinces have announced spending reductions to protect their budgetary balances, and others, handcuffed by balanced budget legislation will follow suit, creating a further drag on the economy. Interest rate cuts have been positive, but in the wake of cutbacks to unemployment insurance and social assistance, and the explicit de-linking of federal contributions to social assistance, the automatic stabilizers put in place to protect citizens and communities in a downturn are no longer very effective.

In such an environment, putting major emphasis on balancing the budget is simply misplaced ideology. New Democrats believe that it is sound fiscal practice to balance the budget over the course of a business cycle, but, having recorded cumulative surpluses since 1997, this hardly qualifies as the major economic problem. This year, the government’s fiscal situation may allow it to ride out the economic slowdown, but as the Finance Minister said in May, for Canadians feeling the heat “It is of little comfort to them to hear that the Government is doing fine.”

In fact this year the government should be taking advantage of its comfortable fiscal surplus to rebuild the economy today, and avert a recession tomorrow.

The Need for Fiscal Stimulus

It is the role of government to do what it can to soften the impact of a downturn in terms of human costs and community fallout, and to ensure that a faltering economy does as little damage as possible to people and communities. Only direct fiscal stimulus can generate the growth the economy needs now.

Canada needs both an immediate stimulus package to increase demand in the short term to prevent a deeper and more protracted recession, and a major reinvestment initiative in infrastructure and public programs to improve our capacity in the long run. As over 100 leading Canadian economists have pointed out: to be effective, that package should invest approximately 1% of GDP. Measures directed at modest income households have the best capacity for increasing growth quickly and do far more to stimulate the economy than accelerated tax cuts. Infrastructure investment is cost shared with other levels of government and generates far more jobs than any tax measure. Dollar for dollar, a quick increase in government spending will produce the best bang for the buck, and prevent the economy from falling into recession.

Essential components of that fiscal stimulus package should be:

1) Unemployment Insurance: With mounting job losses, many Canadians will find themselves either ineligible for benefits, exhausting benefits before they find other jobs, or trying to live on very inadequate income replacement from Employment Insurance. The federal government is still collecting billions more in premiums from workers than it pays out in benefits every year. Measures should be taken immediately to ease eligibility criteria, extend benefit periods and make work-sharing options within the system more flexible, and more generally available.

2) Investments in Infrastructure Renewal: Long term health and productivity of the economy are critically dependent on reversing two decades of neglect of our physical infrastructure.

One key priority is for significant investment in a National Affordable Housing Strategy that would not only increase economic security and create tens of thousands of jobs, but deal with a housing crisis in which two million Canadians are either homeless and destitute, or literally one paycheque away from it, with rents so high they are unable to pay for food. This investment would generate significant benefits since housing construction is labour intensive and has high job spin-offs because of intensive use of Canadian made products and materials. (e.g. softwood lumber)

Further, a National Environmental Infrastructure Program should be established to upgrade municipal water and sewage treatment plants, clean up contaminated sites, modernize and expand public transit systems, and retrofit municipal and public sector buildings to higher standards of energy efficiency. Making infrastructure program support permanent and expanding investments in this area are essential to giving Canadians access to safe drinking water, relieving smog in cities across Canada, providing affordable transportation, and shifting the economy to more energy efficient alternatives. Infrastructure funding announced in the last budget was a modest start, but very limited in terms of need and too short term to allow real planning for sustainable development in our communities. This investment thrust must also have its application in the area of Healthcare, preventative medicine and community and home care. It must include more investment to train attract and keep nurses in this country as well as doctors.

3) Agriculture – The farm crisis on the Prairies is forcing farmers to leave their land, small towns to deteriorate, and a whole way of life to disappear, along with the national security objective of being able to produce our own food supply. This is presented to Canadians as some kind of collateral damage from globalization. But in France, farmers get six times the level of support given to Canadian farmers; and in the US, farmers get four times as much support. Experts, including the government’s own agriculture officials have been quick to tell the committee that there is room, within the confines of WTO rules to increase farm support significantly without running afoul of the WTO. An immediate increase in federal support to farmers through the NISA, with federal government assuming two thirds of the contributions, would provide much needed income stabilization for farmers, and shore up our essential rural economy through difficult times.

4) Airport Security – In the wake of September 11, citizens across North America are concerned about the effectiveness of airport security measures and are demanding that airport security become a public safety responsibility. Public provision of these services would help to restore confidence in the airline and travel industries that are faring badly at the moment. Federal investments should go to new security equipment and to train, equip and pay salaries of airport security workers.

5) Official Development Assistance (ODA)- A faltering global economy is a critical reminder of our economic and environmental interdependence. If Sept 11th holds long term lessons for us, it may well be that our prosperity and health will be undermined if large numbers of the world’s population remains mired in poverty, disease and despair. As one of the richest nations in the world, Canada should be doing far more to help the developing world. Instead we are at record low levels of ODA, spending just .25% of our GDP, when, for years, the goal has been .7%. In this budget, the government needs to renew its commitment to effectively move towards this goal.

If September 11th changed our perceptions of the world, the global economy, and the security of our place in it, let us use that awareness to chart a more equal and secure future for all citizens at home and around the world.

Lorne Nystrom

NDP – Finance Critic

Ottawa, November 22, 2001