FINA Committee Report

NDP DISSENTING OPINION TO THE FINANCE COMMITTEE REPORT
ON THE PRE-BUDGET CONSULTATION 2005

JUDY WASYLYCIA-LEIS, M.P.
 

This fall, more than 200 individuals and organizations presented their views to the Finance Committee regarding the 2005 federal budget. The government’s decision to call Parliament back later than usual compressed the timeframe for this year’s hearings and many groups were called upon to prepare their presentations on short notice. Despite this, witnesses responded with insightful and informative presentations. Regrettably, there are a significant number of initiatives reflecting the concerns of a substantial number of Canadians that are not reflected in the Committee report. New Democrats feel that this advice is important for the government to consider in charting Canada’s economic course in its next budget and accordingly submits this minority report.

Stop fudging and denying debate about the numbers

This year’s pre-budget consultations followed on the heels of yet another grossly mis-estimated budget surplus announcement. In 2003-04, the Liberal government had forecast a budget surplus of $1.9 billion. The actual surplus total announced in October was $9.1 billion – an error of 379 percent. This alone is cause for concern, but even more troubling is that it is part of a consistent pattern of budget forecasting gaffs. Over the last ten fiscal years, it has been in error an average of 203.9% a year amounting to a total of $86 billion.  

Clearly this is not accidental. Using the government’s own data, the Alternative Federal Budget has pinpointed the actual surplus numbers with consistent accuracy over the years. Since 1999, the AFB has been off by a total of $0.8 billion, while the government has been off by $43.4 billion. Surpluses represent money that could and should have been designated for Canadians’ priorities through budgets debated in Parliament. Instead, billions of dollars have been routed to Liberal priorities such as accelerated debt reduction with no debate whatsoever.

Canadians and the NDP believe in balanced budgets and fiscal responsibility, but by continually presenting numbers that bear little relation to fact, the government is effectively precluding debate among citizens about the choices we can make. We need not choose between fiscal responsibility and investments in key environmental, social and economic areas since our fiscal capacity allows both this investment and a continued reduction in the debt-to-GDP ratio. Yet this urgently required debate is being denied as a result of chronically inaccurate budget forecasts.

In his Fall Economic Update, Finance Minister Goodale continued the numbers game by projecting a surplus of $5.9 billion, then, under questioning at Finance Committee, acknowledged that he had not included the government’s arbitrary $3 billion contingency amount. His real surplus projection: $8.9 billion. Mysteriously, the surplus disappears in years two and three of Goodale’s forecast, despite his claims that this is a structural surplus that should be expected to recur.

Canadians find this manipulation of numbers and lack of transparency and accountability unacceptable and disturbing, particularly in light of the Liberals’ recent history with the sponsorship scandal.

So does the NDP. And we have suggested a solution:

Recommendation: That the government take immediate steps to create an independent budgeting office, responsible to Parliament, to present the most accurate fiscal projection data on an ongoing basis for use in budgeting and other economic planning.

Restore Budgeting Balance

Canadians are concerned not only with the government’s inability to forecast the amount of the surplus, but also with what it has been doing with the surplus funds. The origin of these surplus funds, let us remember, was in Canadians severe belt tightening in the years of Martin budget cuts. Despite his rhetoric and promises, the fiscal capacity of Canadians was not re-invested in environmental, social or other priorities, but in massive tax reductions and aggressive debt repayment.

In 1997, the Liberal government promised Canadians that it would divide any surpluses on a 50:50 basis: half for increased program spending and half to be divided between tax cuts and debt reduction. Like other Liberal promises, they have not delivered. An analysis of surplus spending since 1997-98 reveals that only 22 percent has gone to program spending and an overwhelming 78 percent has been spent on debt reduction and tax cuts.

Without any public debate, the Liberal government has spent $61 billion toward its priority of accelerating debt reduction. It claims it had no choice — despite its own past practices and an unequivocal statement by the Auditor General of Canada denying that the surplus for the year must automatically go to pay down the debt. In her 2002 Report, Sheila Fraser wrote: “There is neither any law nor accounting rule that requires this. Following the terrorist attacks in the US, the federal government abandoned economic prudence altogether and reduced the contingency reserve to $1.5 billion.”

The Liberal goal is to reduce the debt-to-GDP ratio to an artificial target of 25 per cent of GDP. In contrast, real and pressing targets on pollution reduction or poverty alleviation have never been met by this government — and targets for education, child care and housing construction are not even made — and it is unreflective of Canadians’ priorities to constantly strive for artificial fiscal targets while neglecting action on other fronts. New Democrats are pleased Canada is the only G-8 country in surplus, and recognize our debt is going down at a rate far faster than the remainder of the industrialized world. We are alarmed, however, that Canada is at the bottom of the pack in meeting our Kyoto commitments, are the only G-8 country without a national housing program and are far behind on child care, education and other key social issues.

To further their accelerated debt obsession, the Liberals have in recent budgets adopted a practice of building into their budgets a $3 billion ‘contingency’ amount. Again, this $3 billion decision has been adopted without any public debate on the appropriateness of the amount or the practice itself. Given this government’s history of underestimating their revenues and falling short on expenses, the justification for a contingency fund is weak.

Recommendation: That the government provide Parliament an opportunity to decide on the allocation of any budget surplus.

Recommendation: That the government provide Parliament an opportunity to debate the practice and amount of contingency and prudence allocations in its budgeting framework.

Canadians are finding increasingly that their priorities are not being addressed  

Canadians are bombarded with government messages about how well the economy is doing, yet they look around and see a different picture: Their household debt has increased by 38 percent since 1989, food bank use has increased by 8.5 per cent in the last year, and the gap continues to grow between the upper and lower rungs of the income ladder. They see youth unemployment at over 13 percent, but no federal action to relieve high tuition across the country. There is a housing shortage, but not a comprehensive housing strategy. They know Canada signed on to Kyoto, but reports keep showing we are moving in the wrong direction to reduce pollution. A ‘watershed’ health accord was signed, but their drug costs and out-of-pocket payments keep rising. The Bank of Canada Governor says our economy is at capacity, but unemployment is stuck over seven percent and 40 percent of the jobless can’t access benefits.

Canadians know the government can do better. And they know that speeding up debt repayment and more corporate tax cuts are not the answer. We have obligations to future generations, to be certain, and leaving a fiscally responsible legacy behind is one of them. But New Democrats also believe future generations benefit from a sustainable planet and more accessible education, yet pollution and tuition continue to go up as our debt continues to go down. After a decade of beating every fiscal goal set and missing every environmental goal promised, it is time for a more balanced view, and one better in keeping with Canadians’ priorities.

Repeatedly, witnesses maintained that there is no public craving for more tax cuts except in corporate boardrooms. Any personal income tax review that results from the Committee’s report should follow the principle that any cuts should be targeted specifically — and solely — to Canadians with low incomes. New Democrats do not support the Finance Minister’s musings about new corporate tax reductions.

The Committee’s report provides for the review or elimination of several corporate taxes. The NDP supports measures to enhance Canadian productivity and attract investment, but corporate income tax cuts are the wrong way to go about it. As the Liberal government demonstrated in the March budget, Canadian corporate income tax rates are already competitive with the United States’ if not, in some cases, lower. To enhance Canadian productivity, we should be spending budget surpluses on the infrastructure needs, education and skills acquisition that make Canada competitive internationally.

Since the fall of 2001, corporate pre-tax profits have grown 49 per cent. Indeed, as a percentage of GDP, corporate profits are running at almost 14 per cent — a record high level. At the same time, however, corporate reinvestment of that profit back into building the economy is at a record low. Further blanket cuts to corporate taxes would not serve the purpose of economic growth for which they are intended. Even so, the demand for more corporate tax cuts continues unabated, made all the more cynical by the billions of dollars in uncollected corporate taxes that remain on the books.

Investing in Canadians:

New Democrats believe that Canadians’ needs can be met — and met within a balanced budget. We also know that in order to do so, we need a government with a strategic investment vision to build a strong, sustainable and inclusive domestic economy. And we know that in building such an economy, we can no longer afford to ignore — as the Liberal government has — the social and environmental deficit from past Liberal budget cuts.

Federal program spending as a percentage of GDP is 11.6 percent — hovering at a 40 year low. It is even down from 12.1 percent in 1997-98 when we began running surpluses and well below our long-range average of 15.5 percent. When inflation and population increases are factored in, government program spending in real per capita terms since 1999 has only risen by 3.9 per cent per year, much of it only offsetting previous reductions.

The Alternative Federal Budget, and now an increasing number of private sector forecasters, are predicting continued surpluses in the years ahead. The AFB forecasts roughly $24 billion in surplus over the next three years alone. These anticipated surpluses provide the government an opportunity to provide needed stability in program funding. Yet Recommendation #2 in the Committee’s report to restrict program spending growth to the rate of growth in the nominal GDP effectively eliminates the possibility of any significant progress toward restoring balance to our budgeting through strategic increases to program spending. This utterly ignores the economic imbalance created by this government and condemns Canadians to live with a lower social and economic horizon.

Our budget priorities aim at building a strong economy for all, not just the wealthy few, and reflect the concerns of witnesses from many sectors who appeared before the Committee.

Recommendations:

Invest in Education:

Initiate a national tuition reduction strategy with the provinces to tie lower tuition fees to increased federal transfers designated separately for post-secondary education.

Phase out the Millennium Scholarship Fund and replace it with a system of needs-based grants.

Establish a national training strategy to actively support lifelong learning and literacy.

Invest in a Sustainable Environment:

Put Canada on track to sustainability within a generation, with a focus on renewable energy technology available today; mandatory vehicle emissions; large-scale and largely revenue-neutral energy efficiency projects and an east-west power grid to reduce dependence on fossil fuels.

Invest in Municipalities and Infrastructure

Ensure that all municipalities receive a 50 percent share of the federal fuel tax and a full refund of their GST payment.

Make employer-funded transit benefits tax-exempt.

Re-start a national housing program with one percent of total program spending devoted to affordable housing.

Require the Canada Mortgage and Housing Corporation to use its profits to fund low-interest mortgages for affordable housing instead of turning the money over to the government’s general revenues.

Help deliver clean water and safe roads through a national infrastructure program, delivered in the public sector.

Invest in Children:

Establish a pan-Canadian, publicly-funded, universally accessible, not-for-profit, regulated child care and early learning system grounded in legislation to quickly move to cover children up to age 12.

Increase the Child Tax Benefit to $4,900 and open the benefit to include those who don’t pay income tax.

Implement a comprehensive strategy to eliminate child poverty, including affordable housing construction and EI reform.

Invest in Health:

Initiate a national bulk-buying program in cooperation with the provinces and territories for prescription drugs to reduce drug costs

Establish a national system of public, non-profit home care

Save costs and inefficiencies in health care delivery by ensuring that any new health care initiatives remain within the public, not-for-profit domain and not public-private partnerships.

Increase direct federal health funding to First Nations communities to ensure access to services with an emphasis on delivery within or close to the community.

Invest in Employment:

Lower the work time to qualify for Employment Insurance benefits to 360 hours.

Establish the EI fund as a separate trust fund so that it is no longer classified as general revenue and used to supplement other government expenditures.

Introduce a pro-active industrial development strategy to protect jobs and reduce unemployment.

Invest in Aboriginal Communities:

Make Aboriginal communities priorities in new housing and infrastructure programs.

Settle land claims expeditiously through an independent land claims process to foster economic development in First Nations communities.

Develop a national strategy to address the needs of urban Aboriginal people.

Gender Equality:

An issue of major significance missing in the Committee report is any reference to a gender analysis of budget material, despite recommendations to the contrary from a significant number of witnesses. The Committee was told that Canada has failed to live up to the commitments it made as a signatory of the Beijing Platform for Action, and that despite unprecedented wealth and prosperity in the last ten years, significant advancement has not been made in the cause of gender equality. The New Democratic Party concurs with this demand.

A responsive federal budget will respond to the needs of other sectors of Canadian society as well as those highlighted here. While the Committee report recommendations on the long-promised comprehensive disability agenda and funding for cultural institutions are positive, it fell short in a number of critical areas: stopping the claw back the Guaranteed Income Supplement; increasing the pace to reach our overseas assistance budget target of 0.7% of GDP, enabling co-operatives and their members to capture capital losses without having to resort to limited partnerships; and addressing the serious pressures on the family farm and the agricultural sector generally.

These proposals reflect the day-to-day budgetary concerns of the many Canadians searching for ongoing economic security and leadership from their government as they raise their children, educate themselves for the future, seek decent jobs or stretch their pension dollars in retirement. Far from being a drain on the economy, they potentially form an integral part of a strategic investment strategy to build a strong, sustainable domestic economy to carry us forward in the 21^st century.

New Democrats believe that a truly prudent government should seriously consider these viable options in developing its budget for the fiscal year 2005-2006.