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Submission to the House of Commons Standing Committee on Finance Pre-Budget Consultation, July 1998 The Alberta Federation of Labour (AFL) appreciates the opportunity to offer suggestions for the fiscal and policy direction of the Federal government. The AFL represents over 115,000 Alberta workers and their families, covering every economic sector and geographic region in the province. Part of the role and mandate of the AFL is to represent the interests of working people in matters of public policy. Canada is on the cusp of a new political era. For the first time in decades, the fiscal annual budget is balanced, and there are expectations that we will not soon return to budget deficits. This state of affairs should be creating a new sense of optimism for the future. It is not. Instead, we witness a level of unrest about the state of our country unprecedented in history. We must be careful not to allow this new era of fiscal health to also mark the disintegration of Canada’s social and economic fabric.
During the past two years, the AFL has been closely monitoring Alberta’s economic climate. We have produced two Report Cards on the state of the economy. The most recent publication, Missing Out on the Boom, chronicles the development of two economies in Alberta and in Canada. The first economy is the world of corporate profits, mega-mergers and stock dividends. It has been an exciting, vibrant two years in this economy. Profits are up. Productivity is up. Trade is up. Things are hopeful and upbeat. But our analysis finds a second economy, one where most Canadians reside. This economy is about declining real wages, about growth in unstable self-employment and part time work. Good jobs are disappearing, replaced by low-paying service sector employment. This economy is about insecurity and unease. While corporate profits in 1997 were up 17% over the year previous, average weekly earnings in Canada climbed only 1%, less than the inflation rate. This is the most telling description of how Canada is rapidly becoming a country with two economies. Clearly, the first economy is operating for the sole benefit of the very few people who are permitted to play in it. The working families in the second economy are left to pay the bills for the first economy’s excesses. This new economic reality must become the federal government’s top priority. Collectively we must find a way to bridge the gulf between the two economies and ensure that working families receive a fair share of Canada’s economic prosperity.
There has been much talk of a "fiscal dividend" and how to distribute it among Canadians. The federal government has been hinting at tax cuts and suggesting selective pet projects such as the Millennium Scholarships. Neither of these options is a dividend. We are of the opinion that Canadians have not yet seen a dividend from the renewed financial balance. This is because the decade of cuts and rollbacks and tax increases is still being felt at every level. Decisions by both the federal government and provincial governments have left our social safety net tattered and torn. The net must be repaired before Canadians will reap anything resembling a "dividend".
Since 1994, $7.5 Billion has been removed from transfers to the provinces for health, advanced education and social services. This amounts to a 42% cut, once inflation is considered. The provinces, in turn, have added to these cuts with reductions of their own. The result has been closed hospitals, skyrocketing tuition and inhuman welfare rates. Our colleges and universities are becoming the domain for the wealthy only. Abject poverty is becoming more obvious on our city streets. Our cherished Medicare system is in crisis. These consequences are not the fault of "economic forces", or "global realities", or "bureaucratic inefficiency". The sad state of our important people programs is a direct result of five years of government decision-making. And now is the chance to begin repairing the damage. In the 1999/2000 budget, significant steps should be taken to restore the money taken away during the past five years. The government should also lay out a three-year plan for mending the social safety net. The rigor and determination found during the battle to eliminate the deficit should now be turned to repairing the by-products of deficit elimination.
The reality is that the current balanced budget is due in great part to sacrifices imposed on unemployed workers across the country. Much of the black ink now seen in federal budget documents is attributable to the ever-growing EI surplus. By the end of the current fiscal year, the EI fund will have topped $20 billion in extra money. The fund will provide $8 billion in bookkeeping magic in the 1998/99 fiscal year alone. All of this money applies to the federal government bottom line. And how did the EI program get so financially healthy? It’s simple. The accumulated surplus is a direct consequence of reductions in the number of unemployed workers who qualify for benefits, reductions in the length of time workers can draw benefits, and reductions in the level of benefits. Only 40% of unemployed workers are eligible for EI benefits today, according to Statistics Canada. This is down from 87% in 1990. The figures for Alberta are even worse. Only 29% of unemployed Albertans receive EI cheques! Worst of all, it is young workers and women workers who have lost the most in the changes to EI over the years. The increased hours needed for new entrants to the system to qualify for benefits (from 300 hours in 1990 to 910 hours today) really hurts people in part-time service sector jobs the most. The money making the federal books look good is money that rightfully belongs to working people needing support between employment. The 1999/2000 budget should do two things with the EI surplus. First, it should cease reporting the EI fund balance as part of the overall government bottom line. It is a misrepresentation of the fiscal picture, given that these funds should be directed to programs for unemployed workers and are not a part of general revenues. Second, it should explicitly commit the EI surplus to enhanced retraining and education programs for workers and to restored unemployment benefits. The budget address should also announce an overhaul of EI, with the purpose of once again making sure EI is available to most Canadian workers who become unemployed. After all, employers and workers provide all the EI funding. It is dishonest to redirect that money to other programs.
During the years of budget cutting when the government was making Canadians share the burden of the cuts, the men and women who probably paid the most were the employees of the federal government itself. Tens of thousands of jobs lost. Others had hours and wages rolled back. Workplace morale plummeted. Now is an opportunity to repay those workers for their forced sacrifice. With some money in the budget available, the federal government should finally stop dragging its feet and move forward with pay equity adjustments. Years ago the federal government was ordered to implement pay equity, but has used every tool imaginable to delay the inevitable. We urge an end to the delays. Pay equity is a matter of basic economic justice and should be denied no further. The government should also address the sorry state of employee/employer relations at Canada Post. Since the creation of the post office as a Crown Corporation – the first step, many felt, to wholesale privatization of this essential service – the employees have borne the brunt of management’s single-minded drive to reduce services and maximize profit. The government needs to restate for Canadians that our postal system is a valued public service and should not be operated like a private corporation and must not be prepared for eventual privatization.
There is no question that Canadians are feeling grumpy about taxes. A common refrain is that Canadians are "overtaxed". This leads to politicians feeling pressure to cut taxes, which in turn forces deeper cuts into social programs. We wonder if the source of the grumpiness is not that Canadians are feeling overtaxed, but instead feeling under-serviced? After years of cuts, people programs are pale skeletons of what they once were. It is likely Canadians are feeling they no longer receive value for their tax dollars – that the anemic programs of today do not meet their needs. In such an environment, taxes become a burden, rather than a contribution to something positive. There can be no question, however, that the middle class family has seen their tax load increase significantly in the 1990s. From the advent of the GST, to tax-bracket creep, to increased reliance on user fees, lower and middle income earners have felt the brunt of the tax shift. This, too, increases frustration with the level of taxation. The AFL’s first priority remains repairing the damage done in the past five years to important people programs. We do not want to neglect the possibilities for real tax reform to ease the tax burden on lower and middle-income families. We urge the government to remove the ceilings from employee contribution premiums for CPP and UI. By capping premiums, higher income earners pay disproportionately fewer premiums than average income earners. This inequity is both unfair and jeopardizes the financial stability of those two funds. We also urge the implementation of a minimum corporate tax. Such a tax would raise significant revenues without placing undue pressure on Canada’s competitiveness. Most OECD nations, the U.S. included, has some form of minimum corporate tax. Canada’s corporate tax rate is well below OECD average, allowing an increase in the effective rate without jeopardize our competitive status. The government should also examine forms of high-income surtaxes to bring in additional revenue for important programs. Ontario, for example, has instituted a selective health tax for higher income earners. Sweden has implemented a tax on high-end incomes to address the accumulated debt. Such surtaxes, especially when targeted for specific purposes, send a strong message that high-income earners have the means and the responsibility to support the programs and services from which they have benefited over the years. The government should also restore the pre-Wilson tax brackets. Successive governments have flattened the tax structure by removing tax brackets. We should increase the number of tax brackets to once again make Canada’s tax system progressive. The additional revenue from these initiatives can go in part to addressing the problems laid out above. They also can go for specific measures to reduce the tax burden on average and lower income earners. The first suggestion would be to phase out the GST. A regressive tax, the GST has served only to hinder our economic growth by dampening consumer purchasing. The 1999/2000 should announce a 2% reduction in the GST rate, plus a plan for a gradual phase out of the tax. The government should also index income tax brackets. Incomes inch upward as the cost of living goes up. However, the tax brackets do not change with the cost of living, meaning more people jump to higher tax levels, even though their income remains for all intents the same. Indexing brackets would ensure people pay more taxes only when their income rises in real dollars.
Canada’s federation is also a turning point. Fewer and fewer Canadians feel there is a positive role for the federal government in programs and services. This growing detachment from the federal government fuels those who do not have the unity of Canada at heart. The federal government needs to re-establish itself as a leader in the task of caring for Canadians. There are a number of ways this can be done. Each of which would foster better relations with our provinces. First, the government should return to the practice of cash transfers to the provinces, rather than tax points. Cash transfers provide hard currency for provincial programs, rather than additional "tax room", which in the current climate is hard to actualize. Cash also allows the federal government to maintain its ever-important role as watchdog for national standards. Real transfer payments give the federal government the ability to assess penalties when needed to ensure compliance with national standards. The federal government should also implement a national pharmacare and a national homecare program. The two are the missing links in Canada’s health care system, and this government can leave an important legacy by making sure all Canadians have comprehensive coverage for homecare services and for prescription medication. One area where the government has indicated its willingness to re-introduce an active role is with children. The new National Child Benefit is an attempt to rework the arrangements between governments and with Canadian families. Unfortunately, this new initiative falls far short. First, the government has committed only $850 million to the benefit (with an additional $850 "promised" in the next three years). Addressing child poverty will take much more. Second, the program has been arranged in such a fashion that our nation’s poorest families – those on welfare – do not gain a penny from the benefit. This is inexcusable. Any effort, however modest, aimed at reducing poverty in this country must address the deplorable conditions those living on social assistance find themselves. The new budget should address these two shortcomings. The third shortcoming of the government’s attempt to help families with children is the lack of any kind of childcare program. Now is the time for the federal government to step forward by helping families in a tangible, effective manner by ensuring access to affordable, quality childcare. A deceptively simple way to restore the vitality of the federal role in Canada is to once again be seen doing your job. In recent years, enforcement of federal law, from environment to transportation to aviation, has become lax or non-existent. Consequently, violations are up and uncertainty has replaced security for consumers and citizens. For example, recent random inspections by the Canadian Council of Motor Transport Administrators found that 1 in 4 federally regulated trucks failed safety inspections and had to be taken out of service immediately. The federal government needs to do a better job at enforcing the rules. The federal budget should announce enough additional spending to hire more enforcement officials to make sure the rules are being followed. Restoring the role of the federal government will take more initiatives than the couple we have outlined. Implementing them, however, will send a strong signal that the federal government once again intends on being relevant to Canadians, and this signal will go a fair distance in renewing peoples’ trust in the federal government.
To examine what is – ultimately – the federal government’s most important job, we return to our observation that Canada is dividing into two economies. The next federal budget must address the growing unease among Canadian working people. A time of relative economic prosperity and fiscal health should be a time of confidence and security. But, for some reason, Canada is not experiencing optimism and hope. Instead, most Canadians are more stressed than ever before. They are scrambling faster and faster to make ends meet. They are constantly concerned that they may lose their job or that tomorrow will be worse than today. Others are increasingly alienated from the economy altogether; fallen through the cracks. This is not the kind of Canada we want to have. Something is going wrong. All those part-time, low-paying service jobs are having an impact. A negative one. The next federal budget must make its highest priority a national jobs and economic strategy. This strategy needs to include ideas for job creation, particularly in areas of the country with chronic unemployment problems. But it also must include plans for improving the quality of work in Canada. We need a strategy for creating stability and security in the workforce. We envision the national strategy devising incentives for flexible work arrangements, such as a shorter workweek, job-sharing and limits on overtime. It will implement policies to discourage low-pay, no-benefit positions and encourage full-time employment with benefits. Part time employment should receive pro-rated benefits to actively discourage employers from saving money by limiting hours. Other creative ideas are possible, but we must begin the conversation if we are going to prevent the ever-growing gulf between the two economies. Some say the government can’t do anything about the economy anymore; that jobs are "going global". We say this is a cheap excuse for inaction. Governments, and the people that elect them, still possess the power to make social and economic change. We simply need to WANT to make that change happen. The federal government has a moral obligation to not permit our country to slide into economic segregation. The trends are clear. If we continue to "do nothing", the gulf will widen and unease and insecurity will grow. We cannot state more strongly our desire that the federal government takes action now to address the gap between the two economies.
In conclusion, the next federal budget will be our send off to the 20th century. We have a choice. We can end the millennium with a whimper, with the tired old policies of the past decade, or we can choose a new direction and start down that path. We sincerely hope the federal government chooses a new direction, one that once again puts all Canadians on the same level and once again puts the welfare of people ahead of the greed of profit.
Respectfully submitted,
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