Check back here for more information and analysis when the 2016 Budget is tabled today at 4 PM.
The Hon. Bill Morneau Minister of Finance Government of Canada February 18, 2016 Dear Minister, Thank you for the opportunity to submit budgetary suggestions to the Department of Finance and the Privy Council. I am sharing these ideas in advance of our meeting next Tuesday.
As you may have noted, I voted in support of your government’s Speech from the Throne. It would be wonderful to feel confidence in the budget as well.
I advance these ideas – big and small – in hopes of providing ideas that still have a chance of making it into the budget framework. This advice is broken down into sections:
1) The Big Picture – why are industrialized economies sluggish? Can a new approach make a difference?
2) Approaches to carbon pricing;
3) Priorities for new funding;
4) Suggestions for savings, cutting excess federal spending.
1. The Big Picture
I am enclosing a recent article by Nobel Prize winning economist and current professor at Columbia University, Dr. Joseph Stiglitz. I met with Dr. Stiglitz in Vancouver last October and can report that he would love to work with the new Liberal government. His vast knowledge of the economic harm of societal economic inequality is well known. I totally agree with his analysis that the last three decades of neo-liberal policies, such as those of Thatcher and Reagan, have been tried and are a demonstrable failure. The assumptions of de-regulation, low taxation and trade liberalization as the recipe for economic prosperity need to be rejected. Evidence-based decision making requires it.
In the attached article he makes the case that low interest rates and quantitative easing are not producing the desired results. While this is largely out of your areas of control and are the jurisdiction of Bank of Canada policy, it needs to be discussed.
He does call for more infrastructure spending – consistent with your mandate and the Liberal platform. I particularly like his distinction between the “real economy” and “asset bubbles.” We need to keep this in mind as GDP numbers make no distinction between these kinds of economic activities. Asset bubbles are a threat to the economy. That North American regulation has done nothing to prevent a repeat of the 2008 financial meltdown is shocking. While Canada escaped the worst of that financial disaster, we did so only thanks to the Liberal Finance minister, as he then was, Paul Martin’s rejection of the banks’ calls for de-regulation. Most G-7 countries favoured some form of global taxation on banks to reduce the risk of a nasty episode based on derivatives and other speculative trading. Canada should change our position on this matter and support the global Tobin Tax and global Robin Hood tax to reduce the risk of a financial melt-down.
Not yet Liberal policy, Stiglitz would urge raising the tax rate on the highest earners. I would hope you will as well. As well, the current tax rate on large corporations should be re-examined. The previous administration cut the corporate tax rate very deeply. At the time, the late Jim Flaherty justified the tax cuts as a way to increase employment. He described large corporations as the “job creators.”
Canada now has lower corporate taxes than any other country in the G-7, but the additional funds in the hands of the corporate sector are not being reinvested and expanding employment. Former Governor of the Bank of Canada Mark Carney pointed out that corporate Canada is not re-investing. It is hoarding funds. He called the billions of dollars held by corporations “dead money.”
The current estimate is that approximately $629 billion is being held as “dead money.” This represents an astonishing 35% of Canada’s GDP. For purposes of comparison, the comparable amount of surplus cash held by US corporations is 9% of US GDP. Economists rightly point out that corporations are entitled to ensure healthy cash reserves, nevertheless, the cash reserves of Canadian corporations are excessive.
I urge you to reconsider the deep cuts in the corporate tax rate. We need to put that “dead money” to work. Surely, setting the Canadian corporate tax rate at the mid-range of OECD countries will keep us competitive while improving the tax revenue to the Government of Canada. We propose the 2009 level of 19%. That rate would make only a slight dent in the “dead money” of somewhere under $5 billion/year – leaving $595 billion in corporate cash reserves.
A further source of increased revenue could be found through closing loopholes in off-shore tax havens. Closing loopholes for the wealthiest, who hide funds off-shore, could yield at least $1.2 billion. We also urge you to implement estate taxes on those estates valued at more than $5 million. That alone could increase revenue by approximately $1.5 billion/year.
Once the budget is back in surplus, one would hope that at least that portion of debt created under Mr. Harper’s watch would be eliminated over a transparent schedule. I should also mention that the damage done to Income Trust investors by the previous prime minister is not forgotten. I made a commitment to seek from your department a transparent assessment, with honest calculations of the tax leakage, of the decision announced October 31, 2006. I would be very grateful if you reviewed that decision.
2. Approaches to carbon pricing
The Liberal platform promises to stop subsidizing fossil fuels and to put a price on carbon. While this aspect of your budget may be driven more by the Ministers of Environment and Climate Change and Natural Resources than by your department alone, I wanted to propose an approach for the 2016 budget.
The current patch-work quilt of carbon pricing across Canada is not good for business certainty. It also perpetuates the dangerous signal that dumping carbon pollution in the atmosphere is a “free” service – offered by future generations to avoid responsible action now.
We have cap and trade within a Western US States trading block for Ontario and Quebec, an internal, too-low carbon tax in British Columbia and an internal rebate to the industry as a carbon price in Alberta. For consistency of planning and to ensure a predictable transition away from carbon-based fuels, a national carbon price is needed.
I hope your government will consider using a federal carbon price as a back-filler and gap-filler. A revenue neutral carbon price can be returned to the taxpayers. I propose Carbon Fee and Dividend as best fitted to this purpose. As a revenue neutral fee it will deliver a market pricing signal across the economy. To increase the acceptance of this move by provinces, I propose that every dollar collected under a federally managed Carbon Fee and Dividend be returned to the taxpayers of the province from which the fee was collected. This would result in a real boon to consumer spending in Alberta where the carbon pollution is the highest and it would also be popular with residents of Saskatchewan. Where carbon pricing is already in effect, it would have a smaller impact. Its main benefit would be to ensure a uniform, national carbon price. I would propose a price of at least $30/tonne, moving upward in a steady and predictable fashion across Canada.
Naturally, I take it as a given that your budget will fulfill the Liberal platform commitment to end federal subsidies to fossil fuels. This must apply to all fossil fuels, including the recent new subsidies to LNG and support for fossil fuels through Export Development Canada.
3. Priorities for new funding
I do not envy you the choices that must be made. After a decade of lack of funding, key areas of public service and policy are woefully underfunded. I support moves to restore the Health Accord and particularly for the $40 million requested by the Mental Health Commission for suicide prevention. I also strongly support funding to acceptable levels for indigenous housing, education, and health care. These areas of the previous government’s malintention and lack of funding are at a crisis level.
The promised investments in infrastructure are very welcome. Particularly welcome is the description of the priority for “green infrastructure.” Not a single infrastructure dollar should go to any project that increases GHG. Ideally every dollar invested will be targeted to reducing carbon pollution to meet climate objectives.
This was the approach under the Liberal administration of Paul Martin. His infrastructure minister, John Godfrey, is an active player in Ontario’s climate advisory group and could, no doubt, confirm how this was accomplished. Public transit (including VIA Rail), investments in improving the energy efficiency of the build infrastructure and enhancing our east-west electricity grid are key green infrastructure investments.
It has also been encouraging to hear ministers speak of housing and other areas of social policy as candidates for infrastructure spending.
The Big City agenda is encouraging, but please reconsider the status of southern Vancouver Island and the Capital Regional District in and around Victoria. The area has a population on par with other cities in the “Big City” category and we have a desperate need for public transit investments. By far, the greatest source of GHG in the region is from private automobiles. We do not want more traffic interchanges and bypasses. We do need investment in bringing back passenger rail from Victoria to Courtenay with restoration of the Island Corridor railway, as well as enhanced public transit on the Saanich Peninsula. A national transit strategy should also embrace the cost of ferry service, currently only scantly supported by federal investment.
Sectors that benefit from low dollar
The lower Canadian dollar creates opportunities for export-dependent sectors in our economy. The previous government ignored the sectors that suffered with a higher Canadian dollar. These are the sectors where investment now will stimulate and diversify our economy.
For example, over the last decade Canada’s ranking as a tourist destination has fallen from 7th place globally to 18th. Some of that decline was due to the requirement for passports for US visitors to Canada, but some was unquestionably due to a dollar at par. Tourism was also damaged due to a series of the previous administration’s policies, such as removal of the GST-HST rebate for foreign visitors, elimination of all tourism promotion for Canada in the US market, dramatically cutting the budget for Tourism Canada (now based in Vancouver), undermining the predictability of employment insurance for seasonal workers, and the legislation passed as part of the 2012 C-45 omnibus bill to require a permit from the Minister of Immigration for tourist visits from all countries where visas are not required (although exempting the USA through the Security and Prosperity Partnership).
I urge your government to reverse these perverse measures taken piece-meal by the previous administration – harming tourism as a sector. Please include an emphasis on tourism in the 2016 budget to capitalize on the low dollar. Even with the declining status of Canada as a global destination the sector still employs over 600,000 Canadians and contributes $33 billion to our GDP. It is a highly competitive market and can adapt rapidly if treated as a valuable part of our economy.
Similarly there are big gains to be made in promotion of Telefilm Canada and the film and television making industry. Sadly, Nova Scotia recently did away with its support for this sector. Anything to assist those parts of Canada where the economy is most depressed will help. Oil and gas development in Atlantic Canada must be discouraged. It threatens the existing industries of tourism and fishing, while increasing GHG. A partnership with Nova Scotia to develop the enormous tidal energy potential of the Bay of Fundy would help, while rejecting the simultaneously pathetic and outrageous push to re-open the Donkin coal mine.
Steps to assist value added exports include the cleantech sector. This is a fast growing area that has not received adequate attention while we were in a bitumen bubble. It would be great to see the Sustainable Development Technology Canada budget significantly increased. It has a proven track record of leveraging new funds for every dollar invested.
To assist the expansion of available affordable housing stock please consider restoring the tax incentive for purpose-built apartment rental units. It would be a positive move for the residential construction industry and will ease the crisis of access to affordable housing. Removing the deemed GST when newly constructed condominium units are rented for the short-term prior to sale will assist the housing industry, while creating more accessible housing in the rental market. Currently, developers have to hold condo units empty when the market is soft. To rent is to be treated as a “deemed” sale with a GST impact. This change would assist the economy at little cost to the bottom line of the Government of Canada.
Climate and Energy
To assist the trades and construction industry, as well as to reduce the carrying costs of homes while improving energy efficiency, I am sure you are already planning to restart the previous Liberal government’s Eco-Energy tax rebates for homeowners. Please consider expanding the program to assist small business and institutions, such as hospital, churches, schools and universities, cut costs and contribute to reducing carbon pollution. Similarly, I hope you will bring back the previous Liberal rebate for the purchase of hybrid and electric vehicles (EVs). Since that original programme, the cost and accessibility of EVs has improved enormously. Infrastructure funds for enhancing the availability of EV charging stations (only in those provinces whose electricity sources are 100% renewable) would be worthwhile.
New programmes to assist homeowners to go beyond energy efficiency would be sensible. Installing solar pv roofing tiles, heat pumps and geothermal at a residential level makes senses and allows generating electricity – selling excess to the grid. Such efforts should be encouraged. The previous government put a 10% tariff on solar photovoltaic roofing panels from China. This should be removed.
Another helpful move for local sustainability will be funding to encourage food security and local food. Some local food groups hope for funding through the Canada 150 programme, but a more focussed effort for agriculture would be more logical in expressing governmental support.
Canadians actually favour a “sustainable economy,” something that embraces a broader group of policy tools and goals than those contemplated in the budgets since 2006.
Restoration of measures killed by previous government
Many items that had no real cost-cutting advantage were killed by the previous government. I applaud your government’s commitment to re-open the centres that served veterans across Canada. There is another issue of huge importance to veterans. It pre-dates the Harper government. In fact, it is a vestige of the Boer War. The so-called “Gold-digger clause” prevents the surviving spouses of veterans, ex-RCMP and others covered under the Superannuation Act of accessing pensions if their marriage occurred after the age of 60. A much decorated veteran from my riding, a hero of D-Day, Major (Retired) Charles (“Chic”) Goodman, one of those honoured last year for the liberation of Dutch Concentration Camps, is now celebrating his 30th year married. But his wife will receive nothing at his death. He just turned 90 years old and is deeply troubled by this, as are many wonderful spouses who married late. There is no excuse for this discrimination, yet it persists. Please undo this discrimination in the 2016 budget.
Just as your government is undoing the wrongs of closing the veterans’ offices, please restore the following:
4. Suggestions for savings, cutting excess federal spending
As noted above, the Green Party supports the decision to end all subsidies to fossil fuels. In addition, we urge you to end subsidies to the biotechnology industry, nuclear energy and asbestos. (+$256 million).
In seeking ways to cut costs, I applaud the direction to discontinue the practice of buying network TV time to broadcast government advertisements that are thinly veiled ads for the government in power. The previous government spending tended to average approximately $100 million/year on advertising itself. This is a glaring example of wasteful and inappropriate spending.
Another place to cut is to reduce the use of external contractors for work that can be completed more cost-effectively by employees in the public service. In the last four years, there was a nearly 28% increase in outside contracts by the federal government. You have a golden opportunity to reduce ineffective spending by clamping down on the $10 billion a year spent by the previous administration on such things as IT assistance, management consulting and engineering. As well, the previous administration laid off key scientific capacity, the category of worker described as “information officers” has increased by 15%. Returning to the pre-2006 level of information officers should save funds.
The complication of the tax code with boutique tax cuts has expanded the size of the bureaucracy reviewing our tax returns. The current budget of Canada Revenue Agency is just over $4 billion. Surely a less complex tax code would be well received by citizens and corporations alike. Please eliminate the boutique tax cuts of the previous government. Invest in shared public infrastructure for school and community recreation and end the tax breaks for expensive sports. It is a cumbersome, inefficient and ineffective way to provide a public good.
We urge cuts to the Prime Minister’s Office budget. A 50% cut would be a good start, leaving the PMO approximately $5 million and saving taxpayers $5 million/year.
We also would be very supportive of action to assist in the housing crisis, to create a national Pharmacare programme and to expand facilities and treatment options for those with mental illness. We hope the budget will also deliver on the Throne Speech promise to reduce the costs of post-secondary education. It is not only that tuition fees are rising; the quality of post-secondary education is also declining. We need to provide predictable stable funding to colleges and universities to prevent the corporatization of research, through proprietary corporate chairs, masquerading as philanthropy. We need to open the gates to new tenure track positions from bright young PhDs, and stop their use as a pool of exploited, scandalously underpaid labour. Universities keep falling into the fund-raising trap of capital improvements because those campaigns raise money. We need to ensure education is JOB 1. That will not happen without a serious recommitment to universities, colleges and students. Education and health care should be identified, with federal transfer of dollars, tracked and committed to spending in those areas.
Thank you for the opportunity to make some proposals.
With best wishes,
Elizabeth May O.C., M.P.
Member of Parliament for Saanich-Gulf Islands
Leader of the Green Party of Canada