Alternative_Federal_Budget_2011

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Canadian Centrefor Policy Alternatives

AlternativeFederal Budget2011

Rebuild,Rethink,

Renew.A Post-

RecessionRecoveryPlan


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Alternative Federal Budget 2011

Rethink, Rebuild,Renew

A Post-Recession Recovery Plan


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Rethink, Rebuild, Renew: AlteRnAtive FedeRAl budget 0

ree years ago, the global economy collapsed

into the worst recession since the reat epres-

sion, orever changing the world as we know it.

t the time, citizens everywhere turned to

their governments or immediate action to ad-

dress the crisis. ose governments that moved

quickly with stimulus investments and corpo-

rate bailouts including anada incurred

short-term scal decits, but staved o an even

deeper downturn and spared their citizens rom

a harsher ate.

e question o what comes next is the ocus

o this years lternative ederal udget. t draws

the best ideas rom a broad cross-section o civil

society to ensure that anada will not only make

it through its current ragile economic recovery,

but move beyond the crisis into a more sustain-

able way o doing business.

AF B 2011 presents a comprehensive recovery

plan designed to:

getCanadiansworkingingoodjobsagain;

reducerecord-highincomeinequality,

strengthen anadas middle class, and

improve supports or anadas poor and

mostvulnerable;

Irdu

protectpublicprogramsthatallCanadians

rely on including public health care and

publicpensions;

manageCanadasdebt-to-GDP ratio

withoutvitalpublicprogramcuts;

getseriousaboutreducinggreenhousegas

emissions;and

launchamulti-prongedinitiativeto

expand high value-added production in key

sectors.

e AF B 2011 begins with a reckoning: ere

is no going back to the old way o doing things.

e global meltdown helped discredit a ree-

market system where governments turned a blind

eye to lax regulations and let their citizens bear

all the risks o a wild-west economy. itizens

around the world are still paying the price or

that ailed experiment.

espite the rosy optimism o last years green

shoots o economic recovery and the ensuingpolitical puery that anada had perormed

better than other countries, anadas domestic

economy remains shaken to the core.


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canadian centre or policy alternatives

anada slid into recession in 2008 ater sharp

declines in business investment and exports the

traditional engines o anadian economic growth.

owever, anadas economic recovery such as

it is has not come rom these sectors.

nstead, it can be credited to two key players:

consumers and governments. espite recession,

anadian consumer spending remained strong,

due especially to a short-lived housing boom and

driven in part by record-high household debt

(totalling $1.41 trillion) that ank o anada

overnor ark arney warns is unsustainable.

oth consumer and government stimulus

spending were nanced through increased indebt-

edness. n contrast, anadian corporations paid

o their own debt during the recession and have

yettore-investintheeconomyandinjobcreation.

Without private-sector investment in good

full-timejobs,Canadaseconomywillcontinue

to be ragile. at leaves government as the only

actor powerul enough to keep anadas eco-

nomic engine rumbling. AFB 2011 unleashes

an investment plan that will create at its peak

almost300,000jobs.

ButitsnotjusttheCanadianeconomythat

isstuckinneutral;muchoftheworldeconomy

is still in bad shape.

e nternational onetary und (IMF) calls

the global recovery unbalanced and ragile.

obel prize-winning economist aul rugman

warns that the worlds advanced economies seem

set to experience a prolonged period maybe

even a lost decade o weak growth, high un-

employment and low interest rates.

While anadians struggle to recover, an elite

ew have proven to be recession-proo: anadas

100 best-paid CEOs breezed through the peak

o the recession in 2009 with an average $6.6

million in compensation. ats 155 times more

than what a anadian earning the average wage

o $42,988 earns.

n act, the wealthiest anadians havent

enjoyedthismuchincomesincethe1920s.e

richer the anadian, the bigger the bounty. e

anadas GDP growth is tepid, kept alive by

government and consumer spending while busi-

ness investors remain skittish bystanders. ts

time to get real.

oday, two years ater the recession hit ana-

da, the pressing challenge or our ederal govern-

mentisstilljobs.ToomanyCanadiansremain

jobless.Eortstodatehavenotbeeneective

enough.Creationoffull-timejobsremainsJob

ne and is the rst element o the AFB 2011 re-

covery plan.

bout a year ater recession struck anada,

the ederal and provincial governments collabo-

rated in an unprecedented eort to coordinate

a nationwide stimulus program to save and cre-

atejobsduringtheworstoftheglobaleconomic

meltdown.efederalresponseCanadasEco-

nomic ction lan continues to be trumpeted

by the arper government as a wild success. t

did help some anadians keep the lights on while

the private sector sat things out and prevented

anada sliding into a deeper recession. ut it

arrived too little, too late, to spare hundreds o

thousands o anadians rom unemployment.

t the peak o anadas recession in mid-

2009, more than 800,000 anadians relied on

EmploymentInsurance(EI)forsupport.Many

more were turned away, let to end or themselves

byoutdatedEIrulesthatdisqualifytoomany

unemployed rom accessing their own national

insurance system in times o trouble. AF B 2011

improvesCanadasEIprogramsothatittruly

servesasinsuranceforworkerswholosetheirjob.

oday there are stil l 1.4 mill ion unemployed

anadians. e national unemployment rate in

January2011stoodat7.8%,downfromthere-

cessionpeakof8.6%.Whileprivate-sectorfore-

castersexpectunemploymenttobe7.7%in2011,

TDEconomicspredictsunemploymentratesas

highas8.1%.

espite plans to wind down stimulus spend-

ing in 2011, the ederal government has yet to

resolve the ongoing problem o a private sector

notyetreadytocreatejobsofitsown.


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ing beyond their means and taking on record-

high household debt.

Last years early signs o economic recovery

emboldened some (including anadas rime

inister) to press or an austerity agenda to

cut public services. owever, signs that the do-

mestic recovery is ragile, and the widespread

social unrest that austerity plans unleashed in

Europe,suggestthatwadingintothisterritory

is economically risky and politically dangerous.

s reality sets in, its becoming increasingly

obvious that clearer thinking is in order. ere-

ore, the AFB 2011 recovery plan protects public

programs rom the political lure o indiscriminate

cutbacks that leave anadians with ewer public

services and bigger user ees. t also introduces a

national early learning and child care program

that helps keep anadians working and provides

the best early start or our children.

AFB 2011 proposes a three-year spending

program. t costs out a collaborative social and

physical inrastructure program to help keeps

jobsaliveuntiltheprivatesectordoesitspart,

and strengthens anadas public programs and

inrastructure such as roads, bridges, water mains

and public buildings. ese strategic investments

havetheupsideofcreatingjobs,raisingproduc-

tivity and driving uture GDP growth. uring

the darkest moments o the recession, all three

levels o government proved they could work to-

gether in the best interests o anadians. AFB

2011 promotes a collaborative process to help

anada move beyond the crisis.

AFB 2011 also launches a plan to reverse

the regression o anadas economy to raw re-

source (mainly oil) exporter status, and enhance

value-added production and investment in key

manuacturing and service sectors. t includes

investment incentives, new controls on oreign

investment, and new trade models.

e AFB 2011 also ocuses on the govern-

ments decit, but does so in a sustainable way.

iven the tenuous nature o global economic re-

covery and the irresponsible corporate tax cuts

richest1%ofCanadiansdoubledtheirshareof

incomebetweenthelate1970sand2007;the

richest0.01%quintupledtheirshare.Meanwhile,

80%ofCanadianfamilieswithchildrenearna

smaller share o income today than they did a

generation ago. verage wages in anada have

remained stagnant or about 30 years.

e result is an anxious anadian middle

class a broad swath o men and women who

worryaboutlosingtheirjobs,aboutbeingoneor

two paycheques away rom poverty, about their

ability to aord retirement, and about their chil-

drens uture prospects.

e most recent poverty statistics or ana-

dawerecapturedbeforetherecession,in2007.

ccording to those numbers, one 1 in 10 ana-

dians and 1 in 4 boriginals lived in pover-

ty. e recession has certainly exacerbated the

problem. We know rom past recessions that

income inequality worsens during tough eco-

nomic times, so anadians can ully expect the

gap between the rich and the rest o us to grow.

ncome inequality is emerging as an unshake-

able political problem in search o leadership.

AFB 2011 implements a range o initiatives to

redress this issue.

o help keep a lid on growing income inequal-

ity in anada, AFB 2011 implements a goodwill

premium on the richest anadians. is Legacy

Taxrepresentsanewfederaltaxrateof32%on

incomesover$250,000anda35%taxonincomes

over$750,000.eAFB also closes tax loopholes

or exercised stock options and capital gains,

which will recapture needed revenues rom those

in the strongest position to contribute to our col-

lective well-being.

AFB 2011 gets anadas ederal government

back into the business o poverty reduction,

helps provinces that have already committed

to reducing poverty, and brings on board those

provinces that havent yet implemented a plan.

e AFB also introduces unding or new aord-

able housing stock. is addresses the number

one reason most anadians nd themselves liv-


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21%itslevelin2008insteadoffurthercut -

tingcorporatetaxesto15%,whichthecurrent

government plans to do. e AFB also eliminates

tax loopholes or capital gains and corporate stock

options, so this investment income is taxed at the

same rate as employment income. nd it intro-

ducesataxrateof28%onthehighlyprotable

oil and gas industry to compensate or low roy-

alty rates and declining tax rates in this sector.

y all accounts, taxation is ast becoming a

make-or-break issue or this years ederal budget,

and anadians may nd themselves heading to

the voting booth once again. AFB 2011 puts or-

ward an alternative that gives anadians some-

thing to vote or (rather than against).

ter several years o economic and political

turmoil, anadians have been through enough.

ey want good, collaborative governance. ey

sought it two years ago, when they endorsed

government decisions to enter into decit with

public spending to save the economy. Recession

may have shaken anadians condence in the

economy, but the expectation that our govern-

ments are elected to act in the best interests o

the people has not wavered.

s the global economy inches toward eco-

nomic recovery, neoliberal governments the

world over are acing citizen resistance to e-

orts to simply press the reset button and con-

tinue supporting an agenda that puts the elite

fewrstandthemajorityofpeoplelast.Herein

anada, as the arper government experiences

deep resistance to its own plan to cut corporate

taxes with no guarantee o protecting public

programs, the time or a re-think has clearly ar-

rived. ere is no going back to the old way o

doing things. AFB 2011 lays down a plan that is

proactive, do-able and sustainable. t looks be-

yond the crisis the chie task or all political

parties as they consider their position on what

is turning out to be an election lightning rod:

anadas 201112 ederal budget.

both now and in the uture, inance inister

JimFlahertyspromisetowipeoutthefederal

decit by 201516 may prove anciul at best,

harmul at worst.

ince pring 2010, anadas economic recov-

eryhasbeensluggish.Afteradjustingforpop-

ulation growth, anadas per-capita expansion

(at an annualized 0.9 percent) was the slowest

ofanyG7economyduring the second and third

quarters o 2010 worse even than taly and the

still-depressed U..

While in the past the domestic economy has

recovered rom recessions as a result o increased

exports to the United tates, the anadian econo-

my aces a weak merican economy, little export

growth and slow related employment growth.

n other words, there will be no merican

post-recession coattails to ride on in 2011. n

act, the consensus among mainstream ana-

dian economists is increasingly one o slower

growth or at least the next ve years.

Despitetheseprojections,theHarpergov-

ernment remains steadast in its plan to cut tax-

esbyatotalof$220billionbetween2007and

2013 which will likely continue the growing

gap between anadas wealthy and the rest o

us, at a time when revenues are sorely needed

to maintain cherished public programs such as

health care, education, rebuilding outdated and

aging inrastructure, and investing in a valued-

added green economy.

e Liberals and NDP both oppose a contin-

uation o the arper corporate tax cut agenda

when there is such need or public investment.

KPMG study cites anada as the second-most tax

competitive nation in the world, behind exico.

ince there is no signicant evidence that a dec-

adeofcorporatetaxcutshasledtoincreasedjob-

creating business investment, it begs the ques-

tion: s this a competition we really need to win?

o help tackle the scal decit, AFB 2011 re-

stores the ederal corporate income tax rate to


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population. espite some deceiving drops in

the ocial unemployment rate which mostly

refect the withdrawal o young anadians rom

thelabourmarketprivate-sectorjobcreation

has been stagnant since mid-2010. oday, no-

wherenearenoughnewjobsarebeingcreated

to absorb the growth in anadas working-age

population.osejobsthathavebeencreat-

ed show a marked shit away rom permanent

ull-time employment toward temporary and

part-time work.

espite these challenges, the ederal gov-

ernment has chosen 2011 as the year to cut to-

tal program spending, thereby pulling the rug

out rom under what the nance minister him-

sel describes as a ragile recovery. is leap o

aith is that the private sector will roar back to

lie despite its lacklustre perormance to date.

e 2011 lternative ederal udget (AFB)

seeks to move beyond stimulus and toward a

more sustainable uture. nstead o continuing tax

cuts especially or corporations and down-

sizing social programs that anadians value and

need, the AFB ocuses on building strong oun-

dations or sustainable economic growth that

will benet all anadians.

Introduction

ts a year and a quarter into the recovery, and

anadian economic growth is losing steam. s

the country enters 2011 and stimulus spending

winds down, the precursors or private-sector

growth are much weaker than they were ater

previous recessions. ere is only a weak re-

covery in exports to the United tates, as the

merican economy is languishing in a sel-

created deleveraging crisis that will likely drag

on or years.

Public-sectorjobcreation,drivenbycoun -

ter-cyclical stimulus spending, remains the one

bright spot, largely keeping pace with anadas

growing working-age population (dened as

people over 15 years o age by tatistics anadas

LabourForceSurvey).Butthatsourceofjob-

market strength, and the overall economy, is at

risk, as the ederal government (and many prov-

inces) switches to austerity mode and promises

to cancel stimulus eorts that have been so im-

portant to anadas halting recovery.

Canadasprivate-sectorjobcreationhas

lagged signicantly behind both public-sector

employment and growth in the working-age

Marm ad Fsal Framwrk


11/156


ontrast that perormance to what were see-

ing today. nstead o imports and exports balanc-

ing each other out, imports have risen $63 billion

($2002) while exports have only risen $21 billion

($2002)overtherstvequarters.Exportshave

recovered barely one-quarter o their pre-reces-

sion levels, and remained stagnant during the last

hal o 2010. mports, on the other hand, have

rebounded smartly, hitting their pre-recession

level by the third quarter o 2010. e result is

a large trade decit that saps purchasing power

rom anadas economy. anadas current account

decit is currently running at an annual rate o

$65 billion per year. e high anadian dollar

has put a damper on anadian export growth,

a traditional mainstay o anadian recoveries.

e pace o the anadian recovery has allen

sharply since the start o 2010, but that is not the

case or all countries.1 n act, comparative data

rom the OEC D indicate that anadian growth

during the second and third quarters o 2010

wasthesecond-weakestofalltheG7economies.

rowth was three times aster in ermany, and

twiceasfastintheU.K.andJapan.

oreover, even this comparison is skewed

in anadas avour, because anadas rate o

population growth is the second-astest (next to

theU.S.)ofanyG7economy.erefore,Cana -

dian economic growth needs to be aster than

other countries to preserve equivalent levels o

per-capita GDP.Afteradjustingforpopulation

growth, anadas per capita expansion (at an

A Year o Recovery

anada emerged rom the recession in the third

quarter o 2009. e economy posted annual-

ized real GDP growthratesof4.3%and5.3%re-

spectively in the ourth quarter o 2009 and rstquarter o 2010. upporting this initially robust

growth spurt was strong spending on consumer

goods and services (especially on housing) and

government expenditures. n contrast, the re-

bound in exports and business investment the

two traditional drivers o private-sector growth

in anada was underwhelming.

Eventhisgrowth,however,wasshort-lived,as

real exports declined in the third quarter o 2010.

e strong anadian dollar, now dancing around

parity with the merican greenback, has led torobust imports. overnment expenditures that

have been critical in supporting anadian GDP

through the downturn have fat-lined, as stimu-

lus spending in 2010 turns to austerity in 2011.

ts worth noting that the drivers o GDP

growth appear less sustainable. n previous a-

nadian recoveries, exports, primarily to the U..,

havebeenCanadaslifeline.EvenifCanadian

consumers ared poorly, our southern neigh-

bour was always willing to buy more o our ex-

ported wares. n 1991 this was no dierent, asexportsroseby$17billion($2002)overtherst

ve post-recession quarters. mports rose an

equivalent amount o $16 billion ($2002) over

the same period.

igure G GDP grwh rss, d d rd qurr , uzd rs (%)

GDP Grwh GDP r C Grwh

Gm 6.1 6.1

U.K. 3.9 3.2

J 3.7 3.9

F 2.1 1.6

U.S. 2.1 1.1

C 1.7 0.9

I 1.5 1.4

souRce Ah m m OECD Em Ok b


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tion (instead o ocusing on ocial unemployment

as a share o the labour orce). e decline in the

employment rate accounts or those anadians

who have let the labour orce. or all sectors,

anadas employment rate ell rom a seasonally

adjusted,pre-recessionpeakof63.9%inFebruary

2008,toalowof61.4%bysummer2009.Bythe

end o 2010, the employment rate had clawed its

waybacktoonly61.8%repairinglessthanone-

th o the damage inficted by the recession. n

this context, the claim that the labour market

has regained its pre-recession peak is nonsense.

e evolution in the employment rate has

both private and public components. ublic-

sector employment (igure 2), has had a slow

but steady increase throughout the recession,

although nothing like the swings experienced by

private-sector employment. ince the start o 2010,

public-sectorjobsasaproportionofthework -

ing population have actually increased slightly.

What this means is that governments, through

counter-cyclical unding during and ater the

recession,havenotcutjobs,buthaveexpand -

ed them to keep pace with population growth.

Which incidentally is exactly what governments

should be doing stepping in when the private

sector gets hit hard, to keep the economy going.

Itsnoteworthythatmostofthegovernmentjobs

were or health care workers and other social

servicesjobs,notingovernmentbureaucracies.

e picture or the private sector is less pretty.

rior to the recession (as shown in igure 3), pri-

vate-sectorjobsemployedapproximately41%of

anadas working-age population. is percent-

agedroppedtounder39%byOctober2009.e

privatesectordidrecoversomeofitsjoblosses

in early 2010, but despite these small increases

theprivatesectornowonlyemploys39.4%of

the working-age population. the private sector

employed41%ofthepopulationasitdidpriorto

the recession, an additional 400,000 anadians

wouldhaveprivate-sectorjobs.

uring the 200809 recession, anadians

wholostjobssometimesturnedtoself-identify-

annualized 0.9 percent) was the slowest o any

G7economyduringthesecondandthirdquar-

ters o 2010 worse than taly and the still-de-

pressed U..

The Jobs Fronte anadian media made much o the news

that by ecember 2010, anada had regained

allthejobsitlostduringtherecession.isis

a tremendously misleading claim to ame. n

the past two years, as in almost any period, the

working-age population has grown (by about

1.5%,or200,000people,peryear)yetthenumber

ofavailablejobsremainsatitsmid-2008level.

e result is signicantly higher unemployment,

thoughtheheadcountofjobshasreturnedto

pre-recession levels.

e gradual decline in the ocial unemploy-

mentrateto7.6%bytheendof2010maysuggest

thatmorenewjobsareavailable.Unfortunately,

whats driven the decline is a drop in labour orce

participation. Young anadians in particular

simplystoppedlookingforjobs.Sendingyoung

anadians to live in their parents basement can

hardly be considered a solid oundation or u-

ture growth.

tatistics anada does examine the number o

anadians who are underemployed or who have

simplyquitlookingforajobeventhoughthey

would take one i it was oered to them.2 is

upplementary Unemployment Rate is higher

than the ocial unemployment rate by approxi-

mately2%.ismeansthatrealunemployment

maybecloserto9.6%insteadoftheocial7.6%

(asofDecember2010).Inconcretejobterms,it

meansthatanadditional370,000Canadiansare

either unemployed or have given up looking or a

job,eventhoughtheywanttowork.iswould

be on top o the 1.4 million anadians included

in the ocial unemployment rate.

t times o declining labour orce participa-

tion, it can be illuminating to examine employ-

ment as a proportion o the working-age popula-


13/156


igure Pub-sr y s rg h wrg-g u

souRce Lb F S Ah C

10.0%

10.5%

11.0%

11.5%

12.0%

12.5%

13.0%

13.5%

14.0%

14.5%

15.0%

June2008

September2008

December2008

March2009

June2009

September2009

December2009

March2010

June2010

September2010

December2010

igure Prv-sr ys s rg h wrg-g u

souRce Lb F S Ah C

37.0%

37.5%

38.0%

38.5%

39.0%

39.5%

40.0%

40.5%

41.0%

41.5%

42.0%

June2008

September2008

December2008

March2009

June2009

September2009

December2009

March2010

June2010

September2010

December2010


14/156


a0.1%increaseoverthesameperiodintempo-

rary employment. or both men and women, the

percentageofpermanentjobshasdeclinedsince

therecession.Sincefull-timejobscanbetempo-

rary that is, they are time-limited the ull-

timejobsthathavereturnedarenotasstable.

Whileprivate-sectorjobcreationhasnot

kept pace with population growth, the quality

ofthejobsthathavebeencreatedhasalsode-

teriorated. igure 6 shows the percentage o the

working-agepopulationthathasafull-timejob.

e previous two recessions (in 1981 and 1991)

are evident in the dramatic decline in so-called

goodjobs,orfull-timejobsthathelptosustain

ingasSelf-Employedinsteadofunemployed.

ndustrious men and women decided to hang

up a shingle and print business cards. el-em-

ployment rose slightly through 2009 (igure 4),

although by ecember 2010 running their own

business had lost its allure or many people, and

the sel-employment rate declined to slightly be-

low pre-recession levels.

o take a slightly dierent perspective, the

proportion o anadians working in temporary

employment, whether ull time or part time, has

beenontherisesince2007.Menhaveseena

0.5%increaseintemporaryworktodayascom-

pared to beore the recession. Women have seen

igure -yd s rr h wrg-g u

souRce Lb F S Ah C

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

12.5%

June

2008

September

2008

December

2008

March

2009

June

2009

September

2009

December

2009

March

2010

June

2010

September

2010

December

2010

igure Frs y by gdr (s rg y by gdr)

997 7

M Pm 70.9% 70.9% 70.1%

M Tm 8.8% 10.0% 10.5%

Wm Pm 76.6% 76.6% 76.5%

Wm Tm 10.1% 12.0% 12.1%

souRce S C, Lb F S


15/156


igure Fu- jbs s rg h wrg-g u

souRce Lb F S Ah C

43%

44%

45%

46%

47%

48%

49%

50%

51%

52%

53%

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2006 2008 20102004

igure Pr jbs s rg h Wrg Ag Pu

souRce Lb F S Ah C

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2006 2008 20102004


16/156


grams.e$3.8-billiondeclineprojectedfor

201112 would be the second biggest spending

decline (in dollars) since the 1950s, although on

a GDP basis the all is less dramatic.

n act, such a large withdrawal o ederal

unds rom the economy, and the likely pull-

back o the matching unding rom the prov-

inces,couldleadtojoblossesofbetween63,000

to90,000jobs.3 the private sector regains its

ooting, it may make up this shortall. at is

what private-sector economists are predicting,

as unemployment is not expected to increase

that amount. owever, in a high-unemployment

environment,itseemsunwisetoguaranteejob

losses with only the hope that the beaten-down

private sector will ll the void.

igure 8 represents the base case as refected

intheUpdateofEconomicandFiscalProjec-

tions o ctober 2010. e large decits o 2009

and 2010 under the governments plan are slowly

whittled down to $11.5 billion by 2013, with the

debt-to-GDP peakingat35.3%in2011andthen

decliningto33.7%bythethirdyear.eprivate

sector predicts that 2011 will continue to experi-

ence weak nominal GDP growthofonly4.1%as

unemploymentaverages7.7%fortheyear.

overnment decits persist even ater year

three, in no small part because o continuously

declining corporate tax rates, which dropped

againJanuary1st2011from18%to16.5%,drain-

ing an additional $1.3 billion rom the economy

in201112.enaldropisscheduledforJanu-

ary1,2012,whenrateswilldropto15%,thistime

removinganother$1.7billionfromthetreasury.

igure 9 shows the cost o tax cuts beginning with

udget 2006. e amounts lost are tremendous,

totalling almost $220 billion by 201314. e de-

cline in business tax revenue alone is worth $58

billion. e annual amount lost by the treasury

fromcutsinbusinesstaxesjustkeepsincreasing.

e annual World ank/ ricewaterhouse-

oopers survey o corporate taxes5 ranked an-

ada lowest in corporate tax rates out o all 8

countries (including Russia), with a combined

Canadianfamilies.elossoffulltimejobsalso

meanstheriseofmoreprecariouswork.Em-

ployers gain more leverage over employees who

may work in less permanent working situations

because they have little choice.

e 2008 recession also resulted in a pre-

dictable drop in the percentage o anadians

withafull-timejob.ankfully,thedeclinein

full-timejobswasnotaslargeasinthe1991re-

cession. owever, having reached the infec-

tionpointinthelossoffull-timejobs,Canada

is not seeing the rapid comeback o the 1980s.

Instead,thedrawn-outdouble-dipjobrecovery

o the early 1990s seems a more likely prospect.

Whilerecessionhitsfull-timejobsparticularly

hard, it is striking to compare the same measure

forpart-timejobs(Figure7).Insteadofseeing

large swings in employment, part-time work is

completely unaected by recessions in anada.

edierencebetweenFigure6andFigure7

shows that ull-time positions were hit harder

in the past three anadian recessions.

e longer-term trend is also clear: part-time

employment is becoming a more common eature

ofCanadaslabourlandscape.Approximately12%

o anadas working age population is employed

thatway,upfromonly7%inthemid-1970s.

Puttogether,thepictureisofweakjobcre -

ation in the private sector and so ar in this

recession,thejobscreatedhavenotbeenfull-

time (in igure 6). e public sector has been

much more consistent by slightly increasing its

proportion o employed anadians throughout

the recession. owever, the dwindling o stim-

ulus spending in 2011 is sure to undermine the

public sectors contribution to the stability o

anadian labour markets.

Macroeconomic Base Case

e sluggish recovery, particularly in private-

jobcreation,ispaintedagainstthebackdropof

ederal program spending actually declining in

201112 as a result o the end o stimulus pro-


17/156


total tax cost. ontreal ranked 4th and oronto

5th. ts worth noting that the 2010 KPMG survey

was completed beore anada lowered its corpo-

rateincometaxrateagainonJanuary1 st, 2011.

Evenlargeaccountingrmsthatgenerally

advocate or lower business taxes nd that an-

ada ranks lowest in terms o corporate taxation.

anada has clearly the won the global race to the

bottom. part rom larger decits, its unclear

what the prize is.

federal/provincialrate10%lowerthanthatof

the United tates, and hal o the rate in rance.

KP MGs annual ompetitive lternatives

report also ranked anada second-lowest in total

tax cost o the 10 countries it examined.6 exico

ranked lowest, although i anada is compared

totheotherdevelopedG7countriesitcomesout

on top (Russia was not included in the study). e

2010reportlookedat41majorinternationalcit-

ies and ound Vancouver the cheapest in terms o

igure F Cd Bs Cs

Mr drs ($) 3

Nm GDP 1,616,000 1,682,000 1,770,000 1,861,000

Nm GDP wh 5.9% 4.1% 5.2% 5.1%

R GDP wh 2.9% 2.4% 2.8% 2.9%

Em (000) 17,500 17,763 18,090 18,402

Emm ( % wk ) 61.9% 61.9% 62.2% 62.4%Umm 8.0% 7.7% 7.3% 7.0%

Um (000) 1,522 1,482 1,425 1,385

Budgry rss ($) 3 34

R 232,500 246,300 261,200 277,700

Pm 246,600 242,800 246,100 251,700

Db 31,300 33,400 36,400 37,500

B b (45,400) (29,900) (21,300) (11,500)

C b (m f) 564,500 594,200 615,500 627,000

Budgry drs s rg GDP 3 34

R/GDP 14.4% 14.6% 14.8% 14.9%

Ex/GDP 15.3% 14.4% 13.9% 13.5%

B b/GDP -2.8% -1.8% -1.2% -0.6%

Db/GDP 34.9% 35.3% 34.8% 33.7%

E 5.9% 6.1% 6.1%

souRce U Em F Pj (Ob ) Ah C

igure Cs us s

($ b) 89 9 3 34 T

GST 11.6 12.0 12.7 13.2 13.8 14.6 77.9

P Tx 12 13.6 13.4 13.8 14.5 15.0 82.3

B Tx 5.3 6.8 9.2 10.5 12.2 13.9 57.9

T 28.9 32.4 35.3 37.5 40.5 43.5 218.1

souRce F B h ( )


18/156


build a diversied economy. t is by supporting

regular anadians that the government can im-

prove the economy, reduce unemployment and

build a country, and a uture, that all anadians

can be proud o.

o that end, the AFB will implement air

taxation, where everyone pays their air share.

With airer taxation comes less inequality where

all anadians rom low skilled labourers to ay

treet bankers benet rom economic growth.

n addition to air taxation, the AF B will im-

plement useul programs that make it easier or

anadian amilies to make ends meet. e AFB

will also lend a helping hand to low-income sen-

iors, aboriginals, anadas poor, and others who

havent shared the benets o recent (modest)

economic growth. n each o these cases, the

AFB includes practical, costed plans that lead

to long-term solutions.

uture anadian growth is based on strong

inrastructure both social and physical that

anadians can use and rely on. e AFB meets

this requirement with signicant new unding

or physical inrastructure at the municipal level,

and new unds or clean water on reserves and

in other anadian communities. lso, because

access to digital inormation is critical to inno-

vation, the AFB directs considerable unding to

rural broadband initiatives across the country.

Andsinceinfrastructureisnotjustaboutphys -

ical amenities, but also about social programs,

the AFB supports stronger community health

care, more aordable housing and lower post-

secondary tuition.

Economicgrowthisusuallypittedagainst

environmental protection, as i the two are mu-

tually exclusive and that we can only have one

or the other but not both, e AFB shows that

cutting on greenhouse gases (GHG) and rid-

ing the green wave can be accomplished while

making anadas economy more ecient. ut

while climate change is without question the

dominant environmental issue o our time, it is

not the only one. us, the AFB also contains

AFB Fiscal Framework: Beyond Stimulus

e continued weak economy in 2011 combined

with the withdrawal o ederal stimulus unds

and matching provincial dollars oreshadows an-

other year o uncertainty or anadians. s the

country limps out o recession, unemploymentwill likely remain high, and growth low. ll o

assumes that a double-dip recession doesnt hit

either in anada or south o the border.

espite this stagnation, the ederal govern-

ments interests are ocused elsewhere. ecit

reduction, in spite o any countervailing acts

about the economy or unemployment, is the

primaryfocus.Eventhoughtheobviousan-

swer would be stop the continuing corporate

tax cuts that will drain the treasury or years to

come, the government has chosen to balance itsbooks by cutting the social programs that a-

nadians rely on.

anadians will receive little protection rom

their government, and what little they did re-

ceive over the past two years will be withdrawn

as the stimulus program winds down. mports

will remain weak. Unsustainable personal debt

loads will remain at historic highs, even though

history shows this wil l likely end badly. s these

debts are paid down, there will be a strong nega-

tive pull on consumer demand in the economy.Without government spending driving the econo-

my, most o its component parts will remain idle.

is neednt be the case. udgets may appear

to be about tables and numbers, but undamen-

tally they are about choices. n act, budgets are

one o the most important decisions a govern-

ment makes. ere is a choice this year, as every

year, as to whether we want to exacerbate un-

air taxation and inequality and lead in a global

race to the bottom, or whether we want to build

useul programs like universal pharmacare and$10-a-day child care.

e AF Bs position is that what anada needs

is not stimulus, but longer-term programs that

helpsupportpeoplenotjustcorporationsand


19/156


e normetrica multipliers show that corpo-

rate tax increases or cuts have little eect on real

GDP and employment.9 e AFB utilizes several

corporate tax measures to und new programs.

Using the inance anada model, the tax meas-

ures slightly reduce growth, but this eect is

signicantly oset by growth created through

new programs.

e AFB ocuses much eort up ront, in the

otherwise weak 201112 year. e private-sector

orecast or nominal GDP growth or 201112

(Figure8),isonly4.1%,with7.7%unemployment.

e AFB gets to work early, with much higher

6.2%nominalGDP growth in 201112 and much

lower6.4%unemployment.

y the third year, both the ase ase and the

AFB cases have whittled the decit down. e

ase ase has allen somewhat aster to reach

a decit o $11.5 billion, compared to the AFBs

$13.5 billion. owever, the countrys economy is

bigger under the AFB, and somewhat closing the

gap on a GDP basis with the AFB linga0.7%

decit-to-GDP.eBaseCaseestimatesa0.6%

decit-to-GDP.

espite dramatically reduced unemploy-

ment and a much more rapid response to stag-

nant growth in the AFB, the overall debt picture

compared to the ase ase is almost identical:

both report debt-to-GDP ofapproximately34%

to35%inyear3.

Under the AFB unemployment drops ast

asCanadianscangetjobsagainandthescal

decit disappears due to the recovery. wide

variety o new programs (as reviewed in igure

11) are implemented. eople who have been let

behind by economic growth are helped back to

their eet. e environment is protected. axa-

tion becomes much airer with everyone paying

their air share. eanwhile, the overall nancial

picture remains relatively unchanged.

e AFB rejectsthesteadystateoftheBase

ase, with its high unemployment and poor eco-

nomic growth. nstead, the 2011 AFB illustrates

unding and measures to protect anadas water

systems, parks and nature reserves.

ebt and decit reduction has become the

governments overriding concern. owever,

anada has the lowest debt-to-GDP ratio o any

country in the 8 and by a air margin. n

act, i anada spent an additional $500 billion

(or 10 times its 2009 decit), it would still have

the lowest debt burden (although tied with er-

many). n extra year or two to close the decit

gap will leave us comortably still in rst place

on the debt-to-GDP ront.

ecits alone do not tell the ull story. e

debt burden is best understood as a share o

a countrys economy. e bigger an economy

grows, the less o a problem the same size debt

or decit is. owever, the ederal government

has chosen to ocus on a smaller decit within a

smaller economy. e AFB, instead, aims to cre-

ate a larger economy with lower unemployment.

oth approaches produce the same debt burden,

but the AF B does it with a stronger economy and

more anadians working.

e double benet is that by having more

people working, unemployment is (obviously)

lower, but both economic growth and govern-

ment tax revenues are higher. ere is a multi-

plier eect when the government becomes more

involved in the economy. overnment spending

on health care, inrastructure or education has a

much larger eect on the economy than do tax

cuts. e reason is that government spending

directly employs anadians and drives down

unemployment, whereas many tax-cut benets

leak away to imports and savings.

e AF B multipliers or nominal GD P,job

creation and ederal government revenue are

derived rom normetrica Ltd.7 owever, the

model was also run with multipliers rom i-

nance anada.8 Using the latter, by year 3 the

numberofjobscreatedwaswithin10,000jobs

o the estimate (in igure 9) using normetrica.

e real GDP eect using the inance anada

multipliers was even larger than normetricas.


20/156


taxation expenditures in the 200910 stimulus pack-

age. e high end o the scale assumes that provinc-

es ully cut back all matching dollars and that those

cutbacks refect the distribution o spending in the

200910 stimulus package.

4 While the original gures are rom ederal udget

2009, pg 255, they are updated or changes in tax rev-

enues rom GST, personal and corporate taxes basedon inance anada, Update o conomic and iscal

rojections, ctober 2010, pg 35.

ricewaterhouseoopers, aying axes 2011

that its possible to make better choices or the

countryandencourage economic growth.

Notes

1 ankstoJimStanfordfromtheCanadianAuto

Workers or the international comparison research.

anadian Labour ongress, ecession Watch ul-letin, ssue 4, Winter 2010, pg. 10

3 e low end o the scale assumes little provincial

cutbacks o matching dollars and the ederal decline

in program spending refects the distribution non-

igure AFB Cs

3 34

N GDP 1,616,000 1,715,706 1,795,413 1,880,085

Nm GDP wh 5.9% 6.2% 4.6% 4.7%

Rvus ($)

B 232,500 246,300 261,200 277,700

N AFB m 18,299 36,871 44,557

M 4,890 4,579 5,247

T 232,500 269,489 302,650 327,504

Edurs ($)

B 246,600 242,800 246,100 251,700

N AFB m m 35,857 47,446 50,101

T 246,600 278,659 293,548 301,803

Db 31,100 34,704 38,158 39,249

B b (f) (45,200) (43,872) (29,054) (13,546)

C b (m f) 564,500 608,372 637,426 650,972

Budgry drs s rg GDP

R/GDP 14.4% 15.7% 16.9% 17.4%

Ex/GDP 15.3% 16.2% 16.3% 16.1%

B b/GDP -2.8% -2.6% -1.6% -0.7%

Db/GDP 34.9% 35.5% 35.5% 34.6%

3

AFB jb (000) 295 292 218

Em 17,500 18,058 18,381 18,620

Emm ( % wk ) 61.9% 63.0% 63.2% 63.1%

Um (000) 1,522 1,244 1,220 1,256

Umm 8.0% 6.4% 6.2% 6.3%


21/156


s were used when the government calculated the

eects o its stimulus package. ee inance anada,

ederal udget 2009, pg. 240.

EmploymentEectsareimpactsovera12month

period

6 KPMG, Competitive dvantage 2010: Special Report:

ocus on Tax, 2010 (http://www.kpmg.com/a/en/s-

suesndnsights/rticlesublications/ress-Releases/

Pages/CanadasTax-FriendlyEnvironmentforBusiness-

RanksSecondAheadofLargestWesternEconomies-

KPMGStudy.aspx)

7 normetrica multipliers, although leading to smaller

growth results allow or a more detailed calculation

o the various aects o AFB programs.


22/156


igure AFB Prgr Ls ($)

Prgr N 3 34

Abrg Afrs

INAC m- m 304 310 315

INAC - m 495 504 513

Nw h F N 150 153 156

F N 127 129 132F N 65 66 67

F N k w 1,000 1,019 1,037

G b m m 30 30 0

Ab m h hh m 100 100 100

S 5 0 0

Ab h m 15 15 15

Ery Chdhd Edu d Cr

Ab h 1,000 1,600 2,300

Cs d Cus

Cmm m m b 0.5 0.5 0.5

Nhbh z m 100 100 100

B mm 1,500 6,000 6,000

N w 1,000 1,000 1,000

G x x 3% 62 122 185

Cmm 1,000 0 0

Cuur d Ars

A mk m 40 40 40

C C F h A 30 60 90

T h/mh 1 1 1

N mm 50 50 50C 1 1 1

I hb x 137 137 137

Cus

Mz bb 400 500 600

N b m 40 40 40

D d Ir Dv

S bk -911 -1,400 -2,600 -4,000

ODA 0.7% GNI 887 2,080 2,444

Ey Isur

U 360 h 1,100 1,100 1,100

C m 250 250 250

Ex bf 500 500 500

A 5 wk bf 500 500 0


23/156


Prgr N 3 34

Evr

Cb x 0 -5,855 -9,548

P hmz 0 2,927 4,774

G x 850 3,400 4,080

C 10 10 0

N k 50 50 50Ex E hm m 350 350 350

A q mm 65 65 65

Gb m f 400 800 1,000

N 10 7 7

Lb w fx 5 5 5

C x b -761 -761 -761

C b w b -103 -103 -103

Eqz m x bf -65 -65 -65

Hh Cr

Cmm hh 2,500 3,000 3,200

D hh h 50 100 150

N Phm 3,390 3,830 4,000

C hh h 150 0 0

Hh hm 10 10 10

Jb- hh wk 200 200 200

R hh m 100 100 0

M b mm 50 50 0

I C Hh A b 6 6 6

Husg

Nw b h 1,500 1,500 1,500

Hm 135 135 135

R hb m 128 128 128

Igr

C F C R m 25 50 50

Ex W E P m 40 30 30

Eq k h 50 50 50

C Ch m 3 3 3

Ps dry Edu

P- 410 410 410

D m 800 800 800

R 1992 799 1,590 2,390

C w m 1,360 1,393 1,406

C xbk x -42 -42 -42

C hh x -38 -38 -38

C x -470 -470 -470


24/156


Prgr N 3 34

C RESP -140 -160 -160

C C E S G -670 -683 -696

I C G Shh 3000 25 25 25

Pvry Rdu

P 1,800 1,800 1,800

I CCTB $5,400/h 4,759 4,759 4,759

Db b GST 3,680 3,732 3,784

Pub rvs

R 0 -200 -350

r Dv

S m 50 50 50

Am m 300 300 300

G 300 300 300

G m x 50 50 50

G k 100 100 100

Sb k 300 300 300

Sb m m 650 650 650

Em b b -200 -200 -200

Cz m bk 1,200 1,100 700

rs

I GIS bf b 15% 1,164 1,164 1,164

T

Nw m x b $250,000 (32%) -2,064 -2,229 -2,400

Nw m x $750,000 (35%) -1,200 -2,000 -2,100

Em k -1,004 -1,100 -2,100

F x -2,356 -3,140 -3,500

C x -57 -114 -171

Lm RRSP b $20,000/ -200 -220 -240

F x 0 -2,625 -3,500

R 2007 x -5,400 -11,200 -13,400

R 28% f -750 -3,000 -3,000

Em m m -300 -300 -300

F x -4,700 -4,800 -4,900

Wr

H m 2 0 0

M C w 3 0 0

P C hw 675 675 675

S w x 1 0 0

Im m m m 50 50 50

S m h w 5 0 0


25/156


Prgr N 3 34

Ws Equy

C q mm b 10 0 0

S wm h 20 20 20


26/156


since the 1920s. rom the mid-1930s through to

the early 1980s, the top marginal income-tax rate

forthehighestincomesinCanadawasover60%,

andatonepointreached90%.Noneofthisap-

peared to slow economic growth: in act, it was

a period o unparalleled economic growth and

social progress. ow the average top ederal-pro-

vincialmarginaltaxrateis43%,andtaxloopholes

urther reduce the rate on much o this income.

Addingafthfederaltaxbracketat35%for

incomesabove$750,000ayearcouldraisean

additional $1.2 billion a year. ederal tax rate

of35%wouldtranslatetoacombinedaverage

federal-provincialtopmarginalrateof52%.It

is important to note that these tax rates only

applytoincomesabove$750,000.Individuals

would still benet rom the lower tax rates that

apply to all anadians with taxable incomes be-

low this amount.

Revenue:$1,200millionin2012(atthe35%

rate)

Eliminate stock option deduction

e executive stock option deduction allows

anadas wealthiest executives to pay hal the

AFB Changes to Personal Taxes

New tax bracket or incomes over $250,000

e AFB introduces a higher income-tax brack-

etof32%onthosemakingover$250,000ayear,

abovethe29%federaltaxbracketineectforin -

comesover$130,000.isisstillbelowthe33%

tax bracket that the U.. applies to those making

over $200,000. n extra tax bracket will aect

thelessthat1%(0.8%)oftaxlerswhomakeover

$250,000 a year. alculations based on 2008 tax

returnsshowthata32%taxratewouldgener -

ate $1.638 billion annually. Revenues are likely

to reach $2 billion in 2011. (is assumes annual

growthof8%,belowthefour-yearannualaver-

agegrowthrateof13%).

Revenue:

$2,064millionin2011atthe32%rate

$2,229millionin2012(at32%rate)

New tax bracket or incomes over $750,000

Canadassuper-richthoseinthetop0.1%now

take a larger share o the economic pie than o

any generation since the reat epression. ey

also benet rom the lowest marginal tax rates

Rsrg a Far ad PrgrssvTaxa ysm


27/156


assumesaninclusionrateof90%,witha10%ad-

justmentforination,representinganassumed

average holding period o ve years. the hold-

ing period is less, then revenues will be higher.

Revenue:$2,356million(201112)and

$3,141 million (201213)

Inheritance tax on large estates

e AFB introduces a minimum inheritance tax

of45%onlargeestates(inexcessof$5million)

that are passed on to the heirs o wealthy amilies,

similartotheEstateTaxintheU.S. iswould

apply a minimum tax to gits and inheritances

that are able to avoid and minimize capital gains

taxes that would otherwise apply.

Revenues rom this measure are dicult to

estimate. apital gains taxes would continue totakeprecedence;thisminimumtaxwouldap-

ply to wealth that escapes taxation through var-

ious means and ensure that large inheritances

are airly taxed.

Cap ax ree avings ccounts (TFSA)

ntroduced in udget 2008, TFSAs allow a-

nadians to shelter up to $5,000 annually tax-

ree (even though most people dont have su-

cient disposable income to contribute even to

an SP). e AFB would allow the maximum$10,000 lietime contribution provided so ar

or all anadians. inance anada estimated

that the TFSA program would cost $45 million

in 2009, the rst ull year that the loophole was

in eect. While initial losses are low, inance

Canadaprojectsthattheannualcosttofederal

coers will soon balloon to $3 billion. apping

the TFSA at $10,000 will save the ederal gov-

ernmentapproximately$57millionin2012,ris-

ing to over $200 million by 2014. is assumes

anannualgrowthrateforinvestmentsof6%.

Revenue:$57mill ion(2012)

tax rate on their income that ordinary anadians

pay on their employment income. t is not only

the most regressive and inequitable o anadas

tax loopholes it also helped to uel the kind o

reckless speculation and stock manipulation that

ledtothenancialcrisis.FinanceCanadaprojects

that it lost $590 million rom this tax loophole

in 2010, down rom an average o over $1 billion

ayearbetween2005and2007.However,their

projectionstendtobelowandwiththebounce

back in stock markets, the loss is likely to reach

close to $1 billion again in 2010 and 2011. (is

assumes10%annualgrowth,lowerthanthe17%

annualaveragegrowthforthe200407period.)

Revenue:$1,004million

ully tax personal capital gainsncome rom investment and speculation is cur-

rently taxed at hal the rate o employment in-

come:e.g.atatopfederalrateof14.5%versus

29%.evalueofthisloopholewasdoubledin

2000 when the inclusion rate was reduced rom

75%to50%,ostensiblytoboostinvestmentand

productivity. ut it has had the opposite eect:

since then the rate o business investment has

declined. inance anada calculates that the

cost o this loophole or the ederal government

wasover$5.9billionin2007,and$3.1billionin2008. al o the value o this loophole benets

therichest1%oftaxlerswhoearnover$250,000

a year. eanwhile, anadians who inherit land,

homes or cottages that have been in the amily

or decades must oten sell the properties to pay

the high capital gains taxes on infationary prop-

erty-value increases. is is unair and encour-

ages more speculative short-term investments.

e AFB will tax capital gains at a ull rate,

similartoemploymentincomeafteradjusting

forination.enewrateiseectiveJuly1,2011.Revenues rom this measure are conservatively

estimated at over $3.1 billion a year, assuming an

annualgrowthrateof10%wellbelowthe28%

annualgrowthrateofthe20047period.Italso


28/156


added taxes (such as the GST). e AFBs revenue

calculation is based on IMF estimates o the size

o a tax base in anada or a inancial ctivi-

tiesTax,andassumesa4%annualgrowthrate.

Estimatedrevenue:$4,700mill ionin

201112

ully tax corporate capital gains

orporate investment income is taxed at hal the

rate o income rom regular revenue sales at

atopfederalrateof9%insteadof18%.Finance

anada estimates the value o this exemption in

2010 was $3.3 billion. is was a low year com-

pared to the $5 billion-plus cost o the same loop-

hole between 2005 and 2008. is tax loophole

encourages and rewards corporate mergers and

acquisitions, with all the disruption they cause,instead o more productive business activity. With

corporate coers fush with cash, the business

press expects a boom in mergers and acquisitions

this coming year, with most o the benets going

to corporate lawyers and nancial dealmakers.

e AFB wil l ully tax corporate capital gains

at the normal rate o tax ater making an allow-

ance or infation (as is done or personal income)

startingJuly1 st, 2011. is will provide air taxa-

tion relative to other orms o income and would

remove the tax disincentive or longer-term in-vestments. e A FB s revenue savings are based

on conservative assumptions, including an as-

sumed growth rate or capital gains deductions

of10%from2009(comparedtoannualaverage

pre-recessiongrowthrateof27%)andanaver-

age holding period o ve years.

Revenue:$2,625million(201213),$3,500

million (201213)

einstate corporate tax rates

ccording to KPMG, ricewaterhouseoopers

and the World ank, corporate tax rates (CIT)

inCanadaarethelowestintheG7.1 ome o the

30 countries in the OECD have lower corporate

rates, but they are either economically troubled

Limit RRS P contributions

e annual limit or S P contributions in 2010

was $22,000 and is $22,450 in 2011. owever, any

contribution room above $18,000 only applies to

those making more than $100,000 a year, as it

isbasedon18%ofearnings.Whilemorethan

two-thirds o those making over $100,000 a year

contribute to SPs, less than a quarter o those

making less than $50,000 can contribute and

they contribute much less, an average o less than

1/10th o the amount that high-income taxpayers

deduct rom their income each year. e AFB will

cap annual SP contributions at $20,000, which

will only limit contribution room or those with

incomes over $111,000 a year. e calculation o

$200 million revenue saved rom this measure

assumesthatapproximately20%ofthosewith

annual incomes above $110,000 maximize their

SP contributions.

Revenue:$200million

Corporate Tax Changes

inancial activities tax

e nancial industry has been the most con-

sistently protable sector in anadas economy,

and is ar more protable than nancial sectors

in other countries. e sector has maintainedits high prots because it is highly protected by

the government and has beneted enormously

rom recent tax cuts and tax preerences. e

annualvalueofjustafewofthesetaxcutsand

preerences now amounts to approximately $10

billion a year.

ts important to maintain a stable anadian

nancial sector through strong regulation, but

the sector should also be airly taxed. e AFB

willapplyavalue-addedtaxof5%inthenan -

cial sector (prots and remuneration less xedinvestment). s advocated by the IMF, such a

measure would help compensate or the relative

under-taxation o the sector as a result o the ex-

emption o most nancial services rom value-


29/156


Revenue:$750millionin201112,

and $3,000 million in 201213

Eliminate tax deduction

or meals and entertainment

ccording to inance anada, the revenue losses

associated with the meals and entertainment ex-

pense tax deduction or both personal and cor-

porate income taxes averaged $300 million a year

rom 2005 to 2010. is amount is expected to

rise. e AFB will eliminate this deduction (with

an exception or long-distance truckers). e rev-

enuesfromthismeasureassumean8%annual

growth rate, consistent with longer-term trends.

Revenue:$300mill ion

Sales and Environment

National Carbon ax

ritish olumbia introduced a carbon tax at a

rateof$15/tonneonJuly12009,whichistoin-

creaseby$5/tonneayearto$30/tonneonJuly1,

2012. arbon taxes are more ecient, transpar-

ent and less corruptible mechanisms or putting

a price on carbon than cap-and-trade systems.

While carbon taxes dont provide windall gains

or some industry sectors, they are more market-

riendly because they send a clear price signal.owever, as with all orms o carbon pric-

ing, carbon taxes are regressive. ey most hurt

those on low incomes, and would have a limited

impact unless they are combined with comple-

mentary policies, regulations and investments

to promote energy eciency, clean energy and

low-carbon inrastructure and communities.

e AFB would introduce a harmonized car-

bon tax (HCT) integrated with provincial carbon

taxes. al o the revenues will be devoted to a

progressive green tax reund, and hal to supportenergy eciency, renewable energy and to help

communities, workers and industry adapt to cli-

mate change and a lower-carbon world. e HCT

system could either be devolved to the provinces

(like reland and celand) or have much smaller

economies (like the lovak Republic and oland)

that anada is not directly competing against.

e global corporate-tax-cut race to the

bottom was supposed to pay o as businesses

invested more in equipment, technology and

workers. e larger business investment would,

in turn, drive anadas disturbingly low produc-

tivity growth and lead to better real GDP growth

andmorejobs.

Unfortunately,theseprojectionsdidnot

come to pass. usiness investment is not up,

productivity growth has remains stagnant, and

full-timejobsaredown.Whathasincreasedis

corporate prots. learly, the experiment with

dramatically lower corporate taxes has ailed,

and anada is running a much larger decit be-

cause o the lost taxes.

espite the ailure o corporate tax cuts to

spurinvestmentandjobcreation,theratesare

scheduledtodropagainJanuary1,2012(from

16.5%to15%).iswillmeanthatcorporatetaxes

havedecreasedmorethan30%since2006(from

22.1%to15%)andbymorethan50%since2000

(from30.1%to15%).

Eectiveimmediately,theAFB restores ederal

CI T rateto18%,andwillincreaseitto21%the

pre-2008rateonJanuary1,2012.eAFB will

notreinstateacorporatesurtaxof1.12%thatwas

eliminated in 2008.

Revenue:$5,400millionin201112,

and $11,200 million 201213

einstate 28% corporate tax rate

or the nancial and oil and gas industry

e oil and gas industry is one o the most highly

protable industries in anada outside o nance,

yet it pays low royalty rates and its corporate in-

come tax rates have been declining. With mucho the industry now oreign-owned, much o its

increased prots simply fow overseas. e AFB

will increase the tax rate on this industry above

thestandardrateto28%,eectiveJanuary2012.


30/156


e AFBs green tax reund will be introduced

January2012.eHC T will take eect later, on

July1,2012,atarateof$30/tonne.

Revenue:

Carbontaxrevenuesat$30/tonne:$7.5

billionfornon-industrialuses;another$10billion i also levied on industrial carbon

emissions

Costofannualgreentaxrefund:$4billion

(see the AFB nvironment chapter).

Notes

1 ricewaterhouseoopers, Paying Taxes 2011, KPMG,

Competitive dvantage 2010: Special Report: ocus

on ax, 2010

or evolved up to the ederal level. t would also

includeabordertaxadjustmentsothatdomes-

tic manuacturers and producers wouldnt be

unairly penalized (i.e. out at a competitive dis-

advantage to countries without carbon taxes).

national carbon tax o $30/tonne on the

approximately 250 o non-industrial uses o

fuelcouldgenerateapproximately$7.5billiona

year. similarly rated carbon tax on anadas

350 o industrial emissions could gener-

ate over $10 billion annually. ..s carbon tax,

$30/tonne, is expected to generate $1 billion in

201112. green tax reund at a rate o $300

per adult and $150 per child provided to ami-

lies with incomes up to $80,000 would cost ap-

proximately $4 billion annually.


31/156


32/156

Section 1

urg Our Cmm Walh


33/156


investments are not made to increase irst

ations skills and opportunities, the gap between

irst ations citizens and anadians will grow.

owever, strategic investments, paired with

undamental structural and policy changes, will

lead to greater economic sel-reliance or irst

ations and increased well-being o irst a-

tions citizens and communities. urther, these

will lead to substantial competitive gains or all

anadians.

or irst ations communities in anada,

substantial changes are needed in the ollow-

ing strategic areas:

1. upport or irst ations governments

2. Lielong learning

3. ealth and healing

4.Economicopportunities

5.Environmentalsustainability

6. ommunity inrastructure

1. Support For First Nation Governments

trong, capable, and appropriately supported

irst ations governments are the oundation

n a climate o continued scal constraint, strate-

gic investments in irst ations and their citizens

continue to make sense. e costs o continu-

ing the current way o doing business under the

ndian ct o managing poverty, maintaining

ineective processes, and drawing out settlement

and implementation o claims are high. ov-

ing orward, while incurring short-term costs,

ultimately brings greater nancial prosperity.

irst ations have been in a state o deepeconomic crisis as a result o colonialism and

dispossession. irst ations citizens continue

to lag signicantly behind the rest o anada

on all socio-economic indicators. ccording

to the ommunity Well-eing ndex, only one

irst ations community ranked among ana-

das top 100 communities, while the bottom 100

was populated by 96 irst ation communities.1

ndigenous peoples in anada represent the

youngest and astest-growing population in the

country, and have or some time. irst ationsshare o the anadian labour orce is expected

to triple over the next 20 years. is signicant

increase in irst ations population presents

both a challenge and an opportunity or anada.

Abrgal Afars


34/156


that there was, at minimum, a $61 million short-

all in key governance support most notably

costs o audits and elections at that time. Re-

markably, there have been no unding increases

or governance since the study was completed

and none are oreseen.

urthermore, the 2006 lue Ribbon anel on

rants and ontributions ound scal arrange-

ments with irst ations to be complex, raught

with problems, and leading to costly and oten

unnecessary reporting burdens or irst a-

tions3. is must be addressed or irst ations

governments to adequately serve their citizens.

irst ations are in a unique position to

promote access to development opportunities,

provide a human-resources pool in remote and

resource-rich areas, and work with government

and industry on innovative approaches to green

energy. dequately and appropriately supported

irst ation governments are critical to making

this a reality.

real partnership between the overnment

o anada and irst ations is the cornerstone

o reconciliation, hope, and prosperity. cting

now and making strategic investments consti-

tutes a prudent and eective policy choice and

is ultimately the most scal ly responsible course

o action. aintaining the status quo, structured

within the legislative ramework o the ndian

ct, is not an option. undamental transor-

mation o the relationship between irst ations

and anada is required.

2. Lielong Learning

trategic investments in irst ations education

are critical to building healthy, prosperous, and

sae communities. e overnment o anadas

management o the education system or irst

ations children and youth has been and con-

tinues to be a national tragedy. e legacy o the

residentialschoolsystemwasthesubjectofan

apology rom the rime inister in the ouse o

CommonsonJune11,2008.Tomoveforwardin

or eective governance, programming, and ser-

vice delivery. owever, chronic under-unding

and the systemic undermining o irst ations

capacity have served to erode the ability o irst

ations governments to eectively serve their

citizens. n act, irst ations governments de-

liver a more comprehensive range o programs

and services than any other level o government

in anada. While the responsibilities and unc-

tions o irst ations governments and their as-

sociated costs have greatly increased over the

past decades, unding has remained essentially

thesameduetoafederallyimposed2%capon

spending.2

MostCanadiansenjoythesecurityoffunda -

mental programs and services that prevent and

protect anadians rom suering the excesses

o poverty. anadians rely on these programs

and services the social saety net or their

health, education, and social-assistance needs.

e ederal government provides unding to the

provinces or these core services through non-

discretionary transer programs, most notably

the anada ealth ranser (CH T) and the an-

ada ocial ranser (CST).

uaranteed escalators (to refect population

growth and infation) and a legislative unding

base provide provincial and territorial govern-

ments with a predictable and secure oundation

upon which to make strategic decisions. irst

ations, however, are orced to survive on di-

minishing or extremely limited growth in trans-

ers. e ederal government treats budgets or

core services to irst ations as discretionary

spending, meaning that budget allocations re-

ceive no legal protections.

s noted, irst ations governments provide

a huge range o programs and services to their

citizens programs and services that are shared

by multiple orders o governments or other a-

nadians (including primary and secondary ed-

ucation, roads, housing, and inrastructure).

2006 study o cost drivers conducted by ndian

and orthern airs anada (INAC) estimated


35/156


able, nor is vocational training equipment widely

on hand. t means that salaries or irst ations

teachers are lower, making it that much more

dicult to attract and retain quality instruc-

tors. nd many o the unique circumstances o

irst ations students are not being addressed,

such as the act that many students are learning

EnglishorFrenchasasecondlanguage,butnot

their irst ations language. unding or irst

ations language instruction must be prioritized.

urthermore, irst ations education in-

rastructure requires signicant investment.

ccording to a 2010 analysis, INACs planned

capital expenditures over the next three years

are insucient to meet the estimated need to

build 40 new irst ations schools at an average

cost o $12.5 million each. is gure does not

account or unding o operations and mainte-

nance or needed renovations to existing schools.

e economic benets o improved irst a-

tions education and employment outcomes are

indisputable. n 2009, the entre or the tudy o

Living tandards (CSS) estimated that over the

period rom 2001 to 2026, i boriginal peoples

were able to increase their level o educational

attainment to the level o non-boriginal ana-

dians, they would contribute between $130 bil-

lion and $312 billion more to anadas economy.5

modern goal or irst ations education sys-

tems, in addition to developing human capital

or a market economy, should be to reconnect

irst ation learners with their land, languages

and cultures.

3. Health and Healing

irst ations ace an unprecedented health

unding crisis that is aecting patient saety and

health-service delivery. ome irst ation com-

munities are closing health centres due to nurs-

ing shortages, are unable to deal with potential

disease outbreaks, and are being orced to recon-

sider the renewal o health transer agreements

due to a lack o price/volume increases in their

this post-apology era, the lingering eects o the

residential school system must be acknowledged

and addressed, as must the continuing negligence

o the ederal government with regard to irst

ations education and skills training. e last

residential school closed in 1996, but the ailures

o the system have yet to be ully expunged rom

anadas approach to irst ations education. t

is necessary to recognize that some o the atti-

tudes that contributed to the residential school

system continue to linger.

anada needs a new approach to managing

the education system, one that respects and sup-

ports the role o irst ations governments in

both its design and operation, along with greater

investment in meeting the needs o irst ations

children and youth. oreover, ederal unding or

irst ations education is not statutorily based,

butsubjecttopolicychangeandinternalalloca-

tion methodologies on an annual basis.

n udget 2010, the overnment o anada

committed to achieving comparable education

outcomes or irst ations students. ut com-

parable outcomes require comparable inputs.

ince 1996, unding or irst ations education

hasbeencappedat2%,whereasprovincialfund-

ingforeducationincreasedannuallyby6%over

the same period. is discriminatory double

standard in the provision o comparable inputs

has been allowed to exist, and has resulted in

an estimated unding shortall in irst ations

education o $2 billion.4

perating under a dated unding ormula

developedin1987,FirstNationsschoolsarenot

unded in a way that provides the ull spectrum

o learning that other anadian students receive.

s it stands, irst ations children are unded,

on average, $2,000 less per child annually than

are non-boriginal students in anada.

is lack o unding means, or example, that

computers are not as common in irst ations

school classrooms as they are in other schools.

t means that education or irst ations chil-

dren with special needs is not necessarily avail-


36/156


anadas labour orce is aging. s a result,

irst ations potential share o the labour orce

is expected to triple over the next 20 years.

adequate investments to increase irst ations

skills and economic opportunities are made, a

large percentage o new entrants into the labour

market will be healthy, well-educated irst a-

tion citizens who will be net contributors to the

economy. urthermore, anada will realize a

signicant decline in the costs associated with

maintaining irst ations in poverty through

reduced stresses on social service programs, an

enriched social abric and cultural diversity o

anadian society, and ecient allocation o la-

bour resources within the economy. verall, this

will lead to increased productivity, innovation,

and improved prosperity or anada as a whole.

dditionally, irst ations need to participate

in resource development. irst ations require

not only resource revenue-sharing agreements,

but investment in the capacity to participate in

development directly. e development o such

local economies will lead to long-term sustain-

ability and the achievement o the resource de-

velopment interests o irst ations and anada.

5. Environmental Sustainability

any irst ations communities ace challeng-

es that include poor quality drinking water, wa-

ter source degradation, chemical and biological

contamination, disease and decline in tradition-

al ood sources, and inadequate waste manage-

ment. While irst ations are struggling with

the daily challenges o environmental sustain-

ability, new problems such as the impacts rom

climate change threaten their livelihoods and

well-being. ew irst ations communities have

the capacity to address these matters, as they

do not have access to, nor do they benet rom,

natural resource development.

e current national assessment o water and

wastewater acilities identies a need o billions

o dollars or water and wastewater alone. ur-

budgets scal pressures that put irst ations

patients at risk.

Withover30%ofFirstNationscommunities

located more than 90 kilometres rom a physi-

cian, it is common or irst ations to travel long

distances to receive basic health care, including

dental services, dialysis, mammography, chemo-

therapy and mental health services. ot only do

irst ations have to receive pre-approval to re-

ceive support or transportation and dental, vi-

sion, and other benets, but, increasingly, more

policy restrictions mean more requent denials

in needed care, such as or endodontic and or-

thodontic treatments or teeth. ew and su-

cient investments into the on-nsured ealth

enets (NIHB) are required.

irst ations-led healing strategy is another

priority that needs to be addressed. e borigi-

nal ealing oundation (AH F) has played a vitally

important role or ndian Residential chool (IS)

survivors and irst ations communities. any

ormer IS students, amilies, and communities

have beneted rom the work o the AHF. ow-

ever, despite its successes, unding or the AHF

was terminated in 2010. iven that anada is at

a critical time in the implementation o the n-

dian Residential chool ettlement greement

with its ruth and Reconciliation ommission,

the anadian government must build on its apol-

ogy to residential school survivors and renew its

commitment to healing with the reinstatement

o unding to the AH F.

4. Economic Opportunities

irst ations economic concerns have been com-

municated in a number o national resolutions

calling or immediate concerted attention to in-

creasing and diversiying irst ations econo-

mies, increasing benets derived rom natural

resources, and increasing workorce skills and

productivity.Economicstrengththatbringslong-

term benets to irst ations communities has

been a long-desired outcome.


37/156


or every one o these new housing units. con-

servative estimate to build a house in irst a-

tions communities is approximately $150,000,

and, or lot servicing, an additional $25,000 per

service connection.

ne signicant area o physical inrastruc-

ture is the growing importance o inormation

technology. urrently, irst ations lag signi-

cantly behind other anadian communities in

access to inormation technologies. t is essential

to close the digital divide and create opportuni-

ties that strengthen irst ations participation in

the anadian and global economies. any irst

ations communities remain without broadband

service or are signicantly underserved. With-

out immediate targeted support, irst ations

citizens risk being let out o the opportunities

or community and economic development o-

ered by broadband connectivity.

Conclusion

e reorms and investments outlined above

will not only help the overnment o anada to

meet its nancial and duciary obligations, but

will a lso lead to a stronger and more prosperous

anada through the strengthening o healthy, sae

and prosperous irst ations. rough strategic

investment combined with structural changes,

the overnment o anada can maximize out-

comes and create the oundation or our collec-

tive well-being.

anada needs to take this opportunity to

change how it has been working with irst a-

tions governments, to move orward in real part-

nership, to nourish irst ations amilies and

communities, and restore young peoples hope

in the uture. new relationship can give ull e-

fecttoTreaties,titles,inherentjurisdictionand

rights. new relationship will allow irst a-

tions to move orward with a sustainable eco-

nomic vision that includes ndigenous leader-

ship in environmental stewardship and opens

the door to irst ations prosperity.

rent numbers show that 49 communities have

high-risk water acilities and 114 communities

are under drinking water advisories.

ignicant mutual interests can be served

by enhancing o irst ations capacity regard-

ing the environment and access to natural re-

sources. ot only would enhanced environmen-

tal capacity lead to more meaningul standards

and enorcement o stewardship within a given

region, but these would operate in tandem with

the identication o new sustainable develop-

ment opportunities or irst ations, thereby

becoming an important new revenue source or

irst ations sel-government and nation-build-

ing. ese innovations would, in turn, support a

cleaner environment, better health, and increased

productivity over the long term.

6. Community Inrastructure

Research has shown a strong link between ad-

equate housing and the well-being o individu-

als and the communities they live in. rowded

housing contributes to a host o health problems,

including the increased risk o transmission o

inectious diseases such as tuberculosis and

epatitis .6 vercrowding can also increase

theriskofphysicalinjuries,mentalhealthis-

sues, amily tensions, and violence.7

ignicant investments or housing and in-

rastructure are needed to improve the critical

housing conditions aced by irst ations. n

2006,26%ofFirstNationspeoplelivingon-re-

serve lived in homes with more than one person

per room nearly nine times higher than the

ratefornon-Aboriginalpeople(3%).Nearlyhalf

(44%)ofFirstNationspeoplelivingon-reserve

reported that they lived in homes that required

majorrepairsin2006comparedto7%ofnon-

boriginal anadians.8

s a result, there is a demand o an estimat-

ed 85,000 new units required to alleviate over-

crowding and backlogs in 2010. oupled with

this is the requirement to provide lot servicing


38/156


eral overty Reduction lan: Working in artnership

owards Reducing overty in anada. ttawa: om-

municationCanadaPublishing,173.

3 lue Ribbon anel on rants and ontributions.

(2006). e Report o the ndependent lue Ribbon

anel on rant and ontribute rograms. ttawa:

reasury oard o anada ecretariat, 8.

4 FirstNationsEducationCouncil.(2009).Paperon

FirstNationsEducationFunding.Ottawa:FirstNa -

tionsEducationCouncil,16.

5 entre or the tudy o Living tandards. (2009).

eEectofIncreasingAboriginalEducationalAt -

tainment on the Labour orce, utput and the iscal

Balance.Ottawa:PaperpreparedfortheEducational

ranch o ndian and orthern airs anada, rat,

January22,2009.

6 ublic ealth gency o anada. (2008). hie ublic

ealth cers Report on the tate o ublic ealth

in anada. ttawa: ublic ealth gency o anada.

7 tatistics anada. (2008). boriginal eoples

Documents

Alternative_Federal_Budget_2011