This is part of my article entitled “Reform or Revolt: The Challenge to Canadian Democracy“.
Here are four federal-specific policy areas where important initiatives must not be allowed to languish beyond the next election.
First, comprehensive tax reform: We pay taxes so that governments can fund public services – services that individual Canadians and the private sector cannot or will not provide efficiently. Taxes pay for roads and sewers, police and the military, health care and education, and many other benefits we take for granted. Taxation in Canada is progressive, meaning that those who are more successful and earning more income are expected to shoulder more of the burden of paying for public services. In a progressive system, revenue from taxes also directly or indirectly helps lower-income Canadians and gives them the opportunity to get ahead themselves. We expect taxation to be fair, efficient, and effective.
As budget deficits mount, the federal government is not doing enough to ensure adequate revenues are generated to properly discharge government responsibilities. We have an immediate need to fund significant investments to strengthen our economic fundamentals in such areas as infrastructure, innovation, and education and training, not to mention a variety of crucial income security programs.
Of course, it would be wonderful if economic growth, together with our persistently flagging corporate investment, picked up appreciably and raised government revenues. Yet despite relatively low federal corporate tax rates, the hoped-for reinvestment in the Canadian economy has not taken place, and business spending on research and development continues to decline. (Canada is currently ranked 26th among developing countries in R &D). Meanwhile over $600 billion of corporate savings sits unproductively in banks, something called “dead money” by former Bank of Canada governor Mark Carney.
It is clear we need comprehensive tax reform, not piecemeal reforms, of our taxation system. A productive, prosperous economy depends on raising adequate revenues fairly and efficiently. Yet Canada’s income tax system is riddled with exceptions, special cases, and limited exemptions that are at best inconsistent and at worst profoundly unfair. Some wealthy individuals and many businesses get breaks they do not need, while average and low-income wage earners are held back by counterproductive rules and regulations. The cost of these largely politically inspired tax expenditures in terms of foregone tax revenues has been estimated at between $80 and $100 billion.
Restoring a fair and progressive tax regime will benefit the economy and society, help mitigate the widening income gap, and support the steadily increasing numbers of workers, especially our young, who are struggling to survive with part-time, non-standard, precarious employment. This means doing much more than the federal government’s much touted but minimal middle-class tax cut that does nothing for Canadians earning less than $45,000, a weakness highlighted by economist Stephen Gordon. So much for the mantra of helping “those struggling hard to join the middle class” that is repeated by the government ad nauseam. Even the 1.5% cut for those earning between $45,000 and $90,000 will do little to make a meaningful difference. (In this connection, Conservative senators surprisingly perked up briefly to recommend a tweak – which the government promptly rejected – that would have at least improved the cut for those between $45,000 and $53,000).
At the very least, the government should move forward on delivering some form of basic income guarantee for working-age adults through the tax system, to complement what is now effectively a basic income guarantee both for children through the new Canada Child Benefit, and for elderly Canadians through Old Age Security and the Guaranteed Income Supplement. “Income security and a basic income guarantee” is discussed in detail in Part Two of this paper.
With respect to increasing revenues, Budget 2016 dedicated a chapter to “Open and Transparent Government” that promised to review spending and the tax system to ensure that “federal tax expenditures are fair to Canadians, efficient and fiscally responsible”. Pursuant to this, the finance minister established a Tax Expenditure Committee which encouragingly included several members, most notably Robin Boadway and Jennifer Robson, who have a clear-eyed understanding of the inequities overwhelming the tax expenditure labyrinth that is worth some $100 billion in foregone revenues. The Committee’s report is due very soon, but already the signs seem to indicate that, in Budget 2017, the finance minister is going to take minimal and selective action only. If this is true, it will confirm the worry that the government is stalling and is already on the all-too-familiar trajectory of evaluating every initiative narrowly in terms of re-election and fundraising.
Comprehensive root-and-branch tax reform, not just eliminating a few tax credits here and there, is the only way to move forward. By broadening the field of action, calculating winners and losers is more fluid and less divisive. For example, it makes sense to replace the workplace health and dental coverage taxable benefit, which costs the government $2.9 billion in foregone revenue, with a refundable tax credit that will enable lower-income Canadians to benefit as well as the fortunate 13.5 million Canadians with employer-sponsored plans. But the vocal, articulate albeit self-interested pushback by well-organized affected organizations has already caused the federal government to retreat.
As part of this review, we also need an in depth examination of the structure of corporate taxes with a view to systemic reform. Some European countries have successfully implemented a reform that changes the corporate income tax into a “rent” tax, so that the tax cannot be said to act as a disincentive to investment and innovation. Among other things, the Allowance for Corporate Equity tax (ACE) involves allowing firms to deduct the cost of borrowing and equity for their own investment.
We should also consider new sources of revenue and join nations in Europe like France and Germany in promoting and implementing an international financial transactions tax (popularly known as the “Tobin tax”). A related proposal for additional tax revenues was put forward by Bill Gates at a 2011 G-20 meeting: a tax of 1/10th of a percentage point on the sale of equities, and 1/50th of a percentage point on transactions involving bonds. It is estimated that this could raise approximately $48 billion.
Second, the fact that the plight of Indigenous people still has to be singled out for special attention in the early 21st century continues to outrage all Canadians. How is it that we have been unable to move beyond intermittent bursts of anger and remorse about disgraceful living conditions and limited opportunities towards implementing real change? Despite the efforts of the Trudeau government, it is unclear whether even the additional federal expenditures on Indigenous education and health care will produce significant improvements. Housing conditions have worsened, and incarceration and suicide rates remain tragically high; on First Nations reserves, nearly 40% of water systems are substandard.
Real sustained commitment – not just sympathetic rhetoric, symbolic actions, and relatively modest expenditure increases – to improve the desperate conditions of Indigenous Canadians and equalize their opportunities with those of other Canadians requires very significant investments. Desperate times call for desperate measures: why not an immediate dedication of 1% or 2% of the GST to Indigenous people, and the accelerated repeal of the Indian Act together with a concentrated focus on building Indigenous governing structures and emergency response teams with sufficient money and personnel to halt the suicides? Only dramatic budgetary and legislative initiatives would be effective in reminding Canadians on a daily basis of our obligation to turn things around, whatever the cost, now!
Third, while the welcoming of Syrian refugees and expansion of immigration are unquestionably the right way to go for a country with such potential to grow, the government has done little to ensure in a durable way the adequate settlement funding that is crucial to a smooth integration into Canada. For example, after one year in Canada many Syrian refugees are being transitioned off federal support onto provincial welfare rolls, and are continuing to struggle to find work and fund critical services like language training.
Indeed, a general overhaul of the immigration and refugee settlement funding arrangements is overdue and must finally address the inequitable bilateral (Ottawa-Quebec) arrangement, made back in 1991. This gave Quebec a guarantee of a minimum proportion of national funds regardless of how many immigrants actually come to Quebec, so an immigrant arriving in Montreal receives substantially more federal support than one arriving in Toronto or Vancouver. This skews much-needed funds unfairly to one province and must be canceled. To ensure Canadians continue to support generous acceptance levels for immigrants and refugees, the integration process must have secure and adequate financial support wherever needed by individuals and families across Canada.
The Canadian government has reminded the world that we are open to the immigration of persons of all faiths. It was important and appropriate for the government to respond to Donald Trump’s executive order in January 2017 abruptly banning immigration from seven Muslim-majority countries into the US, including all further entry of Syrian refugees. If Trump continues his outrageous action, Canada’s response must be to suspend the Safe Third Country agreement with the US so that refugees who come to Canada via the United States can make their claims in Canada.
We must, however, make sure our actions always match our words. For example, the government must reverse the inexplicably low quota for privately sponsored Syrian refugees that was set quietly for 2017. Despite the fact that Canadians privately sponsored 14,000 Syrian refugees in 2016, the cap for 2017 is a mere 1,000.
Fourth, support for veterans. Veterans deserve our grateful and ongoing support and secure and generous pensions. Yet the nickel-and-diming of their financial assistance under the Harper administration continues under the Trudeau government, and reflects another example of the gap between rhetoric and action. Every week it seems we hear of yet another complaint from a vet or group of veterans living on the edge, fighting for or losing a pension entitlement or salary supplement, or protesting an arbitrary change to tax arrangements. Veterans are entitled to much, much better.