‘Fairness’ in federal spending pays off

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SINCE the Reagan-Thatcher era began in 1980, conventional wisdom is that economic growth depends on ever-lower taxes, especially taxes on wealthy individuals and business.

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Opinion

Hey there, time traveller!
This article was published 16/03/2011 (4169 days ago), so information in it may no longer be current.

SINCE the Reagan-Thatcher era began in 1980, conventional wisdom is that economic growth depends on ever-lower taxes, especially taxes on wealthy individuals and business.

Not so, says a growing chorus, including voices within the International Monetary Fund, World Economic Forum and Britain’s Conservative Prime Minister David Cameron. They argue the route to economic growth and a better quality of life for all is to attack rising social and economic inequality, the dark legacy of the neo-conservative era.

The debate has begun in Canada. National Union of Public and General Employees president James Clancy recently sent a letter to Finance Minister Jim Flaherty, Liberal Leader Michael Ignatieff and NDP Leader Jack Layton proposing future federal budgets be subjected to a “Fairness Test” to assess the impact of key tax and spending policies on income inequality.

“Income inequality is one of the most important social and economic issues of our time. The research shows that growing income inequality is causing economic instability, undermining social cohesion and diminishing the quality of life for all Canadians,” Clancy writes. “A Fairness Test would assess the distributional impact of key tax and spending policies in federal budgets and determine whether they will reduce income inequality or make the problem worse. It would also embed the principle of fairness into deficit-reduction choices and ensure the poorest Canadians are not hit the hardest by these choices.”

The National Union of Public and General Employees, the national body representing all provincial government employees, received its inspiration from The Spirit Level: Why Greater Equality Makes Societies Stronger, a groundbreaking book by two British epidemiologists on social trends in the Organisation for Economic Co-operation and Development’s 34 member countries. Even the very rich suffer in highly unequal societies, the book argues, because the social pathologies caused by the growing gap between rich and poor — crime, violence, poverty, illiteracy, homelessness — shatters the social cohesion upon which democracy depends.

But the Harper government doesn’t appear to be listening. Human Resources Minister Diane Finlay announced last week she has no plans to implement any of the Commons human resources committee’s 58 recommendations to combat poverty. “Our Conservative government believes that the best way to fight poverty is to grow our economy and get Canadians working, ” her spokesman says.

When it comes to economic growth, there is a difference of opinion between federal Finance Minister Flaherty and Finance Canada economists. Last January, Flaherty toured the country claiming slashing taxes on corporations — “job-creators” — to the lowest level in the G8 is key “to grow our economy.” But Finance Canada statistics tell a different story. Lowering corporate taxes provides just 20 cents of growth for every dollar of tax cut. That compares to $1.40 per dollar growth from income support for unemployed and low-income Canadians and $1.50 per dollar growth from infrastructure investment.

Canadian Centre for Policy Alternatives economist Armine Yalnizyan points out that as federal corporate tax rates fell from 28 per cent in 2000 to 18 per cent in 2010, business investment as a share of GDP didn’t budge. It was 12.4 per cent in 2000 and was still 12.4 per cent in 2010.

When Statistics Canada data on corporate investment started in 1981, the federal corporate tax rate was 36 per cent and business investment was 11.5 per cent of the economy. Canada gains a meagre 1.1 per cent increase in business investment from slashing its corporate tax rate 25 points to just 15 per cent by 2012.

And there’s more. Says Yalnizyan: “The Harper team’s commitment to reducing the corporate tax rate… reduces the size of the public purse by $13.7 billion annually by 2012.” Since Canada has a sizeable deficit, tax cuts for profitable corporations — the only ones taxed — “will require you and I to pay interest charges so we can borrow the money to give them the money.”

Corporate Canada is currently “sitting on a mountain of cash” of half a trillion dollars, built up by surplus upon surplus, she continues. “And that’s the trouble with corporate tax cuts. They award firms whether they kill jobs or create them and that’s what makes this a faith-based proposition.”

Frances Russell is a Winnipeg

author and political commentator.

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