(2 June 2009) - Canada's social infrastructure is starving for funds despite right-wing lies about the cause of Jim Flaherty's projected $50 billion deficit.
By James Clancy
National Union of Public and General Employees (NUPGE)
Canada's federal finance minister (who said last November we’d have a surplus and in January a deficit of $34 billion) now says the red ink for this year will be at least $50 billion dollars.
I’ve never heard a finance minister make so many confusing and contradictory statements. But Jim Flaherty is not alone in confusing the debate over the true state of our national finances these days.
The chest-thumping right-wing mouthpieces in the mainstream media are equally busy spreading the myth that Flaherty's deficit is being caused by out-of-control government spending. (A good example is Terence Corcoran’s May 26 column on the front page of the National Post.)
Fortunately, the facts contradict this self-serving falsehood. Here’s how we actually got to a $50 billion dollar deficit:
Point 1: There’s a general consensus amongst economists that each percentage cut from the GST amounts to a federal revenue loss of about $6 billion dollars. Therefore, when the Harper Conservatives (foolishly) cut the GST by 2%, they also cut federal revenues by $12 billion.
Point 2: Don Drummond, chief economist of the TD Bank, estimates that Ottawa has also lost $10 billion more in revenue because of plummeting corporate profits (this despite the fact that Liberals and Conservatives combined have already given away close to $200 billion in corporate tax cuts). But again, let's not get sidetracked.
Point 3: Rising unemployment rates have increased Employment Insurance (EI) payouts. The forecast increase in total EI payouts from 2008-09 to 2009-10 is currently about $3 billion.
So add it up and the first half of Flaherty's $50 billion deficit can be accounted for by these three factors alone:
- 2% GST cut = $12 billion
- Falling corporate taxes = $10 billion
- Higher EI payouts = $3 billion
The remaining $25 billion is additional spending but let's look at where it is going.
According to Drummond, roughly $10 billion will be spent on the auto sector and a similar amount - $10 billion more - to create jobs through new infrastructure projects - $20 billion in total.
This all adds up to $45 billion of the $50 billion now being talked about, clearly putting the lie to the conservative and media line that government spending on normal programs is out of control.
That cannot be overemphasized.
At the same time, the critics of these special recession-fighting initiatives should be asked just what items on the list they would reject.
Would they hold back the money their friends in the Harper government want to allocate to infrastructure projects to stimulate the economy and create jobs? Would they not support the auto sector?
Perhaps they’d rather sit on their hands and let our manufacturing base disappear and leave these tens of thousands of workers - whose pay cheques are critical to the economy - to fend for themselves?
Even if they were this shortsighted, it would only amount to $10 billion of Flaherty's $50 billion total.
Keeping deficits in perspective
Red ink is never welcome, but it sometimes makes sense to run deficits in the short-term. If ever there were such a time it is now, and Canada is in good shape to handle even Flaherty's uncertain deficits.
In the early 1990s (under Brian Mulroney, another Conservative leader who had trouble managing the economy) Canada’s debt burden as a percentage of GDP rose to about 70%.
Today, thanks to a lot of sacrifice, borne disproportionately over the years by ordinary Canadians, our national debt is about half, relatively, of what it was the last time a Tory government was in power, even taking into account Flaherty's $50 billion deficit.
The International Monetary Fund (IMF), hardly a socialist haven, said just a week ago that Canada could afford to spend even more than currently projected to stimulate the economy, precisely because of our relatively favourable debt position.
“With debt low, Canada would be well positioned to participate in a globally coordinated round of further stimulus,” the IMF noted in its annual review of the country's economy.
“Further fiscal expansion would not put at risk debt sustainability, in view of the credible commitment to medium-term structural surpluses,” the IMF said.
Social programs starving
The reality, unlike what you are hearing from Parliament Hill, from Bay Street and the mainstream media, is that Canada’s social infrastructure is badly in need of new investment.
I’m talking about things like child care, mental health care, elder care, long-term care and our overtaxed justice system. These and many other areas desperately require new social investment.
Unfortunately, Flaherty's $50 billion deficit has virtually nothing to do with new spending on vital social programs such as these. That's what conservative politicians and their accomplices in the business community and the media are not telling you.
James Clancy is the national president of the 340,000-member National Union of Public and General Employees (NUPGE), one of Canada's largest labour organizations with over 340,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. NUPGE