Stimulus too timid; tax cuts ineffective

(Jan 27, 2009) -- 'Everyone except the prime minister seems to understand that big problems require bold solutions. Canada needs a large-scale fiscal stimulus.'


The Harper government has let Canadians down again with a stimulus package that is short on the bold investments needed to boost the economy, create jobs and protect vulnerable families, says the National Union of Public and General Employees (NUPGE). 

The union says the budget is not equal to the challenges facing the country and should be significantly amended or defeated. 

"When it comes to the economy the prime minister has a tin ear,” said James Clancy, NUPGE national president. 

“That was obvious in the last election and the lead-up to the fall economic update.  After losing the confidence of Canadians and shutting down Parliament the prime minister entered into a much-heralded ‘listening mode’ but he apparently conducted ‘listening mode’ with a tin ear as well," he says.

“Everyone except the prime minister seems to understand that big problems require bold solutions. Canada needs a large-scale fiscal stimulus but unfortunately today’s budget is underwhelming and amounts to timid tweaking at the margins.” 

Equal to just 1% of GDP

Almost half of the deficit for next year is due simply to lost revenue from the faltering economy. The stimulus package announced in the budget for next year is a modest $18 billion, which represents about 1% of Canada's gross domestic product (GDP) and only half the size of efforts presented in other countries.  U.S. President Barack Obama has proposed a stimulus package of about 5% of GDP. 

"We're far behind what's happening internationally and that means Canadians are going to see more joblessness, uncertainty and hardship than they need to," Clancy adds. “Mr. Harper doesn't seem to realize that the dangers of being too timid are far greater than the risks of doing too much.”

A good part of the stimulus package is going to tax cuts for corporations and permanent personal income tax cuts.  When it comes to reviving the economy and helping vulnerable families tax cuts do not work as well as smart public spending, Clancy points out.

“The tax cuts in today’s budget are ill-advised and will be ineffective. The most important personal tax cuts are not targeted at low-income families and most people will use tax cuts to pay down debt, build savings or buy imports – none of which will help boost the economy.”

Previous tax cuts didn't prevent recession

In recent years the Harper government has announced tax cuts totalling close to $200 billion, most of which has gone to large corporations.  The union notes that these tax cuts did nothing to prevent the economic recession and says it makes no sense to expect more tax cuts to lift Canada out of a recession or help struggling families.

“The Harper government is focused on business tax cuts while at the same time funneling billions of taxpayer dollars to the big banks,” Clancy notes.  “When are they going to drop their corporate tax cut ideology and instead start helping average families by doing things like ensuring the big banks reduce mortgage rates, credit card interest rates and ATM fees?”

There’s a widespread consensus among leading economists that when it comes to reviving the economy the impact of tax cuts is much lower than that of direct government spending. 

“More investment in our social safety net should have been the core of today’s stimulus plan,” argues Clancy. “That would have provided more bang for the buck, more support for vulnerable families, and it would have ensured that something of value is left behind when the short-term stimulus is over.”

Little for jobless, families, elder care or students

Instead, the new budget confirms that equalization improvements already announced will be limited to the growth rate of the economy, meaning that struggling provinces will receive $7 billion less from the federal government than they had been counting on over the next two years. The budget also contained next to nothing to help the unemployed, families struggling with the rising costs of child care and elder care, students with rising debt loads, and seniors struggling with reduced retirement savings. 

“Extending Employment Insurance (EI) benefits by five weeks is not nearly enough to help unemployed Canadians,” Clancy says. 

“Improving access to EI and increasing benefits would have been far more helpful when it comes to putting money in the hands of those who need it most.  But the budget does nothing to address our flawed system, where only 40% of workers qualify for what are now poverty-level benefits."

“Most Canadians were expecting new investments in our social infrastructure but this budget invests nothing in child care, elder care, mental health, post-secondary education or community-based social services,” he adds. 

"Furthermore, the budget does nothing to improve public pensions for seniors and nothing to shore up workplace pension plans.”

Attack on collective bargaining and pay equity

NUPGE is also dismayed that the Harper government is charging ahead with plans to impose wage controls on federal public employees and to attack the pay equity rights of women. 

“It’s outrageous that they’re unnecessarily interfering with free collective bargaining and pay equity rights, there’s no justification for it at all,” Clancy emphasizes. 

He is also disappointed with the government’s misguided commitment to Public Private Partnerships (P3s) and joint financing with other levels of government for infrastructure projects. 

"The new infrastructure investments are welcome but we need to get this money out the door quickly," Clancy says. "Clinging to P3s and insisting on joint financing with other governments will slow the process down unnecessarily.” 

Five areas of investment needed 

Clancy concluded by saying that Canada needs a federal budget that invests in people in the following five areas:

  1. Protection and support for vulnerable families, especially major improvements to Employment Insurance, protection of labour rights and pay equity rights, and increases to minimum wages.
  2. New investments in public services like health care, child care, elder care, education, mental health and the justice system.
  3. A major multi-year public infrastructure program which would create jobs now, promote our environmental goals and build new industries for the future.
  4. A modern industrial strategy that invests in traditional sectors and builds a new green economy.
  5. A plan that protects and expands pensions, especially increases to CPP and OAS benefits, and the use of tax incentives to encourage Defined Benefit workplace plans.


James Clancy
National President