The upcoming federal budget should be focused on investing in job creation, not expanding spending cuts.
As Finance Minister Jim Flaherty seeks the views of Canadians on the upcoming federal budget, he should bear in mind that the key issue today is jobs. The economic recovery in Canada has ground to a halt.
In the last three months of 2011, the national unemployment rate rose from 7.1 per cent to 7.5 per cent as our economy lost 63,000 full-time jobs.
The “real” unemployment rate – which includes discouraged job seekers and involuntarily part-time workers – was 10.6 per cent [subscription may be required] in 2011, and a sky-high 19.7 per cent for young workers, far above where we were at in 2008. TD Economics forecasts that the unemployment rate will rise to 7.7 per cent by the end of this year.
Meanwhile, our public finances are in good shape. Canada has one of the lowest net public debt levels of the advanced industrial countries (34 per cent of GDP compared to an average of 63 per cent, as of 2011), and government borrowing costs are at an all-time record low.
Job creation is the best way to reduce the deficit and debt. Public investments that create jobs and grow our economy mean more tax revenues and lower spending on programs like Employment Insurance (EI) and social assistance.
Despite all this, the federal government plans a major new round of spending cuts amounting to at least $4 billion per year, perhaps going as high as $8 billion. These cuts will not only impact needed public services, but will also derail an already fragile recovery and lead to a further rise in unemployment.
Households, businesses, and exports are not going to take up the economic slack created by government spending cuts. Canadian families now have stagnant incomes and debt equal to 150 per cent [subscription may be required] of their annual income. They will be reluctant to spend more. Similarly, exports and business investment in manufacturing are weak because of the fragility of the global economic recovery and the high Canadian dollar. In short, the major economic engines other than government spending are idling.
The focus of the upcoming federal budget should be jobs, not job-destroying spending cuts. New job-creating public investments can be financed by reversing the corporate income-tax cuts, which have increased the deficit without increasing real business investment. Corporations have used their tax cuts to buy up their own shares, to increase dividends, and to increase their cash holdings. Non-financial corporations are now sitting on close to $500 billion [subscription may be required] of surplus cash. Meanwhile, real business investment in machinery and equipment, research and development, and worker training has been very weak outside of the booming oil and gas sector, which does not need tax cuts to invest.
Restoring the federal corporate income-tax rate from 15 per cent (where it stands today) to 20 per cent (below where it was when the Conservatives took office) would raise about $10 billion in extra revenues per year. Those extra revenues should be invested in the economy.
The federal government should launch, in partnership with the provinces and cities, a major, multi-year public investment program, which would create jobs now, promote our environmental goals, stimulate new private-sector investment, and boost productivity. Such a program should include increased support for basic municipal infrastructure, mass transit and passenger rail, affordable housing, energy conservation through building retrofits, and renewable-energy projects.
Federal government support for all infrastructure and environmental investments should be linked to “Made in Canada” procurement policies so goods and services inputs are purchased in Canada, and infrastructure should have a mandated training component to help deal with looming skills shortages.
The federal government should also make investments in a national, not-for-profit child-care and early learning program, in home care as part of the public health-care system, and in long-term care for the elderly. These programs would create new jobs while promoting our social goals.
Even the Department of Finance accepts that these kinds of investments create five times as many jobs per dollar spent as corporate tax cuts.
In case there is a major new downturn, the government also needs to be planning improvements to EI, including measures to expand access to EI regular and training benefits – particularly now that the proportion of unemployed workers who receive benefits has fallen to a record low of four in 10.
Direct supports to new business investment, such as investment tax credits, are a much more effective lever than across-the-board cuts to the tax rate, which mainly benefit companies in the already highly profitable financial and resource sectors.
The federal government should stop wasting billions of dollars on unproductive corporate tax cuts, stop their job-destroying cuts to needed public services, and invest in jobs and a stronger economy for all.
Original Article
Source: the Mark
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