Canada’s government is the smallest it’s been since the Second World War, and that’s hurting its ability to provide services, says a new “alternative federal budget.”
The latest edition of the document — which the Canadian Centre for Policy Alternatives releases every year ahead of the official federal budget — calls for substantial corporate tax hikes, the closing of tax loopholes and the elimination of tuition fees.
“Federal total spending as a share of the economy stands at 13 per cent of GDP, its lowest point in the past 60 years,” states the document, released Thursday.
“The last time the government was this small we had no national health care plan, no pension plan, no guaranteed income supplement, no employment insurance."
Falling corporate tax rates and growing tax evasion are to blame, and “the result has been a measurable withdrawal of public services and support programs upon which many rely,” the CCPA said.
The Place du Portage federal complex in Gatineau, Quebec, across the river from Ottawa. Canada's government is the smallest it has been in 60 years, the CCPA says. (Canadian Press photo)
The CCPA's budget would hike the federal corporate income tax rate to 21 per cent, from the current 15 per cent. That would return the rate to the level it was at in 2006, when the Harper government came to power.
It would also crack down on the use of tax havens by the wealthy, adding $50 million to Canada Revenue Agency’s budget to go after tax cheats.
Those three changes would put an additional $20 billion in the federal government’s coffers, the CCPA says — enough to fund an ambitious social spending agenda.
Perhaps most notably, the alternative budget would eliminate tuition fees for all post-secondary students.
But the budget proposes only paying for half the cost needed to bring tuitions to zero, with provinces covering the other half. It estimates free tuition would cost Ottawa $3.3 billion annually, implying that provinces collectively would have to pony up another $3.3 billion. The budget would only provide this funding to provinces that offer free tuition.
Corporate profits are winning: The share of Canada's income going to corporate profits has risen while the share going to wages has fallen, this chart from the CCPA's alternative budget shows.
The budget would also increase spending on First Nations and affordable child care, and would eliminate income splitting, which many progressive economists have argued largely benefited wealthier families and families with one -stay-at-home parent.
The proposed budget is likely to come in from criticism from conservative-leaning critics who argue hiking corporate taxes will reduce business investment, reducing job growth. They also argue a higher corporate tax rate would make Canada less competitive on the global stage.
Taxing investment profits at the same rate as income could also prove controversial. Although a recent study said the practice costs Canada’s governments $12 billion a year, many economists argue the capital gains tax is double taxation. The money was already taxed as business income, hence the lower capital gains rate.
But the CCPA argues these moves would be a positive to the economy, by reducing inequality and improving the financial situations of Canada’s most impoverished people.
It says its budget would lift 1.1 million Canadians out of poverty and create 520,000 jobs at its peak.
Room to borrow: Canadian consumers may have overextended themselves with debt in recent years, but the same is not true for the federal government, whose overall debt load has been mostly falling for years. (Chart: CCPA)
The Trudeau Liberals will release their debut budget on March 22. Finance Minister Bill Morneau warned last month that the deficit is likely to be bigger than earlier forecasts — up to $18.4 billion in the next fiscal year, not including Prime Minister Justin Trudeau's promised $10 billion in deficit spending, meant to boost the economy.
When taking the planned deficit spending into account, economists estimate Canada's federal budget could face a shortfall of up to $50 billion over the next two years. However, even that larger number amounts to 1.5 per cent of Canada's GDP annually — a relatively small deficit that most economists agree doesn't threaten Canada's long-term economic health.