THE BLOG

Time to Occupy the Budget

03/13/2012 11:17 EDT | Updated 05/13/2012 05:12 EDT

There is no denying that we have a renewed appreciation of the dynamics of income inequality as a result of the Occupy protests. Though it was never clear whether the movement was bemoaning the divide between rich and poor, between the super rich and the rest, or both, the public appetite for action was unmistakable. Acutely absent was a coherent idea of what a productive response to Occupy's collective exasperation might look like.

Much has been made of this apparently objective-less movement. While the protests catalyzed a public education around the mechanics of how the richest have increased their share of the wealth and the incomes of the poorest have stagnated over time, the movement was disproportionately targeted at Wall (and Bay) streets. Symbolically practical but disparaging in its ability to respond, the private sector was exploited as a paragon of the substantial income gains that the "one per cent" realized over time.

But aside from said symbolism, the sector and its streets cannot be exclusively relied on to offer or implement solutions to income inequality. So, where should we look for recognition of the 99 per cent? How about to the very same place that the protests should have been targeted in the first place: our legislators. Though "Occupy the Legislature" may not have had the same ring, our policy decisions offer mechanisms that will either perpetuate or diminish the income divide in the years to come.

With the change in season from fall to winter comes a transition from the global demonstrations to the time when governments across Canada announce their budgets -- typically to little fanfare. In light of this progression, we consider what governments can do given current financial circumstances to shrink inequality and diminish poverty by imagining how the Occupy movement might capably occupy Canadian budgets.

One direct way to reduce poverty and subsequently minimize inequality is to provide assistance to people in need. Canada already has at least two national programs that help low-income families by providing cash assistance and providing incentives to help them get into the workforce. The National Child Benefit (NCB) provides cash assistance to a large number of families and provides greater benefits for the lowest income families.

A second federal program, the Working Income Tax Benefit (WITB), provides support for low-income working Canadians. Like the Earned Income Tax Credit (EITC) in the United States, the WITB encourages people to work and stay employed and targets those most in need for support. Evaluation of the programs suggests that these types of benefits have been helpful in reducing income inequality both through the cash transfer and by the effect they have on encouraging people to stay employed.

Both of these programs address inequality by confronting poverty. The extent that their success has waned over the past few years is partly due to the benefits that they provide not keeping pace with increases in the cost of living. Governments make difficult choices with scarce resources, and they have chosen to allocate their funds elsewhere instead of investing more in programs like the NCB.

Given the bleak fiscal outlook over the next few years, it seems clear that resources for these types of programs will be scarcer. This doesn't bode well for the option of increasing payouts for these successful programs.

What else can our governments do? There are attractive options for reducing income inequality and increasing the resources available to these very programs while improving the government's fiscal balance. A number of tax expenditures (through deductions and credits) actually contribute to inequality and reduce federal revenues. Closing some of these expenditures would free up resources to both reduce the deficit and improve the NCB and WITB.

For example, the government "spends" almost $3 billion by not taxing business-paid health and

dental benefits. These benefits are largest by definition for those with the highest marginal tax rates. The non-refundable child fitness tax credit costs another $115 million and goes to all families, whether they need the help or not. A number of other tax expenditures also stand out as large, inefficient and poorly targeted. As Don Drummond noted in his recent report on the state of Ontario's public services, a number of tax expenditures (accounting for $2.3 billion in Ontario alone) that are targeted at business instead of individuals are also expensive, ineffective, and may also contribute to inequality.

Making our tax system more progressive does not penalize the super-rich exclusively. What is does is target the more general problem of poverty and inequality by making our tax and transfer system more efficient and in-tune with the very problems that it is designed to address.

In the next few months, a few streets will matter in the way that Wall Street did in October. Pay attention to Queen's Park Crescent and Parliament Hill. With any luck, pending budget announcements will occupy our mutual scrutiny with the same fury that the protests have.