As Finance Minister Joe Oliver this week touts Canada’s imminent return to balanced budgets, and sells the government’s pre-election tax cuts, some economists argue the Conservatives’ agenda of spending cuts and tax cuts are in part to blame for the country’s slow economic recovery.
The “rush to balance the budget” is “undermining” a return to normal economic conditions, the left-leaning Canadian Centre for Policy Alternatives (CCPA) said in a report released Wednesday.
The report said the federal government’s cuts have taken place faster than expected, and will continue for another two years past 2014, after the budget has been balanced. The CCPA estimated nearly 37,000 federal employees have already lost their jobs.
That sort of decline in government spending won’t be offset by tax cuts, argues economist Toby Sanger of the Canadian Union of Public Employees.
In a blog entry titled "Why the economy sucks," Sanger writes that today’s recovery is “a third slower than the recoveries of the 80s and 90s, while job and wage growth has also been dismal.”
He argues that’s at least in part because the economic impact of government cutbacks. Citing data from the Department of Finance and two private-sector economic analysis firms, Sanger says the negative economic impact of government cutbacks is greater than the positive impact of tax cuts.
“If the federal government cuts $1 billion from health care and social services, it will lead to a loss of an estimated 18,000 direct and indirect jobs and a decline in the economy of $2 billion,” Sanger writes.
“Meanwhile an income tax cut of $1 billion will only generate an estimated 6,000 jobs and boost the economy by $1.3 billion. So if the government cuts spending by $1 billion while also cutting income taxes by $1 billion, it will lead to a net loss of 12,000 jobs and a net decline in the economy of $0.7 billion.”
Sanger notes that government spending as a share of the economy is at a 70-year low, and under current government plans, is headed to an all-time low.
Story continues below
In its report, the CCPA says government cuts are having a direct impact on the quality of life of people who depend on various front-line government services. The report singles out Veterans Affairs, Employment Insurance and food inspection as three areas that have seen significant reductions in their ability to provide services.
Veterans Affairs and Human Resources and Skills Development Canada have lost or will lose 24 per cent of their staff between 2012 and 2016, the CCPA says.
During that period, the Canadian Food Inspection Agency will lose a fifth of its staff, and Statistics Canada will lose fully 35 per cent of its full-time staff.
But it's hard to estimate the total impact of the cuts, the CCPA says, because they have been implemented in a piecemeal fashion and each department was left to decide for itself what it would cut.
As an example of the impact of the cuts, the report notes that some 1.2 million Canadians who called the Employment Insurance hotline in 2012-2013 ended up abandoning the call because they couldn’t get through. The number of “sidelined” calls to EI more than tripled between 2006 and 2012, from around 8 per cent of callers to some 30 per cent.
The report notes that the cutbacks introduced in Ottawa are not temporary measures, but have been implemented on a permanent basis.
“This is the new status quo,” the report concludes.