The welfare state retrenchment that has dominated federal politics since the 1980s has not only failed to stimulate higher levels of investment or faster GDP growth; it has left the federal government with chronically weak fiscal capacity to deliver the social services Canadians expect. It has also seriously compromised the scope for government to effectively respond to economic crises. Unifor believes in a strong, graduated tax system that provides the revenue tools necessary for the government to play an active role in enhancing the value of Canadian national life.
In terms of taxation, the progressive gains of the post-war period have been significantly undone. In the 2014-15 fiscal year, federal government revenue as a share of GDP stood at 14%, down from nearly 20% in 1974-75. Today, federal revenue is lower than at any point since 1940. Corporate income taxes in Canada have been halved since 1988. And while many business economists claim this has been beneficial to Canadians, fixed asset investment, job creation and GDP growth have fallen (and/or decelerated) over this period, not risen. Estimates vary, but the Harper Government’s decision to shave two points off the GST has cost the federal treasury $150 billion over the past decade. There is no evidence that jobs were created as a result of this tax cut. And the effects of the GST cut were too small to significantly alter the consumption decisions of households.
On the spending side, there are four main drivers of growth: households (private consumption), businesses (fixed asset investment), foreigners (net exports) and governments (program spending). Canadian household debt has reached record highs (160% of disposable income). This worrying trend means private consumption cannot be relied upon to drive future growth. Corporate Canada has stockpiled nearly $700 billion in cash on its balance sheet, which it appears unwilling to use to foster growth. With a devalued dollar, exports might increase in the future, but for now it remains up to the federal government, through fiscal policy, to put Canadians back to work and get the growth process going. The ineffectiveness of monetary policy alone to counter a stagnating economy has provided ample evidence that the federal government must play a stimulative role if the growth process is to resume.
Public sector spending is a vital part of Canadian prosperity and, through our social programs and safety net, Canadian identity. Beyond (physical) infrastructure stimulus, which most experts agree is badly needed, Canada’s social infrastructure, which has suffered years of neglect, needs strengthening. Public investment in everything from childcare and education to social housing and retirement security has a proven record of alleviating poverty and widening opportunity. The low interest rate environment makes this an ideal time to borrow, but reversing some of the reckless tax cuts of the Harper Government would be a more sustainable path.
Recent innovations in economic thinking suggest that, in uncertain times, government spending can reassure hesitant investors. Rather than ‘crowding out’ private sector investment, strong government spending in strategic sectors can lead to a ‘crowding in’ effect, as business is incentivized to invest on the belief that aggregate demand has been bolstered.