The Federal Budget - Part II
(This is the second
of a series of articles analyzing the first budget of the Harper Conservative
government.)
The New Approach
In its first budget the Conservative
government of Stephen Harper has
promised that "The government will restrain the rate of spending growth.
The government will introduce a new approach to managing overall spending to
ensure that government programs will focus on results and value for money, and
are consistent with government priorities and responsibilities." This approach is nothing new at all. It is a continuation of the anti-social
offensive of the federal government against the working class and people of Canada on behalf of the financial
oligarchy. It began in the late 1980s and early 1990s and was unleashed with a
fury in the mid-1990s. Under the banner of eliminating the deficit and
balancing the budget the federal government attacked the working class and
broad sections of the people by cutting back on spending on social programs and
by other means. Even though the deficits have been replaced with surpluses in
the past few years the federal government has not changed its approach. The
only change is that the mantra of eliminating the deficit has now been replaced
with the mantra of reducing the tax burden.
Tax Relief
The government is forecasting that it will
have revenue surpluses of $17.8 billion and $19.4 billion in 2006-07 and
2007-08 respectively - a total of $37.2
billion over the two years. It is
planning to disperse these surpluses through new tax initiatives, debt
reduction and new spending initiatives.
It is projecting that the remaining surpluses after these dispersals will be
$600 million and $1.4 billion in 2006-07 and 2007-08 respectively.
A considerable part of the planned surplus for
these two years is allocated towards tax relief. A total of $10.3 billion will go towards the
reduction of personal income tax;
$8.6-billion towards the reduction of sales and excise tax; and $1.7
billion towards reduction of business tax. Regarding the tax reduction for
individuals the budget states that "As a result of these personal income
tax and GST reductions, families earning between $15,000 and $30,000 a year
will be better off by almost $300 in 2007. Families earning between $45,000 and
$60,000 will save almost $650."
These savings however will not come close to even offsetting the rising
cost of living. At the current inflation rate of 2.9 percent the loss of real
earnings is far greater than the tax relief. Therefore, these tax cuts will not
improve the lot of the vast majority of the people, especially the working
poor, the unemployed and underemployed, the recipients of social assistance, or
people living on small pensions. So much for the generosity of the new
government.
The GST
The reduction of the Goods and Services Tax (GST) from 7 percent to 6 percent is the largest of all the tax cuts. The government estimates that this measure would give back $8.69 billion to consumers over a two year planning period. It is ironic that the Harper government criticized the Liberal government for accumulating huge surpluses through the GST since it was a Progressive Conservative government, namely the government of Prime Minister Brian Mulroney and Finance Minister Michael Wilson, that introduced this tax on January 1, 1991. The new tax was a contributing factor to the biggest defeat of a federal governing party in Canadian history in 1993. The vast majority of Canadians wanted it abolished. The Chretien government promised to get rid of it, but never did.
The 7 percent GST replaced the 13.5 percent Manufacturers' Sales Tax (MST) which was a hidden sales tax applied to the manufacturer's sale price on goods produced in Canada, and to the customs value of imported goods. The exclusion of virtually all services and the exclusion of the markup applied by most wholesalers and retailers to the manufacturer's sale price, significantly narrowed the tax base of the MST. The MST base was further reduced by exemptions granted to a wide range of consumer goods, such as food products, books, magazines, health products, heating fuels and clothing, as well as most machinery and equipment.
Because the MST applied to some of the inputs purchased by manufacturers some finished products already contained some MST. Exported goods, although exempt from MST, thereby contained some of the tax. The manufacturers therefore argued that the MST hurt their international competitiveness and wanted it removed. This was one of the reasons for changing the MST to the GST. The other reason was to broaden the federal government's tax base in order to pay the interest on the money borrowed by the federal government from various financial institutions. The new revenues from the GST, as well as revenues diverted from social programs, were used to service this debt. In 1996-97 the federal government spent 31.6 cents out of every dollar of revenue on interest payment to the financiers.
Debt Servicing
The public debt is a tremendous burden on the Canadian working class and people and a huge source of profit for finance capital. Between 1961-62 and 2004-05 the federal government made interests payments to the financiers to the tune of approximately $950 billion. This does not include any repayment of the principal. After all of these years of paying interest and some principal, the federal government still had a net debt of $555 billion and a gross debt of $706 billion in 2004-05. Even though each successive government over the past twenty years has made it a priority to reduce the debt by cutting social spending, there is no light at the end of the tunnel. The approach of the Harper government towards this problem is the same as his predecessors. The government is planning to spend $34.8 billion on interest payments in 2006-07 out of a total projected revenue of $227.1 billion and an equal amount in 2007-08 out of a total projected revenue of $235.8. The government is also planning to pay down $8.0 billion on the principal this year, and $3.0 billion in each of the successive years.
The budget states that: "For many Canadian families, right now the bottom line is that they still have to struggle to make ends meet." This concern is a sham, otherwise the government would change its priorities to serving the needs of the working class and people ahead of those of the finance capitalists. The finance capitalists are a tiny minority and as a whole they have doubled their return on investment over the past 35 years. There is an immediate need to stop this bleeding of the economy and to eliminate the stranglehold of finance capital over the lives of the people. International finance capital can afford a temporary interruption to their interest payments while many Canadians cannot wait for an improvement to their conditions of life. A moratorium on debt servicing for even two years would free up projected revenues of $69.8-billion. It would stop some of the bleeding of the economy and provide a source of funding for an increase in spending on social programs. This would provide a significant relief to the working class and people.
Employment Tax Credit
The second largest tax initiative in the budget is the Employment Tax Credit and will cost $2.7 billion over the next two years. It will provide a $500 credit on taxable income for all employed individuals effective July 1, 2006. The amount will be increased to $1,000 on January 1, 2007 which would save a working person up to $155. This credit is only available to employed individuals. There is no comparable benefit offered to those receiving unemployment insurance benefits or other social assistance even though these people are among the most in need of relief. The omission of such a benefit is not an accident. It is also not due to a shortage in the Employment Insurance (EI) fund. The actual revenue from EI deductions was $17.31 billion in 2004-05 and only $14.75 billion were paid out in benefits in that year.
Over the past twenty years, the federal and provincial governments, and the representatives of big business, have stated time and again that unemployment insurance and other social assistance are disincentives to work. It is not the case that the governments or capitalists are able or willing to provide jobs and a decent living to everyone, as witnessed today by the "boom" in the economy that is still plagued with a 6.1 percent rate of unemployment. However, the capitalists always require a pool of cheap labour and therefore want to give "incentives" to the unemployed to work by reducing their support levels below the minimum to live. The "Ontario Works" programme introduced by former Ontario Premier Mike Harris was fashioned around this policy.
The politicians, governments, chief executive officers and economists who support this policy have created a terminology to put a positive spin on this inhuman practice. Some describe these measures as incentives to "work, save, invest and take risks", others describe it as encouraging investment, job creation and productivity, and yet others describe it as breaking down the "welfare wall". Mike Harris and Preston Manning consider it as one of their "foundational principles" and describe this policy as "challenging Canadians to accept greater personal responsibility".