Canada has money. Harper doesn’t. Why? (from Toronto Star)

In the Realm of Us

I recently listened to a panel on “public sector perspectives on challenges to the community sector”, featuring representatives from all three levels of government.  Each speaker virtually began with: ‘Don’t look to government for the money because government can’t afford it.’

But, in a democracy, isn’t the government us?  So when our governments say they can no longer afford something, what they are really saying is that “we” can’t afford it.  But, is this really the case?  Have we really become poorer?

Canada’s average GDP per capita—the value of total productive output divided by the population that produced it—has continued to grow, with a few minor interruptions since 1946.  Our national wealth is, relatively speaking, where it has always been.

On the other hand, Canada’s median income—the mid-point income level—currently stands at only two thirds of GDP per capita.  Until the 1970s, Canadian GDP per capita and median income were roughly the same.

Obviously, we don’t have a wealth problem, we have a distribution problem.

Secondly, we have a revenue shortfall. Tax revenue is the interest we claim for the use of public resources which, collectively, we all own and maintain.  Simply, we are not paying ourselves enough.

Between 2004 and 2012, Canada’s federal corporate income tax rate fell by one third—from 21% to 15%.  The argument against corporate taxation holds that corporate profits are either reinvested in the company, resulting in new jobs, or returned to investors. In either case, the taxes on those profits are realized through the personal income taxes paid by the employees and/or the rentiers.  However, despite a 30% cut in the corporate tax rate, virtually none of those new, after-tax profits went into new jobs or investors’ pockets.  Instead, corporations chose to retain their windfall as cash reserves—which are not subject to income tax on either the corporation or the investor.  By the end of last year, there was nearly half a trillion of these dollars—what former Bank of Canada Governor Mark Carney called “dead money”.  That’s a significant revenue loss.

And the GST.  Each percentage point of GST is estimated to return around $5 billion, annually.  In 2006, the government reduced the rate from 7% to 6% and, in 2008, from 6% to 5%.  This translates into a revenue loss of $5 billion in each of 2007 and 2008, and $10 billion in each of 2009, 2010, 2011 and 2012.  So what did you and I get out of this $50,000,000,000 in ‘savings’?

At roughly 33-34 million, that meant every Canadian realized, on average, about $150 in GST savings in 2007 and 2008—roughly 41¢ a day, or the HST levy on a $3 chocolate bar.  Since 2009, those savings have increased to 82¢ a day, or the HST on two chocolate bars.  So there you have it.  Although we can no longer “afford” adequate public health care, we can each enjoy two additional candy bars a day.

Finally, between 1982 and 2010, the median annual income of the top 1% of Canadian taxpayers increased by almost 50% to $283,400—an increase of $91,800.  Over the same 28 years, the median income of the bottom 99% rose by $400—from $28,000 to $28,400.  Keep in mind that fully half of the 99% earns less than the median income.  Despite our wealth, a too many Canadians earn too little to contribute much tax at all.  Another significant revenue loss.

Thirdly—we have a spending problem.

For example, in 2011, Canada spent $24.7 billion on defense.  That was an increase of about $8 billion since 2006 and more than $10 billion since the start of 2001.  An annual expenditure of $24.7 billion dollars a year amounts to just under $67.7 million a day.

So, at the risk of repeating myself, why, if the total national wealth continues to grow, in absolute terms, do our governments say they can no longer afford to meet our needs?

Here’s why.

Federal corporate income tax brought in $30 billion dollars in 2012.  At the 2004 rate, that would have been $42 billion.  Repatriating the lost corporate tax revenues from the dead money reserves, brings us $12 billion.  Restoring the GST to 7% (at a cost of 84¢ each, a day)—$10 billion.  Rolling back defense spending to 2006 levels—$8 billion.  Altogether, that gives us an annual revenue increase of $30 billion.  Given that the deficit for 2012 is estimated to be $26 billion, we can not only balance the books this year, but do so with $4 billion to spare.

Yes, Virginia, we can afford what we need.  And if we can afford it, so can our government.

Pat Steenberg is a former Executive Director of KAIROS, and a former Vice-President of the Canadian Council on Social Development.

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