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Hope Comes Home: 2016 Cardus Federal Budget Analysis

Green is the new gold. And the first federal Liberal budget is as much a directive to “grow green” as it is a plan for the country’s financial future. If Ottawa’s spending is set to skyrocket into a green house gas free stratosphere, it’s justified as way to restore middle-class optimism by creating good jobs in clean cities with properly functioning physical infrastructure.

Finance Minister Bill Morneau’s title for the document is “Growing the Middle Class” (it might just as well have been called “Hope Comes Home”) and there is no mistaking its intention to address a time of economic uncertainty for Canada. The energy sector continues to suffer as other resource sectors are also experiencing economic hardship. Morneau’s documents note that the 30 to 40 per cent drop in oil and gas investment caused a “negative shock to the economy of $30 billion or more, equivalent to (a drop of) 1.5 per cent of nominal GDP.” Alberta, the economic engine of Canada’s resource sector, has cooled significantly resulting in 65,000 job losses since October 2014. In its 2016 economic forecast, the Conference Board of Canada looked south to a stronger US economy and the potential for greater trade, in part due to the slumping loonie. Canadians continue to struggle with record household debt, buoyed by low interest rates as concern remains regarding an overvalued housing market.

True to their campaign promise, the government of Prime Minister Justin Trudeau has delivered a budget focused on deficit spending in hopes of stimulating the economy, rather than relying on simply tweaking monetary policies. In contrast to their promised $10 billion in deficit spending during the election campaign, however, the 2016 budget calls for a $29.6 billion deficit this year, 29 billion next year, and $14.3 billion in 2020-21. Overall, the federal government expects to spend $113.2 billion more than it raises during the next five years. The payoff for the first two years, according to the budget documents, will be 1.5 per cent growth in GDP translating into 100,000 jobs “created or maintained” by 2017-18.

Ray Pennings | March 22, 2016

Much of that spending will be from delivery on significant promises such as the overhaul of the family benefits system and the new government’s plan for infrastructure spending. And there is still plenty left over for making Canada greener than a seasick shamrock seller. Fully 18 pages of the budget itself are dedicated to a “Clean Growth Economy” that comprises everything from investing in clean technology to improving Great Lakes water quality and restoring trust in environmental assessment. Depending on how the pluses and minuses are calculated for programs spread over several budgetary envelopes, total new spending for greening Canada tops $3 billion.

For example, the budget proposes that during the next four years, the government will spend $1 billion to support clean technology in primary industries such as forestry, fishing, mining, energy and agriculture. It will allocate another $130 million over five years for initiatives such as the Sustainable Development Technology Canada Tech Fund, and $82.5 million over two years for Natural Resources Canada to support research development and clean energy technologies. Another $62.5 million will be spent over two years to “support the deployment of infrastructure for alternative transportation fuels, including charging infrastructure for electric vehicles….” Atop that, $50 million will be spent over two years to reduce greenhouse gas emissions from the oil and gas sector. The list goes on.

At Cardus, our analysis of these budgetary choices considers the government’s spending mandate within the larger societal trends. Federal budget decisions are one part of a complex interplay between government and social institutions that build and enhance our social architecture. It’s fair game to raise concern over what seems, at first blush, an exorbitant increase in dollars spent over money raised. But prudence also requires analysis of how such an approach affects the institutions that Cardus argues are critical to a healthy and vital Canadian society.

Infrastructure spending and the city

The federal government has committed $120 billion over 10 years for infrastructure spending, which the budget calls “an historic” investment to meet Canadian needs. The plan, to be rolled out in two phases, will seek to improve the lot of Canadians through everything from reducing urban traffic jams to making trade corridors more efficient to help our exporters. Phase 1 calls for $11.9 billion over five years, beginning immediately. The government pledges it will find new money to spend:

  • $3.4 billion over three years for public transit improvements
  • $5 billion over five years for wastewater and green infrastructure
  • $3.4 billion over five years for such “social infrastructure” as affordable housing, child care centres and cultural/recreational facilities

Another $12 billion in existing spending will continue. Phase 2 of the plan is left largely undefined and stretches out over eight years of a “broader and more ambitious” infrastructure plan that will “go hand in hand with the transition to a low-carbon economy” by improving the transportation networks in Canadian cities.

Infrastructure spending impacts provinces and cities where the fruit of such commitments will be seen. There is little debate that Canada’s infrastructure requires revitalization. The point of contention concerns the wisdom of running substantial deficits in order to pay for upgrades and new projects. And while the budget prescribes a revised formula concerning who pays how much for infrastructure, a larger opportunity has not been seized.

Clearly the billions in infrastructure spending are as much about economic stimulus as about renewing infrastructure. In order to maximize the public benefit, physical infrastructure development must consider how it relates to social infrastructure—the relational patterns that give rise to the social fabric of our neighbourhoods and communities. Improved physical infrastructure can enhance our quality of life the most when its relationship to social capital and community institutions are clearly understood. At its worst, poorly envisioned physical infrastructure can perpetuate or increase social isolation and push community institutions to the margins.

As program director of Cardus Social Cities Milton Friesen writes, “Changing a policy here and there or embarking on short-term patchwork interventions will be inadequate where the social fabric is getting thin.”

Advanced data collection can improve our ability to see and understand the patterns of individual and collective relationships that comprise our social infrastructure.Physical infrastructure renewal must consider our social infrastructures. While the budget does tip its hat to the need for “evidence-based” governance, there is a scarcity of detail in its pages about how the federal, provincial and municipal governments will effectively steward the environmental relationship between the physical and the social.

Translating infrastructure spending into opportunity

The federal government predicts that increased infrastructure funding will translate into new jobs. Not all qualified Canadians have access to public works, however. Provincial labour codes allow only some parties to bid on public projects. If the federal government wishes to invest in a manner that is transparent, fair, and open to all qualified Canadians, it should leverage its influence to encourage provinces to embrace open tendering for public works. Studies show closed tendering increases project cost from 10 per cent to as much as 40 per cent. Open tendering is both economically prudent and fair. Cardus Work and Economic program director Brian Dijkema writes, “Open tendering will provide the federal government with a tool to ensure that municipalities are accountable for making those federal funds stretch to the furthest extent possible. It contributes to an economic culture driven by competition among multiple labour pools chosen by workers—exactly the type of culture which leads to innovations which will increase value.”

For Canadians who have reached the end of their working lives, the government has fulfilled its promise to restore the retirement age to 65 years old. The previous government, citing cost cutting, had raised it to 67 starting in 2023. The Liberal government is also pledging $2.6 million a year to help retirement age couples who must live apart for reasons beyond their control, and are therefore at increased risk of living in poverty. Curiously, though, a budget built on ensuring middle-class comfort for as many Canadians as possible, the budget adds only a maximum of $947 a year to the amount for the vulnerable seniors reliant almost exclusively on Old Age Security and the Guaranteed Income Supplement. While the increase will require more than $670 million a year from the federal treasury, according to the budget, it will “improve the financial security of 900,000 single seniors across Canada” by a paltry $78 a month.

Similarly, the new government’s first budget falls short of the $775 million pledged for labour market development at a time when many Canadians, particularly in the energy producing provinces, have been thrown out of work. The 2016 budget proposes another $125 million for its Labour Market Development Agreements with the provinces and territories, and an additional $50 million for the Canada Job Fund Agreements. Certainly, those amounts are not trifles but are they enough to help in regions where the need to retrain to sustain reasonable living standards can be a matter of both individual and community survival?

At the same time, the budget does promise greater vigilance to ensure tax fairness by closing what it calls loopholes for business owners that are not available to ordinary taxpayers. It will prevent business owners from using complex partnership and corporate structures to multiply eligibility for up to $500,000 in small business deductions. These and other measures are justifiable in the name of basic fairness and equity in the tax system, without which a health, sustainable social architecture is impossible. But, inexplicably, it defers promised further reductions in the small business income tax rate and cancels a capital gains exemption where cash proceeds for sale of corporate shares or real estate are donated to a registered charity within 30 days. Surely reduced taxes for small business are consistent with the government’s laudable goal of rejuvenating Canada’s middle class economy? And, as Cardus has argued consistently over the last number of years, disregard for the contribution of the charitable sector to Canada’s well-being is short-sighted at best, and potentially extremely harmful it he long term.

Family benefits and parental leave

The federal government is creating a new Canada Child Benefit that will combine the existing Universal Child Care Benefit (UCCB), the Canada Child Tax Benefit (CCTB), and the National Child Benefit Supplement (NCBS) into a single, non-taxable benefit that is geared to income. To help pay for the $23 billion re-designed benefit, the federal government will cancel family taxation—also known as income splitting—for the 2016 and subsequent tax years. The new benefit is attractive for many families because it is streamlined, non-taxable and puts money back in the pockets of parents. Cancelling income splitting is unfortunate, however, as the policy decreased the tax burden on many families while acknowledging the reality that families function as an economic unit. Overall, the Canada Child Benefit should result in increased funds for most families. The government’s claim in the budget is that nine out of 10 families will receive more in child benefits than under the current system.

The budget also expresses a “commitment” to making compassionate care and parental leave benefits more flexible to better accommodate family and work circumstances. At the moment, though, the commitment is what one finance department official described as a “work in progress” and has no 2016 budget dollars attached.

Again, this seems a case of curious neglect from a social architecture point of view. As Cardus Family program director Andrea Mrozek has written, making parental leave more flexible: “Sensitizes us to the reality that once a baby arrives, care does not stop at one year… When parental leave is over, there are few special accommodations for the needs of working parents. We should be angling for recognition of the power and importance of parenting by acknowledging the responsibilities parents have well past one year.”

Policy-makers should be reminded that parenting children, while difficult to put a monetary value on, enriches communities now and in the future. A robust family policy can enhance the parenting enterprise by maximizing choices for parents.

Supporting natural caregivers at the end of life

Likewise, the landscape in end of life care in Canada is undergoing a revolution. The new government will introduce legislation setting the framework for doctor-hastened death. At the same time, Canada is witnessing an increasing awareness of the significance of palliative care. The government had an opportunity to recognize the supporting role of natural caregivers in the end of life care continuum. It seems to have been otherwise occupied, which is not to its credit. Budgets that attempt to do as much as this one still cannot do everything, and that caveat must temper criticism of inaction on compassionate care. Still, it remains a pressing issue that warranted far more prompt attention.

Currently the Compassionate Care Benefit is administered through Employment Insurance and provides up to 26 weeks of leave when a family member is gravely ill or at significant risk of dying. Equipping natural caregivers is good for patients and can reduce stress on acute care resources. When considering end-of-life care, public policy must consider the full range of social institutions connecting the range of options available to patients and their caregivers.

Education

If the 2016 financial plan is about green dreams for happy middle class Canadians in smartly repaired cities and towns, it’s also about education from cradle to grave. While the budget almost petulantly cancels a tax credit offered by the former Conservative government for children’s fitness and arts programs, it proposes instead up to $2 billion over three years for a new Post-Secondary Institutions Strategic Investment Fund. It also boosts by $95 million a year the amounts available to research granting councils such as:

  • $30 million for the Canadian Institutes of Health Research
  • $30 million for the Natural Sciences and Engineering Research Council
  • $16 million for the Social Sciences and Humanities Research Council
  • $19 million for the Research Support Fund that pays post-secondary institutions to undertake federally-sponsored research

At the individual student level, the government is pledging a package of assistance programs that will cost $1.53 billion in 2016-17 and $329 million every year after that. The Canada Student Grant will increase to $3,000 from $2,000 for students from low-income families, up to $1,200 for middle-income families and up to $1,800 for part-time students. The budget says such measures will help about 247,000 low-income families, 100,000 middle-income students, and 16,000 part-time students complete their education. There is also a promise to create, during the next three years, a total of 105,000 additional jobs for young Canadians through the Canada Summer Jobs program.

Beyond a better-educated citizenry and work force, though, the budget’s goal is to restore what the government says is a lost sense of optimism among Canadians. As Finance Minister Moreau put it in his budget speech: “We act for our children and our children’s children. We act so that they may inherit a more prosperous and more hopeful Canada.”

Of course, every action has an equal and opposite reaction, sometimes referred to as its price tag. In this case, the five-year projected cost is $113.2 billion that Canada does not have in its federal treasury. That is significantly more than Canadians were told during the election campaign that they would be on the hook for if the Liberals were elected. Still, voters took the risk of turning out the government they knew for a new government promising a brighter and more optimistic vision. Whether Canadians are left feeling green around the gills when the multi-billion dollar bills come due remains to be seen.

Notes

1 While this contradicts Liberal campaign literature, a Liberal online calculator shows benefits up to approximately the $200,000 level of income. Employment and Social Development Canada did not respond to numerous requests for clarity. Retrieved online at

https://www.liberal.ca/realchange/canada-child-benefit-plan/?shownew=1

2 A

Liberal online calculator

shows a family earning $200,000 with two children under six receiving $825 annually. In another example, a family earning $200,000 with four children under six, is allocated $9200 annually, tax-free. Three children under six at the same income level receive $2800.
3 “But even the new family assistance policies have shortcomings. A recent study indicates that 72 percent of Quebec families are worse off under the new family assistance program than under the earlier pro-natal one, despite government promises that 95 percent of families would benefit from the new policies.” Retrieved from

http://www.prb.org/Publications/Articles/2001/QuebecsAlternativetoPronatalism.aspx

4 Ibid.