COMMENTARY--THE REAL CHRETIEN LEGACY BUDGET
FEBRUARY 19, 2003
By Bruce Campbell and Todd Scarth
After all the hype, was yesterday
ıs budget Jean Chretienıs "legacy"
budget?
The answer is yes, though not in the way he may have intended, and the
Prime Ministerıs real legacy is not one of which he should be proud.
The advance spin prepared us to expect a massive spending budget, one that
would be consistent with the image that Chretien wants for his legacy--a
budget that sets a long-term course for social reconstruction.
In reality, the plan the Liberals announced yesterday is fiscally
conservative dressed up as socially conscious, and fails to make needed
social reinvestments. In other words, it is an appropriately weak legacy
for a Prime Minister who oversaw the shrinking of program spending levels,
relative to the size of the overall economy, to levels not seen since the
early post war years.
A little context is in order.
The Liberal government balanced the books in the late 1990s thanks to
swift and savage cuts to social programs. Program cuts allowed the government
to balance its books, but also left a trail of growing poverty, widening
income disparities, and deteriorating public services.
After the budget came into balance in 1997-98, and in response to growing
demand for social reinvestment, the Liberals promised to allocate fifty
cents of each surplus dollar to rebuilding social programs, and the rest
to a combination of tax cuts and debt repayment.
From the promised "balanced approach" the Liberal record has been
profoundly unbalanced--10% of surpluses have gone to improved program spending
(14%
if you include the child tax benefit), and fully 90% to debt reduction
and tax cuts.
Chretien assured Canadians that his government would rebuild the social
programs and supports that had been cut so deeply, most recently the
throne speech.
The Prime Minister talked a good talk. But yesterdayıs budget could
perhaps best be described as "Throne Speech Lite."
There is a blip in spending in the current fiscal year because the
government actually spends some 2/3 of the current yearıs surplus. But
program spending relative to GDP actually declines in the subsequent two
years.
Over the next two years (and including previously unannounced initiatives
that will be booked in the current budget year), the government announced
plans for a total of $15.5 billion in net new program spending.
However, it will almost certainly spend at least that much on debt
reduction, and an additional $2.3 billion in new tax breaks. Some of these
(such as increases to the Canada Child Tax Benefit) are in fact
admirable spending through the tax system. But $1.8 billion, or
two-thirds, will go directly to businesses and the top five percent of income
earners.
In other words, if we were in the first year of a balanced budget, the
Liberals would still fall short of their 50:50 pledge.
That does not even take into consideration the fact that previous tax cuts
were so deep that the revenue capacity of the government is a whopping $22
billion less than it would have been at 1997-98 tax levels. And this
weakening of fiscal capacity is growing as elements of the $100 billion
tax cut continue to phase in.
The decision yesterday to raise the RRSP contribution limits from $13,500
to $18,000 over four years is a singularly bad idea. It is nothing more
than a windfall for the top 5% of income earners -- those who earn $80,000 or
more. It is hard to believe that giving additional tax cuts to this group
of people, who have already benefited disproportionately from past tax
cuts, was a priority.
The phasing out of the corporate capital tax is also problematic.
Corporate income tax rates have already dropped dramatically--from 28% to 21%
under
Martin ( when Michael Wilson started cutting they were at 36%.) The
capital tax has served as a minimum tax ensuring that companies pay at least
some
taxes. This will result in an increase in the number of companies paying
no taxes.
When it comes to social reinvestment, this budget is less than meets the
eye. Nowhere is this more true than in health spending.
The actual money transfer to health over the next three years announced
today is less than Romanow and less than Kirby.
Aside form a vague expectation that the provinces will report annually,
thids budget does nothing to ensure that the new money will buy change.
And by not imposing conditions limiting for-profit delivery or financing, it
runs the risk that public money will fall under corporate control.
Even under optimistic assumptions there is no way that the federal share
of total provincial health expenditures will reach 25% over five years as
Romanow recommended.
In a an odd way this is the real Chretien legacy budget - it may appear
good on the surface, yet it fails to meet the expectations of the
Canadian people. The fiscal successes of the Chretien years were
accompanied by a huge social debt. That debt is the real Chretien legacy,
and yesterdayıs budget ensures that he will leave office with Canadaıs
social challenges unmet.
END
BIOS: Bruce Campbell is the executive director of the Canadian Centre for
Policy Alternatives. Todd Scarth is the director of the Centreıs Manitoba
office and cooordinator of the alternative federal budget.
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