OTTAWA—In the lead-up to the 2005 federal budget, debates about the potential uses for the fiscal dividend—debt repayment, tax cuts, or social reinvestment—have intensified. However, if the federal government intends to meet its campaign promises and work towards a prosperous, productive, and equitable Canada, the only valid option is to reinvest the surplus in the social programs Canadians cherish above debt repayment and tax cuts.
What Should We Do With the Federal Budget Surplus?, an Alternative Federal Budget 2005 Technical Paper, debunks the arguments for using the federal surplus for tax cuts and debt repayment and argues that program spending will give the government—and Canadians—the biggest return on its investment.
Internationally, Canada is in an enviable position, with the lowest debt burden of all G-7 countries. Finance Canada’s own projections indicate that by simply growing the economy and making no further debt repayments, our debt/GDP ratio will drop to 25% only one year later than the government’s self-imposed target date.
Though the $100 billion tax cut package announced in 2000 was justified as a reward for the sacrifices Canadians endured in balancing the budget, the benefits of the tax cuts went disproportionately to the highest income Canadian families. Canadian taxes are not out of line with those of other G-7 countries and Canada’s corporate tax rate is 2.3 percentage points lower than the average U.S. rate.
“Canada’s international competitiveness results in part from lower labour costs resulting from lower employee-sponsored benefits, especially medical insurance,” explains Ellen Russell. “In other words, our public health system provides Canadian companies with a competitive edge over their U.S. counterparts.”
To facilitate Canada’s future economic growth, the federal government must reverse the under-investment in several key areas, including infrastructure and the wide rage of social programs that play a role in combating poverty and promoting social equity. Despite the much-trumpeted 50/50 promise, these programs have not received their share of the fiscal dividend. Program spending for 2005/06 is projected to be 11.6%, still very low by historical standards.
“Judicious government spending of forthcoming budget surpluses can bring substantial economic benefits and promote social equity while debt repayment and untargeted tax cuts will continue to dismantle—not rebuild—the Canada that Canadians want,” concludes Russell.
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What Should We Do With the Federal Budget Surplus? is available on the CCPA web site at http://www.policyalternatives.ca
For more information contact Kerri-Anne Finn, CCPA Communications Officer at 613-563-1341 x306.