Canada’s Austerity Agenda: It’s About the Taxes

Austerity policies pose major threats to the public’s health. In this guest post, Ronald Labonté argues that the austerity agenda in Canada stems not from a crisis in finances, but from a crisis in fair taxation. Labonté holds a Canada Research Chair in Globalization and Health Equity at the Institute of Population Health, and is Professor in the Faculty of Medicine, University of Ottawa; and in the Faculty of Health Sciences, Flinders University of South Australia.

The American Jurist, Oliver Wendell Holmes, once wrote that taxes are the price we pay for civilization. By that account we are becoming less civilized with each new budget cycle. We are being told that we have a crisis of public debt and deficit. We do not. We have a crisis in fair taxation for the public goods that sustain health and civility, and a 40 year uncontrolled experiment in global neoliberalism and free market fundamentalism that has seen the starkest rise in income and wealth inequalities in over a century. Canada is just one of scores of national examples.

Canada began its downward taxation spiral in the 1980s. Marginal rates paid by the highest income earners dropped from 43% in 1988 to 29% in 2010. Corporate taxes fell from 49% in 2004 to just 27% in 2010 (Simms 2013). As taxes as a percent of Canadian GDP declined, so did public spending. Canada now ranks 24th of 34 OECD countries in our overall rate of taxation. Since 2006 and the Conservative government, we have lost over $220 billion in federal government tax cuts (Fanelli and Lefebvre 2012). The Great Financial Crisis of 2008, the result of profligate greed on the part of a handful of unregulated financial gamblers, and the trillions spent by governments on bank rescues and stimulus spending to buffer the subsequent Great Recession, have since become a pretext for: not more and fairer taxation, but more tax breaks and government cutbacks.

This is the post financial crisis austerity agenda being rolled out around the world, with between 80% and 90% of the global population now coming under its yoke (Ortiz and Cummins, 2013). Who pays austerity’s heaviest cost in poorer health and wellbeing? The poor, the rural, women, children and the ever growing number of the ‘precariat’ – those whose globalization’s ‘flexibilized’ labour markets offer lower pay, fewer benefits, less security and often only part-time or temporary jobs. Throw in the massive global youth unemployment bulge and we have a recipe for domestic and international conflict, some of which (the Arab spring, rural China, parts of Africa) has already emerged.

Cuts in tax and government spending are good for the economic elites of the world who have seen their fortunes soar since the Great Financial Crisis. Consider that the world’s 1,426 billionaires between them had as much wealth in 2012 as the combined populations of Africa (1 billion people) and India (1.27 billion people), an inequality ratio of 1.5 million to 1 (Forbes 2013). But tax and spending cuts are actually bad for the economy, especially when private investment is drying up and the ‘real economy’ of production and consumption is sluggish, if not sclerotic.

Indeed, public spending has a little known fiscal multiplier effect, which, in high-income countries such as Canada, ranges between 1.6 and 1.7. For every dollar in new government spending there is $1.60 to $1.70 in new economic growth. That is because government spending buys goods and services made by workers and employs civil servants who buy more goods and services. Private companies see things improving and start investing more of their hoarded cash. Some forms of government spending (in health, education, environmental protection, the things that matter in most peoples’ lives) have much higher fiscal multipliers. By contrast, as the Canadian economist Jim Stanford has calculated, for every dollar in new corporate tax cuts, only 10 cents is re-invested in the real economy that employs people (Stanford 2013). The rest goes to dividends, financial reserves or gambling in the still unregulated shadow banking world of derivatives and hedge funds – the highly leveraged ‘casino capitalism’ that brought us the Great Financial Crisis. So a win-win-win (public spending on things people value, healthier citizens and faster economic recovery) becomes a lose-lose-lose (more wealth for those who don’t need it, slower economic growth and new, toxic asset bubbles primed for another burst).

Another comparison: Based on OECD data, if Canada taxed at the average rate of the EU15 countries (40% of GDP), we would raise almost $160 billion more each year in revenue. If we spent on health and social programs at the EU 15 average rate of 30%, we would be pumping $208 billion more each year into the goods, services and income transfers that improve peoples’ health and wellbeing. None of these EU 15 countries are in structural deficit, and several have been outperforming Canada in narrowly measured economic terms for years.

To repeat: there is no fiscal crisis. There is a taxation crisis. We are not living with scarcity where everyone must tighten his or her belt. We are living in an era of egregious inequality where increasing amounts of global income are escaping the redistributive bite of the taxman, transfer-priced or squirreled away in the (still burgeoning) number of offshore financial centers (aka ‘tax havens’). Most of these are located within or under the protection of the world’s wealthiest countries, the same ones now hollowing out their tax-gutted welfare states.

Canada’s tax crisis is not exclusive. It can be found in most of the world’s countries, engaged in a revenue race to the bottom in order to attract or retain foreign investors. But over the short-term the austerity this leads to is bad for health and for the economy. Even the IMF is doing a deep re-think over the macroeconomic wisdom of its austerity mantra. Over the long-term the gap it widens between those few who too much and those many with too little imperils a peaceful global future. And without strong market regulations and progressively financed redistributive spending, relying on economic growth in ‘real economy’ of production and consumption to lift the world out of poverty will destroy our planetary life supports long before we come even close.

When are Canadian politicians (and those in most of the world’s countries) going to realize that the neoliberal emperor of free markets, low taxes and minimal government has no clothes?

References

Fanelli, Carlo and Priscillia Lefebvre. 2012. “The Ottawa and Gatineau Museum Workers’ Strike: Precarious Employment and the Public Sector Squeeze.” Alternate Routes: A Journal of Critical Social Research 23: 121-46.

Forbes. 2013. “Inside the Billionaires List: Facts and Figures.” Forbes. http://www.forbes.com/sites/luisakroll/2013/03/04/inside-the-2013-billionaires-list-facts-and-figures/

Ortiz, Isabel and Matthew Cummins. 2013. “The Age of Austerity: A Review of Public Expenditures and Adjustment Measures in 181 Countries.” Initiative for Policy Dialogue and the South Centre. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2260771.

Simms, David. 2013. “Canada Best Place in G8 to Pay Business Taxes.” Canadian Broadcasting Coporation. http://www.cbc.ca/news/business/taxes/canada-best-place-in-g8-to-pay-business-taxes-1.1380380.

Stanford, Jim. 2013. “The Failure of Corporate Tax Cuts to Stimulate Business Investment.” In The Great Revenue Robbery, ed. R. Swift. Ottawa: Canadians for Tax Fairness.

 

 

5 Comments Post a Comment
  1. Kasha says:

    I completely agree with you on this and have been saying so for years. The inequality becomes greater every year and it seems that the government does very little to curb this. Of course, this post says it a bit better than I generally do. I especially like the part about the neoliberal emperor of free markets.

  2. Ted Schrecker says:

    A useful comment. However, it is too simplistic to blame the tax crisis on “a revenue race to the bottom in order to attract or retain foreign investors”; at least as significant are the consequences of domestic economic polarization. In this vein, consider the statement of Thomas Mulcair, the leader of Canada’s formerly social democratic New Democratic Party, to the effect that “no increases in personal taxes will be in any way shape or form part of our political offer in 2015,” when Canadians next head to the polls (see http://www.thestar.com/news/canada/2013/10/06/npds_mulcair_nixes_wealth_tax_despite_mcquaigs_support_for_it.html). This means that any initiatives at the national level to address health equity by way of narrowing the gap between the rich and the rest are dead in the water in Canada, until circa 2020. Honesty on this topic would be welcome, as foreign a concept as that is in the Canadian health policy research concept.

  3. Ronald Labonte says:

    Ted Schrecker is absolutely correct about domestic economic polarization, which is the national face of the (globalized/globalizing) neoliberal market fundamentalism. The comment by New Democratic Party leader Thomas Mulcair about not raising personal income taxes is an indication of how far to the right the political goalposts have shifted over the past 30 years. For many of today’s low and middle income countries, however, much of their inadequate and consumption-based tax systems is, in part, the result of IFI advice or loan conditionalities over the 1980s and 1990s — some of which persist in the post Great Financial Crisis emergency loans of the IMF.

  4. Ketan Shankardass says:

    Thanks for the post and thoughtful comments.

    Ted, it sounds like mainstream politicians in Canada aren’t going to be interested in advocacy for more progressive taxation as a health equity strategy. Do you think there would be more traction arguing for more targeted spending to support, say, early childhood development for families living in poverty? Should we be advocating to bridge the gap in other ways?

    In other words, at this point in time, is the problem that politicians are afraid to be seen falling out of step with a broader austerity agenda, or are they also weary of arguing for “redistributive” policies, in general?

  5. Jacques E. Girard says:

    It is incredible that we could now put figures on what we suspected for so many years. I had the opportunity to check and balance research material on which Ron Labonte is working at least for the last 10 years. The rigor with which he brings up those observations to question some governance issues we are facing in health need to be taken into account. We can not pretend anymore ignoring those crude facts. A shift is urgently needed to break up the ideological circle in which we are kept for too many years as a “civilized” country. Don’t you think we need an explicit agenda to provide with a sound alternative to influence the political arena through strategies targeting key people?

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