Idle Chatter

Economic Action Plan #fail

The contractionary effects of austerity programs on economies have been well documented and, a few weeks ago, it was even reported that a 28-year old graduate student debunked key ‘research’ by two Harvard professors that served as a central intellectual justification for austerity by a slew of politicians, academics and corporate  executives. Not surprisingly, then, Canada’s economy, which has endured austerity measures implemented by the Harper Conservatives since 2008, is showing increasing signs of trouble.

Just in the last month, we’ve seen a report by the Parliamentary Budget Officer (issued on April 29) noting that “government spending restraint will act as an additional drag on growth and job creation. The projected weakness in growth keeps the economy well below its potential GDP through 2015…”

Moreover, the report estimates that “in the absence of these [austerity] measures and revisions to spending levels,” packaged for the public by the Conservative spin-machine as the Economic Action Plan, “projected employment would be higher by 67,000 jobs” in 2017.

Meanwhile, in mid-April, the International Monetary Fund, which itself has a reputation for pushing austerity measures across the globe, cut Canada’s economic outlook for the year by 0.3 percent and urged the government to continue supporting growth. In response to the announcement, Bank of Montreal Capital Markets chief economist Douglas Porter observed that “the IMF has seen the light, to some extent, that austerity — especially in Europe — had become self-defeating in some countries that were trying to consolidate fiscal finances much too rapidly and it was seen to be counter-productive.”

(Indeed, the IMF’s chief economist, Olivier Blanchard, effectively admitted earlier this year that the Fund didn’t really know what it was doing when it dished out advice to Greece and other European economies; in a technical report, he wrote that “Forecasters significantly underestimated the increase in unemployment and the decline in domestic demand associated with fiscal consolidation.”)

And then earlier in April, Statistics Canada reported that 54,500 jobs were lost in March across the country, pushing the national unemployment rate to 7.2%.

With these kinds of results, we can see why the Harper Conservatives spent some $21 million just in 2011-12 promoting the Economic Action Plan via ads, which continue today with television commercials during the current NHL playoffs.

The problem with Liberals

A little post-budget common sense today from the Public Service Foundation of Canada, which issued an interim report following the public proceedings of the Ontario Commission on Quality Public Services and Tax Fairness. The Commission, organized around 12 public hearings across Ontario, was launched in response to the Drummond Commission, whose carefully-crafted mandate did not allow for a review of the province’s revenue-generation side (i.e., the tax system). 

At 96 pages, the report is lengthy, but it does zero-in on two sets of proposals the McGuinty Liberals—beholden to their wealthy corporate friends—appear incapable of pursuing: moderately reversing corporate tax cuts and moderately increasing taxes on the very wealthy. These two matters are dealt with in Chapter 9 and I present a few enticing extracts here:

• The Commission was provided with information from surveys of CEOs which show that corporate tax rates are rarely a major factor in a company’s decision regarding where they will invest or locate. These surveys show that taxes consistently rank around seventh place in terms of priority, behind such factors as: an educated and healthy workforce; access to resources and markets; low-cost power; good physical infrastructure; property rights; a peaceful society; and a democratic government. (p. 72)
• Other research shows that in 1999, federal and Ontario corporate taxes totalled 44.6% and corporate investment was 8.3% of GDP.15 However, in 2011, combined corporate taxes dropped to 28% and investment dropped to 6.0% of GDP. (p. 73)
• Restoring the corporate tax rate to 14% would provide the Ontario government with an additional $2.5 billion in revenue. It was noted that, at this rate, corporations in Ontario would still be paying less than all but four U.S. states. (p. 74)
• Reversing the elimination of the corporate capital tax would restore $1.8 billion in revenue.
• The research shows that the median effective tax rate paid by the top 0.01% of taxpayers declined by 10% over the past two decades, while the median rate paid by the bottom 95% dropped by less than 1%. (p. 74)
• The evidence provided to the Commission estimates that a 2% increase in tax rates for people earning more than $500,000 could generate $500 million a year for the provincial government. (p. 75)

But instead of pursuing these common sense and, again, very moderate, proposals, the Liberals would rather hold back increases to the Ontario Child Tax Benefit, eliminate the Community Start-up and Maintenance Allowance and maintain previous cuts to the Special Diet Allowance, amongst many other policy decisions attacking the poor.

In its response to the provincial budget, the Ontario Coalition Against Poverty cited the 1930s Depression-era slogan: “United we eat, divided we starve.” Indeed, the assault on the poor and middle class by the very wealthy and their Liberal political pawns can only be stopped and reversed by strong solidarity between community organizations, unions and ordinary but motivated citizens, who will assert their collective power in our deeply troubled political system.

Flaherty reneges on election promise…but not on his commitment to big business

Minister of Finance Jim Flaherty delivered his economic update before the Calgary Chamber of Commerce today, and now admits that “[w]e have to be realistic about what’s going on in the world.”

For Flaherty and the rest of the clan behind Canada’s Economic Action Plan, November has so far been a rather lousy month. Just last Friday, Statistics Canada revealed that in October the country shed 54,000 jobs, the greatest monthly loss since March 2009. And now a key promise from the seven-month old May 2011 election—that the federal government’s books would be balanced by 2014-15—will not be fulfilled until, Flaherty claims, 2015-16, when a $600 million surplus will be registered.

He also claims that “we will not be bound by ideology when it comes to making decisions to keep our economy strong and protect Canadians, their financial security and their jobs.” This is a markedly curious statement, for the Harper regime has been absolutely ideological in pursuing an agenda of corporate tax cuts, which it argues will promote greater investment in the economy by corporations, resulting in more jobs.

In 2006, when the Conservatives first came to power, the statutory federal corporate income tax (CIT) rate—applicable only to profit, unlike personal income tax—stood at 21%. As of January 2012, that rate will have decreased to 15%. Combined with provincial tax—say, in the province of Ontario, which has a general rate of 12%—the effective CIT would be 27%. In contrast, many Canadians might be surprised to learn that the US federal CIT rate stands at a much higher 35%.

To be sure, this precipitous decline in the CIT rate began much before the Conservatives assumed power. Beginning in 2000, the Liberals under Jean Chrétien cut the CIT from 28% to 21% in 2004. Indeed, both of these parties are in bed with big business. But the worse part is that these big business tax cuts don’t even lead to more jobs.

An April 2011 study from the Canadian Centre for Policy Alternatives (CCPA) tracks Canada’s largest companies over the 2000-2009 period and finds that though their combined profit increased by 52% in that period, they paid 20% less tax. If one were to subscribe to the standard Conservative-Liberal dogma, one would think that these companies successfully invested the saved money into job creation. Not so, says the CCPA. Over the 2005-2010 period, these same companies reported 5% growth in staff (both in Canada and at overseas operations), while the Canadian economy recorded 6% employment growth. In other words, big business underperformed the broader economy in generating employment despite the profound tax breaks.

What is more, Statistics Canada reports that as of the second quarter of 2011, private non-financial corporations are hoarding a pile of cash totaling $476.6 billion—about $325 billion in Canadian currency, and another $151 billion in foreign currencies.

All this begs the question: if a decade of evidence shows that these big corporations can’t translate massive tax breaks into an above-average (or even average) job creation rate, and if they are, in any case, already sitting on close to half a trillion dollars in cash, what sound argument can be made to continue with, or even maintain, these tax cuts?

According to the government’s own 2009 budget calculations, business tax cuts introduced since 2006 will mean $60.2 billion less in federal revenue over the 2008-2014 period, money that could have dramatically advanced the date by which the federal budget would be balanced, presumably staving off cuts to the public service…..but as Flaherty said, “we will not be bound by ideology…”

Dan Mangan in Ottawa

My video production studio recently partnered up with Apt613.ca to interview Dan Mangan just before his October 14th show at the Bronson Centre. We talked to him about his great new album, Oh Fortune, playing in Ottawa and, of course, the meaning of life. In a segment not featured in the above video, I also asked him about the Occupy movement, to which he responded:

I think the Occupy Wall Street thing is really fascinating in a lot of ways, and I’m glad that people are listening…and I’m glad that it’s happening….Every healthy society that has really existed in a peaceful way, democratically, has a large middle-class, and that’s just the way it is. So to be in a position where that middle class is being stretched towards the lower and upper [sic] is a dangerous thing, because when there is a huge disparity between the rich and the poor, people get frustrated, people get angry.