Publications, opinions, and speeches


Policy Agenda in Search of a Budget

Published on 23/03/2011

While Canada faces serious social problems, the federal government is in no position to take any substantive action on these fronts.  The Harper Government effectively has drained its own coffers.  In 2007, it announced a cut to the GST by two percentage points for an overall annual revenue loss of $12 billion.  It also brought in a corporate tax cut from 22 percent in 2007 to 15 percent by 2012.  It has made several additional tax cuts -notable among them pension income splitting, which most benefits wealthy senior couples – that further deprive the treasury of significant revenues.

The Budget’s most significant social policy news took the form of an increase to the Guaranteed Income Supplement (GIS).  But the monthly amount of $50 is way too low to make a dent in poverty.  The benefit increases should have been higher and been targeted toward single seniors only − i.e., those most in need.  Caledon recommends an increase of $1,000 for single GIS recipients, funded by ending pension income splitting.

Budget 2011 failed to deal substantially with the significant weaknesses in Canada’s retirement income system.  The federal and provincial/territorial Finance Ministers have agreed to a new voluntary retirement savings plan called Pooled Registered Pension Plans (PRPPs).

The problem is that Canada already has in place a voluntary supplementary system of pensions.  They are called Registered Retirement Savings Plans (RRSPs).  These vehicles are used mainly by taxpayers in upper-income levels who have the money at hand and enjoy a hefty tax break in return for their contribution.  The challenges facing modest-  and middle-income Canadians will remain unresolved.  In our forthcoming paper Pension Tension, Caledon proposes that the retirement income system be secured through enhancements to the Canada Pension Plan in both its replacement rate and Year’s Maximum Pensionable Earnings.

Budget 2011 introduced a Children’s Arts Tax Credit, which will be provided on up to $500 of eligible fees per child in respect of qualifying children’s programs.  This measure recognizes the value of arts and culture in contributing to the well-being of children, to their self-esteem and positive development, and to the expression of their identity.

While the end is good, the means are not.  The income tax system does act as a highly effective vehicle for the distribution of income benefits, such as the Canada Child Tax Benefit.  However, the tax system is not an effective mechanism for achieving broader social purposes.  The problem arises from the fact that the current construction of tax credits provides assistance only to households with incomes above the designated taxpaying threshold.  Lower-  and modest-income households that pay little or no income tax derive no benefit from the current set of tax credits − including the new one just announced in Budget 2011.

Budget 2011 introduces several new measures in support of caregivers.  The most significant is the Family Caregiver Tax Credit that will provide an annual tax reduction of $300 (15 percent of $2,000) for caregivers of all types of infirm dependent relatives including − for the first time − spouses, common-law partners and minor children.

The new Family Caregiver Tax Credit enhances current tax assistance for those now eligible for various measures.  Herein lies the problem.  The new credit builds on a system that is already inequitable.  The announcement in Budget 2011 will end up providing more to those who already receive (albeit modest) assistance.  The rich get more tax savings while low-  and modest-income households get more of the same: nothing.

Budget 2011 brought in several noteworthy measures around Employment Insurance.  Again, these small measures are important.  Unfortunately, they do not get at the fundamental problems endemic to Employment Insurance: its drastically reduced coverage and numerous complex rules that create inconsistencies and inequities throughout the country.  Caledon has called for a serious and substantive reexamination of several social policy programs, including Canada’s income security system for adults.  Our proposed reforms would help create a new revamped architecture of programs, including Employment Insurance, which would respond more effectively to the income and training needs of the unemployed.

As Canada emerges from the recession, we should be thinking ahead to develop a clear and robust social policy agenda to help tackle Canada’s most pressing social challenges.  This policy agenda calls for building – not deconstruction.  This policy agenda calls for strong federal leadership to put into place the essential components of a solid social foundation.  This policy agenda calls for investment in areas and measures that we know from research evidence will contribute significantly to the health and well-being of Canadians.

This is a policy agenda in search of a budget.

ISBN – 1-55382-506-3


Government spending and tax


While Canada faces serious social problems, the federal government is in no position to take any substantive action on these fronts.