FINA Committee Report

NEW DIRECTIONS: A DISSENTING OPINION
Nelson Riis, MP, NDP

Over the past four years, the Liberal government, with the ardent support of the Reform Party, has been single minded about its approach to deficit reduction - massive program cuts, the largest layoff in Canadian history, the sell-off of some of the nation's most valuable assets, and the elimination of departments, agencies, and institutions that gave substance to the social and cultural fabric of the country. Any program that providing support to those in need has been undermined or eliminated.

The government's persistent line throughout has been "there is no alternative".

The tragic irony is that there was, and is, an alternative which would have allowed the government to reach its original target for deficit reduction with none of the painful spending cuts which were the supposed centrepiece of its strategy.

The challenge before the government today is not just to decide how to allocate the fiscal dividend, but to ensure that the anticipated dividend materializes. Canadians have told government again and again that their priorities are their economic security, their health, their children, and their education. Restoring balance in the Canadian economy means using our improved fiscal capacity to re-invest in this country and to make a positive impact on the lives and prospects of Canadians who have already sacrificed enough in the fight against the deficit.

A Question of Values

In his opening remarks to this Committee, Finance Minister Paul Martin said "Some see the discussion ahead as a financial debate only. It isn't. It's a debate about values."

Like many Canadians appearing before this committee, New Democrats welcome that debate. This Dissenting Report ensures that the concerns, voices and values of the broad majority of Canadians find expression in the pages and recommendations of this Report.

For the past year and a half, the Liberal government has maintained that the economic fundamentals are all in place. The Finance Minister boasts that "the country is on the verge of a new era.". Canadians want to share that confidence. But to many, his clearest, most compelling message, was "this government has cut up its credit card."

The message - even though we are so much better off, we can no longer afford what we once took for granted. Investments we once made collectively to improve the quality of our national life and to lay the foundation for a healthy, well educated population, seem to be regarded as just wasteful self-indulgence, and not the building blocks of a better future for all of us. Today, you're on your own.

Dozens of witnesses appeared before the Committee to tell the Liberals that they have their fundamentals wrong. The federal books may be in balance, but the economy is out of kilter.

To many it seems Canada's real wealth is declining as we grow richer. The stock market is soaring, the GDP is climbing, but somehow there isn't enough money to pull our kids out of poverty, or give young people the education they need to get decent jobs, or pay working men and women a living wage, or maintain one of the best health care systems in the world. And forget about jobs. We are told repeatedly that government can't create jobs and shouldn't try.

Internationally, we may be the first to balance the budget, but over the past eight years, while citizens in other industrialized nations saw their GDP per capita grow at an average rate of 9.1%, Canada alone saw its standard of living decline. We now have the second highest incidence of child poverty, the second highest inequality index, and the second highest incidence of low pay for full time workers in the industrialized world.

Canada has eliminated its fiscal deficit by creating a massive social deficit. The essence of the Liberal solution is to make its problem someone else's problem by down-loading debt and off-loading responsibility to the provinces, ordinary people, and most callously, to the poor. Rather than joining the government's chorus of self congratulation, countless witnesses condemned the Liberals' stewardship and the values that guided government choices.

• "Chartered banks rack up record profits while food banks run out of food. There's something wrong with this picture."
• "Through drastic transfer cuts, the government has removed the CARE from health care."
• "Eight years ago, 87% of Canadians who lost their jobs and had paid into unemployment insurance received benefits; now only 37% do. That's lower than the state of Alabama."
• "Chronic unemployment, rising tuition, spreading pollution, inadequate health care ... are costly consequences of the widespread neglect of human core values."

The Road Not Taken

The most damaging testimony came from economists who demonstrated that the cuts were all unnecessary.

A study by the Canadian Centre for Policy Alternatives pointed to the fact that 60% of the improvement in government finances between 1995 and 1997 came from a growing economy stimulated by low interest rates. Dr. Jim Stanford's analysis for the CCPA shows that if the government had merely frozen spending at 1995 levels and waited for economic growth and lower interest rates, Mr. Martin could have beaten his own timetable and still have reduced Canada's deficit to the lowest level in the G-7.

The study also demonstrates that pursuing a sustained 4% growth strategy, simply by maintaining interest rates at the early 1997 level, would add an additional $70 billion to federal balance sheets over the next five years to spend on new programs, tax cuts or debt repayment.

On the other hand, if real growth is stalled by the central Bank's obsessively low inflation policy, the fiscal dividend may disappear altogether.

A key question for Canadians is "Are we willing to spend $70 billion over the next five years to keep inflation at near zero? Or do we have other priorities, like fighting unemployment, rebuilding health care, ensuring students access to education?"

Many witnesses, including economist Pierre Fortin, believe it's time to address other priorities. He urged the government to raise the inflation target range by 1% to allow the economic recovery to run its full course - "a small risk for an extremely large political payoff.". To do otherwise " would amount to declaring a write-off of any growth of real GDP per capita over the entire 1989-1997 period, and declaring that Canada's unemployment rate will not decline below 8.5% this decade."

Looking for Work

"The Canadian government has refused to even state an unemployment target. Instead, they have adopted punitive cuts to employment insurance in a misguided effort to force the vulnerable ... to seek jobs that do not exist" economist Michael Bradfield told the committee.

Unemployment has been running at over 9% for 85 consecutive months. Canada is not even close to returning to the 7.5% level of unemployment in 1989, the previous cyclical low. Close to 400,000 young people crowd the ranks of the unemployed. And in October 1997, six years into a recovery, there were fewer jobs for young people than in 1993, and close to half a million fewer jobs for young people than in 1989.

The only real job growth this decade is in self employment. Between August 1989 and August 1997, the economy generated 931,000 new jobs. Of these "jobs" 814,000 or, 87% of the total, represented an increase in self employment rather than the hiring of a paid worker by an employer. In 45% of these jobs, workers are earning less than $20,000 per year, and through the 90's the self employed made less and less than employees.

Economists argue that by focusing exclusively on inflation, and failing to set targets for jobs, the government is simply writing off an additional 500,000 jobs. Over five years, an additional 100,000 jobs per year could push our unemployment rate down to 5%.

But instead of a commitment to generate jobs and reduce unemployment, government policy is designed to ensure that jobless rates don't sink too far. The biggest threat to the future is the likelihood that the government will refuse to allow growth to continue, and instead choke off any real recovery in its infancy by jacking up interest rates again. Governor Thiessen has repeatedly stated his intention to "take his foot off the accelerator," and he has the full endorsement of the Finance Minister, who has backed every hike in interest rates as "pre-emptive strike" against inflation.

Recent US experience where the unemployment rate has been at 5% or below for several months without triggering any inflationary spiral shows that the theory that high unemployment is needed to control inflation is no longer credible, if indeed it ever was. The point is, it's hard to get your answers right when you're focused on the wrong problem.

And as Jordan Grant told the committee, "The notion of keeping people unemployed as the foot soldiers in a never-ending war against inflation is immoral."

Canadians know that when the Finance Minister means business, he sets targets and timetables for achieving them. This is what he did with the deficit, it is what he does for inflation, it is what he proposes to do on debt. Canadians know that targets mean commitment, and timetables mean results.

The NDP believes that the top economic priority for the 1998 budget is to set targets to reduce unemployment by at least 1% per year, and to develop specific strategies to achieve these goals.

The Social Imperative Vs the Fiscal Imperative - Striking a Balance

"Canadians have been witnessing a tug of war between the `social imperative' and the `fiscal imperative' - between investing in people and human needs, and eliminating the fiscal deficit by cutting social programs," said the Child Poverty Action Group. "The 1995 federal budget put an end to any doubt about which side would win ... This time around, ... social investment in children, youth and families must come first."

In fact, a look at some social and economic indicators reveals that Canada in many respects is marching backwards into the Millennium. Since 1989,

• Average family incomes have fallen by roughly 5%.
• 538,000 more children are living in poverty.
• The number of food banks in Canada has tripled and the proportion of the population relying on them has doubled.
• The number of Canadians filing for personal bankruptcy has tripled.

Groups appearing before the Committee pointed to other evidence of an economy running in reverse:

"Over the past four years, federal cuts to child care have de-invested millions of dollars from a sector that is a cornerstone of Canadian social policy - in spite of the consensus that investment in the early years yields the greatest return".

Wendy Aitkin, Canadian Child Care Advocacy Association

"When young workers finally achieve employment they earn much less than earlier generations of youth ... young workers in 1992 earned 30% less in real terms than young people in 1981 ... not only are today's youth ... worse off than previous generations at the same stage in life ... but the gap between young people and older workers is growing"

Professor Sid Ingerman, Montreal

$300 million over three years is being injected into new health care funding. Over the same three years, there will be an $18.9 billion accumulated reduction in funds. The $300 million is 1.5% of the reduction in cash to the provinces and territories".

Canadian Medical Association, Ottawa

By almost any measure, from caring for children, to nurturing the sick, to training the next generation, Canada's social structures are crumbling, or being hacked away.

Another Chance to Get it Right

Today, there is a better fiscal reality - and a very different social reality. A number of witnesses pointed out that "we have a chance to do things right this time."

The real test of a balanced economy is not whether the government can balance its books at the expense of its citizens, but whether it can provide the economic environment in which Canadians and families can balance their own.

As in 1994, the loudest advocates for cutting jobs, cutting health care, cutting education, and cutting resources for children are back. This time the banks and major business lobbies are arguing that there should be little or no social investment, that virtually all of the fiscal dividend should go to reducing the long term debt, and that our next major priorities should be restoring our Triple A credit rating on foreign currency debt, and then cutting taxes - on corporations and the rich - to make us more competitive.

On social investment, many acknowledge that "there are some equity issues". "But," as Maureen Farrow, of Loewen, Ondaatje, McCutcheon, Ltd. put it, "don't lets bend over backwards."

New Democrats believe that equity issues have been shelved for far too long. On the threshold of a post deficit world, Canadians should be taking the opportunity to make strategic investments to rebuild both our economy and our social structures. A stronger economy is key to long term health of federal balance sheets. Our approach would be to build a high employment, growing economy which can generate a significant fiscal dividend, and provide an ongoing revenue stream to address the social deficit.

The NDP's priorities are to:

• Make full employment the primary goal of government with targets to cut rates by a minimum of 1% per year. The Bank of Canada should be instructed that employment growth is its central priority as well.
• Set targets for elimination of child poverty, and a timetable for implementation.
• Make strategic investments to rebuild our failing public infrastructure - our health care system, education and training systems and networks, environmental and cultural industries, social housing, child care and elder care, highway and other transportation links.
• Maintain a balanced budget over the next five years, aiming for continuing GDP growth of 4% per year, and some easing of the inflation target band.
• Maintain overall tax levels in the short term, but rebalance the system to achieve greater fairness and to advance broader social policy goals, such as the elimination of child poverty, a fairer sharing of the tax burden, and assistance for students and the disabled.
• Direct tax relief measures to the neediest, through refundable tax credits such as the GST, and exempting essentials from federal sales tax, rather than to enriching subsidies for those earning over $75,0000 a year. As circumstances permit, reduce the overall GST rate by two points to promote job creation and give hard-pressed consumers a break.

If the economic recovery is allowed to run its course, the debt/GDP ratio will fall from its current level of 70% to approximately 50% over the next five years, a substantial reduction in the debt burden, and well below the Maastricht target of 60%.

Overall priority should be given to investments which raise our long term social and economic well-being, investments in education, child care, research and the sustainability of the natural environment.