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Rosemary Joyce
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Rosemary Joyce
2014-05-01 11:58
Thank you for giving me the opportunity to speak. I'm a professor of anthropology who has been a member of the faculty at Berkeley for 20 years and was a member of the faculty at Harvard for nine years before that.
During that entire time and before, for a total of 37 years, my research has been about Honduras and has involved long periods of residence in Honduras. I lived in Honduras during the period in the late 1970s and early 1980s when its last open military dictatorship turned over power to civilian authorities, wrote the first version of the current constitution, and initiated a long period of building civil society and governmental institutions.
External trade has been critical in that process, yet I come before you to argue against the completion of this agreement. Events in Honduras over the past five years have reversed the progress seen in civil society and government in the prior period. The checks and balances that would ensure that the rights of most Hondurans are respected continue to be dismantled. At this point it is difficult to see how intensifying external trade will avoid the pitfalls of worsening the situation of the average Honduran. It will also remove the important leverage on the Honduran government to strengthen the rule of law, combat impunity, protect human rights, and improve the standard of living for all its people.
The breakdown in these conditions has its roots in the increasing concentration of wealth and political power in the hands of a very few families throughout the 1990s and into the 2000s. But the immediate cause of the severe deterioration was the coup of 2009 and its aftermath.
The National Congress of Honduras convened against its own procedures, retroactively authorized the forceful removal from office of President José Manuel Zelaya Rosales. It then, with no authority in law or the constitution, appointed its own leader as the leader of a de facto regime, which defied international pressure and remained in office through the remainder of 2009.
The de facto regime soon embarked on policies that including using the army and police in actions against citizens exercising their right to protest. Numerous suspensions of the right to assembly and protest were put in place, all of them out of compliance with the requirements of Honduran law and its constitution. Protestors were shot, beaten, and some died in open conflict with the military or police.
Concurrently, a still ongoing wave of assassinations began, targeting members of the press—not one of whose murders has been solved—opposition activists, and minorities who opposed the de facto regime.
The de facto regime was still in power when a national election was held in November 2009. That election saw no recognized international monitors. First-hand reports by international NGOs concerned about peace and indeed reports in the Honduran press showed that citizens protesting the election were subjected to attack by the police. For example, in San Pedro Sula, the second-largest city in the country and the centre of commerce, voter turnout reported declined from the previous election. The opposition had called for a boycott of the election and there is evidence that many who turned out at polling places defaced ballots as a form of protest.
Initial reports of vote counts were later revised sharply downward and the procedures of the Supreme Electoral Tribunal give no confidence in those results whether in their original or revised form.
The candidate thus designated as elected by the Honduran authorities, Porfirio Lobo Sosa, entered office under a cloud of illegitimacy, although he was recognized by a number of international governments concerned to move on from the coup. He spent his entire presidency initiating a series of steps to try to erase the stigma of the coup. He did not, however, remove from their places all the individuals who had been appointed during the de facto regime and some of them remain in power today. And more significant for the present proceeding, the Lobo Sosa government continued a process initiated under the de facto regime in which Honduran governmental institutions were used in the service of the wealthy, removing protections of the environment, of human rights, and citizen participation in decision-making.
While appointing individuals to posts charged with protecting human rights, Lobo Sosa never provided those offices with sufficient resources to do their jobs.
Lobo Sosa greatly strengthened the now militarized police administration, while engaging in an ineffective process purporting to cleanse corrupt police. He deployed the armed forces against peasants protesting land expropriation and supported legislation that established a new policing drawn from the military, which is used now against civilians, something not seen since the end of the military dictatorship.
His minister of security, who continues in office under the current president, presides over investigative police who ignore most crimes, who bungle those investigations they undertake, and who are routinely implicated in violent crimes. Most recently the same individual repudiated the independent institution recognized by the UN as the source of reliable murder statistics for the country in an attempt to institute a new definition of murder that would lower the reported crime rate.
Lobo Sosa's successor as president, Juan Orlando Hernàndez, who is from the same political party, was the head of congress during the Lobo Sosa administration. His congress took steps that weakened the separation of powers already imbalanced in Honduras and, in particular, undercut the Supreme Court, which in Honduras is appointed for terms and thus already highly vulnerable to political influence. Hernàndez and Lobo Sosa collaborated in passing legislation, repeatedly deemed unconstitutional, that would allow construction of model cities in places where Honduran laws would not apply to Honduran residents allowed to live there, to provide labour for international corporations.
In his first months in office, Hernàndez instituted a reorganization of government that has demoted to a lower position many of the key civilian offices and eliminated others, including the ministerial level office under the Lobo Sosa administration for human rights. Meanwhile he's aggressively pursued the same legislative agenda that he initiated as head of congress.
While the election in the fall of 2013 did see international observers, it was also flawed. Independent analyses showed that the vote-count process included many questionable results, with more than 100% of registered voters recorded in some districts, and these were overwhelmingly credited to Juan Orlando Hernàndez. Even so, Hernàndez entered office with a minority of votes in an election that was split between four parties, two of them newly created in protest of the status quo.
Starting the very day of the coup in 2009 and continuing today, the most salient governmental issues have been the steps taken to enrich a small wealthy elite at the expense of the majority of the Honduran population, leading to the highest level of inequality in Latin America.
While international press credited the coup to fear that President Zelaya intended to remain in office, the actual triggers of elite opposition to his policies were economic actions, including the raising of the minimum wage, which marginally eroded the income enjoyed by Honduran companies marketing their goods internationally.
The economic interests behind the coup are self-evident in the legislative agenda that was pursued the very same day as the coup, that consisted of passing laws authorizing a variety of government contracts beneficial to the elites. During the de facto regime, other laws were passed dismantling environmental protections, changing the way that contracts were issued, and generally opening up economic development from government oversight.
In sum, beginning with the break in the rule of law in June 2009, Honduras has seen a remarkable reversal of its previous 20 years of progress in governmental and civil institutions, and this continues. The process is one that is transparently designed to increase power of the wealthy elite. It disadvantages the majority of the Honduran people. Some of the changes, such as restrictions in rights and militarization of civilian policing, having been given the mirror of justification based on the presence in Honduras of active drug cartels, has been a smokescreen for other actions, such as legislation allowing congress to investigate and remove from office any government official, creates impunity and concentrates power in the hands of the congress.
In this environment it's difficult to see any way a free trade agreement would avoid being co-opted as a tool of the concentration of wealth and the continued decline of the status of the majority of the Honduran people. We're hoping this agreement would allow the Government of Canada to bring to bear pressure on Honduras to restore civilian rights, to reign in police and military over-reach, and to protect the common good.
Thank you.
Derek Corrigan
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Derek Corrigan
2014-02-03 10:33
Thank you very much. It is a real pleasure to be here.
Good morning to everyone.
I am going to share my time with Councillor Sav Dhaliwal.
As you mentioned, I'm the mayor of Burnaby. I've been on city council for some 27 years. I have previously been a director of the Federation of Canadian Municipalities, and for about 20 years I have been a director of the Greater Vancouver Regional District. I have been mayor for the past 12 years.
Our city is the third-largest city in British Columbia, with a population of about 230,000 people.
Councillor Dhaliwal is presently a Federation of Canadian Municipalities director and is also vice-president of the Union of BC Municipalities.
This is a very interesting issue for our city, and as you can see we've taken a great deal of interest in how federal issues affect our municipalities, through our participation in the Federation of Canadian Municipalities. So it is really nice to have an opportunity to be here today to talk about CETA and specifically about my concerns regarding its negative implications for municipalities and for the hard-working families in our communities. This proposed agreement would have a significant detrimental effect on the ability of municipalities to protect and promote local resources, employment, and an improved standard of living for middle-class families. It would further widen the growing gap in our country and our cities between rich and poor by reducing the number of working people who are able to maintain a reasonable and modest lifestyle.
This agreement has been prepared without a meaningful public consultation process for municipalities. A confidentiality agreement, signed by the provinces and territories as a condition of their participation in the CETA negotiations, has made effective public consultation for municipalities and the resident businesses and individuals impossible. Lack of consultation on the details of the agreement will inevitably lead to inclusion of rules that will detrimentally affect local procurement policies. For example, the agreement will prohibit municipalities from using procurement as a local economic social development tool by requiring municipalities to remove any preference for local companies, goods, or services.
Foreign companies will have the right to claim damages if CETA rules are not strictly met, and the decision as to whether or not the municipality has violated the rules will be made by a tribunal of business people, in secret, without our participation. This is truly a threat to democracy as we know it in Canada. To add insult to injury, even when we win the occasional hearing, in some cases repeatedly, the so-called partners ignore the rulings and continue to practise protectionist policies where it benefits them to do so, and we cower from enforcing our rights. Have we learned nothing from the softwood lumber dispute?
We all seem to be programmed to light up when we hear that anything is free, whether it is a free sample, free enterprise, or free trade. We do this despite the fact that we know nothing that businesses do is for free. There is always some benefit to be gained by their shareholders. This proposed agreement is certainly not free. Ask Canadians in the auto industry, the forest industry, and the manufacturing industry how free trade has worked out for them.
Though its details are vexing, our ability to be involved in a tweaking process won't change anything. The real damage is inherent in the deal itself because it is designed solely to meet the interests of big business and multinational corporations. The root of the problem is our federal government's willingness, and in fact its zeal, to engage in these negotiations in the first place, again, of course, without any real consultation with municipalities and without any real understanding by the citizens who will be affected.
I am convinced that the majority of the provisions in these agreements are not for the benefit of Canadian citizens. They are instead a charter of rights and freedoms for multinational corporations. The international trade agreements protect the interests of big business and ensure that multinational corporations can exploit the resources of our country without impediment. It is patently absurd that we are providing multinational corporations more protection from expropriation than we do for our own citizens. Unfortunately we end up with the very businesses that stand to benefit as part of our negotiating team while democratically elected representatives are kept in the dark.
Trade agreements are about exporting jobs to the jurisdictions with the least protection for workers and the lowest wages and environmental standards. That is what makes manufactured goods cheaper and allows corporations the greatest profit. There is a reason that generation after generation of politicians provided protection for their country's internal production and markets. Tariffs and duties were imposed to protect jobs, to stimulate industries, and to ensure the legitimate autonomy of nation states.
Globalization is all about breaking down national identity, driving living and working standards down, and empowering the very rich, those who control these multinational companies.
Wealth is being concentrated in the hands of fewer and fewer people, but the greatest fear is that individual citizens will assert their democratic rights and change the rules of the corporate game. They have figured out, along with their legions of accountants and lawyers, that the best way to protect their financial interests is to establish that there are international consequences should any local or provincial authority interfere with their assets or their opportunities. Many of these corporations are bigger than nations in terms of their economic power, and most of them have directors who are part of the societal elite. Among them, they continue to acquire and accumulate, while the middle class dissolves into nothingness and the gap between rich and poor widens exponentially.
On the World Bank's website there is a file that shows the world's top 100 economies based on GDP and revenues. Thirteen of them are companies with $406 billion GDP revenues. For example, Walmart has a bigger economy than Switzerland, Sweden, or Israel.
So what happens when citizens wake up and smell the coffee? If they do, they face international consequences for daring to assert their desire for local control of their own resources and jobs for their own people. In effect, they are powerless to act locally because their government has negotiated away their ability to stand up for their own community.
As local government, we have no control over what the national government does. We can only ask that you not trade away our limited ability to promote our local interests.
Thank you. I'll be available for questions.
View James Rajotte Profile
I call this meeting back to order. It's meeting 127 of the Standing Committee on Finance.
Colleagues, we are now in public, so we are on the record. I am on the record to state that you are instructing me that it is the desire of the Standing Committee on Finance to continue its study of income inequality beyond the date of June 13, 2013, and to request of our House leaders and whips that we be able to present the final report no later than October 31, 2013.
Is everyone in agreement with the general desire to do that?
Some hon. members: Agreed.
The Chair: Thank you so much. I appreciate that.
We'll go back in camera.
[Proceedings continue in camera]
View James Rajotte Profile
I will call this meeting to order. This is the 117th meeting of the Standing Committee on Finance. Our orders of the day are pursuant to the order of reference of Wednesday, June 13, 2012, and we are continuing our study of income inequality in Canada.
I want to welcome all of our witnesses joining us here this morning, and I will present them now.
First of all, we have Mr. Stephen Richardson, executive fellow from the University of Calgary. Welcome.
We have Professor Michael Veall, Department of Economics, McMaster University.
We have, from the Assembly of First Nations, Chief Executive Officer Mr. Peter Dinsdale. Welcome to the committee.
We have, from the Broadbent Institute, the chair and founder, Mr. Ed Broadbent. Welcome back to Parliament, Mr. Broadbent.
From the Canadian Centre for Policy Alternatives, we have Madame Armine Yalnizyan. Welcome.
We are also welcoming Peggy Taillon, from the Canadian Council on Social Development, and Michel Venne, the Director General of the Institut du Nouveau Monde. Welcome.
And from the University of British Columbia, we have Madame Nicole Fortin.
Madame Fortin?
It's 5:45 a.m. in B.C., so she may have gone for a coffee.
View James Rajotte Profile
We welcome all of you to the committee. We have a large panel today of very distinguished guests. Thank you for being with us.
Each of you will have a maximum of five minutes for an opening statement, and then we'll have questions from members.
We'll begin with Mr. Richardson's presentation, please.
Stephen Richardson
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Stephen Richardson
2013-04-30 8:47
Thank you, Mr. Chairman.
I'd also like to thank the committee for the opportunity to appear here this morning.
In my opening remarks, I will briefly provide some context for the issue of income inequality and comment on some measurements.
The first point of context is that income inequality is a natural result of free markets that price goods, services, and capital according to supply and demand accounting for risk. Redistribution of income through taxes, transfers, and subsidies is the way in which governments act to reduce income inequality. Note, however, that redistribution mechanisms can have negative effects on the economy—for example, where high levels of taxation on business or skilled labour are used. Redistribution funded by government borrowing can also cause issues in terms of inequities between generations.
The second point of context is that income inequality is inherently a relative concept, and measures of it in a given population show only relative relationships. For example, a rich country producing a large, absolute amount of income could have a higher level of income inequality than a poor country producing a small amount of income, yet a sizable proportion of the persons living in the poor country would improve their economic welfare by living instead in the rich country.
The third point of context is that the determination of a correct or appropriate level of income distribution as a goal in itself is based on normative judgment derived from an ethical or a political framework. For example, at the political extremes, certain forms of socialism have a goal of absolute economic equality, while certain forms of libertarianism will consider very high levels of inequality as appropriate. Typically developed economies with free markets accept a position in between these extremes.
Though statistical or economic analysis cannot determine a correct level of income distribution, it can assist in measuring income inequality. These measurements of income inequality in a population can be used to benchmark inequality and redistribution against both historical and international comparisons.
Gini coefficients are a commonly used measure of income inequality in a population. A Gini is a measure of statistical dispersion, that is, the unevenness of a variable over a population, with a Gini coefficient of one representing complete unevenness—that is, inequality—and a Gini coefficient of zero representing complete evenness—that is, complete equality. Gini coefficients in between obviously represent intermediate amounts.
Now I'd like to refer to two figures that I think can be found in the materials that were handed out to members ahead of time.
This is a chart that shows the Gini coefficients for income distribution in Canada for all families from 1976 to 2010. The data is from Statistics Canada. The blue line shows the inequality measured by Gini coefficients pre-tax and transfer, that is, before any redistribution. The red line shows the reduced inequality after taxes and transfers are taken into account, which in effect shows the amount of distribution.
My figure 2, which I'm not going to put up at the moment, because I would use the rest of my time trying to get these two computers to do it—I'll put it up immediately after—just shows the difference between those two lines over time.
Figure 1 indicates that post-tax and -transfer, income inequality in Canada that takes account of redistribution increased during the time period from 1976 to 2010 by about 8.5% in total, but with virtually no increase in the last 10 years measured.
Figure 2 will indicate that the scale of redistribution of income by government increased during the same period by about 27%. Although it did drop from its peak in 1994, the scale redistribution has been relatively stable for the last 10 years measured. Moreover, as measured by the OECD—and this is not on the slides—the Canadian post-tax and -transfer income inequality for the late 2000s of 0.324 is very close to the OECD average of 0.314, compared to, for example, that for the U.S., which is much higher at 0.378.
What are my public policy conclusions? In my view, these historical and OECD benchmark comparisons suggest that the Canadian system of income redistribution is working well, and there's no reason for public policy in Canada to target income inequality as a general issue. However, in order to maintain and improve equality of opportunity and living standards for Canadians, continuing attention should be paid to more precise targeting of existing and new policy initiatives using existing resources that can specifically assist lower-income Canadians. For example, consideration could be given to reducing the phase-out threshold for OAS, which is currently available unreduced up to $69,562, and not eliminating it completely until the person has an income of about $112,000 a year. Using these cost savings could increase the benefits to lower-income Canadians who require this more.
There are other examples, but I think I've probably used my time, so I'll stop.
Thank you for your attention, and I'll be prepared to take questions.
Michael R. Veall
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Michael R. Veall
2013-04-30 8:53
Thank you for this opportunity.
The motion proposes an examination of best practices that reduce income inequality and improve GDP per capita. Turning to GDP per capita, Canada's recent productivity growth has been slow. In terms of output per hour, growth averaged about 4% per year until the early 1970s, but it has fallen since. This century, it's averaged only 1% per year. Moreover, the gains the economy has generated have gone disproportionately to the top of the income distribution. Between 1986 and 2010, the after-tax, after-transfer incomes of the bottom 90% of the population increased by about 19%, after adjusting for inflation. The incomes of the top 1% increased by 77%. The incomes of the top 0.01% increased by 160%, to about $4.7 million per year, after tax.
There are big policies on both the productivity and inequality fronts. I think you'll probably hear about some of that today. Instead, I've elected to focus on just three smaller policy directions that might draw support from across the political spectrum. These are not silver bullets. At best, I would describe them as silver BB pellets. They're small.
The first policy direction relates to the regulation of corporate finance. Randall Morck, a distinguished professor of business at the University of Alberta, argues that the Canadian corporate sector underperforms because of a low level of shareholder democracy and high insider power. He notes that the Yale School of Management concluded that Canada had the highest rate of insider trading among all developed economies. Low shareholder democracy and high insider power might contribute to high executive salaries, but even if not, a weak commitment to broad shareholder accountability makes it harder to raise money on Canadian capital markets and to replace tired management with innovators.
Professor Morck suggests continued attempts to introduce national securities regulation to prevent a race to the bottom by provincial regulators. He also suggests tax disadvantaging shares with different levels of voting power because such shares enhance the ability of insiders to control corporations.
The second policy direction relates to intergenerational mobility. Children should have a good chance at success, regardless of the status of their parents. Long-run productivity growth is higher when society gets the best out of everyone, not just the best out of those who were born with relatively high incomes. The current published evidence suggests that Canada has had a high intergenerational mobility, by international standards, probably due to relatively equal access to high-quality schooling and prenatal health. Provincial budget crunches may jeopardize this. Federal policy interaction with the provinces may become even more important.
The third policy direction relates to taxation, perhaps particularly appropriate to talk about on April 30—I got mine in last night. I do not believe we currently have the evidence to be sure that an increase in marginal tax rates at the top will raise much tax revenue. Perhaps a better, immediate approach is to eliminate those tax expenditures that both distort productive activity and benefit the affluent. I strongly support the removal of the labour-sponsored venture capital fund tax credit in the recent federal budget as well as changing the dividend tax credit so that it cannot exceed the corporate tax paid in the case of small business. I would suggest the proposed study examine other measures, such as the employee stock option deduction.
As former Rotman business school dean, Roger Martin, writes in his book, Fixing the Game, stock options contributed to the financial crisis by giving an incentive to corporate executives to focus on the information that the company released, not on true corporate performance, or, as Arianna Huffington somewhat harshly put it in her review of his book, “We’ve gone from an economy based on making things to one based on making things up.”
Staying with the tax system, I support moving towards refundable tax credits. A small example is the children’s art tax credit and the children’s fitness credit. Elimination of these would save $220 million for other purposes. But if they are to exist, I believe they should be refundable. As I have written elsewhere:
In effect these subsidize the participation in the arts and sports activities for children in all families except those too poor to be subject to personal income tax, probably the only families for which the subsidy might make an appreciable difference.
I thank you for your attention.
Peter Dinsdale
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Peter Dinsdale
2013-04-30 8:58
Thank you very much to the committee for inviting us here to make the presentation. I would also like to acknowledge that we are on unceded Algonquin territory, and we thank them for allowing us to gather here.
We're very pleased to make a brief presentation and provide our recommendations to your study on income inequality and the relationship to taxation.
As you near the end of your hearings on this matter, I know you're well aware of the terms of income inequality in Canada, and in particular that first nations continue to rank very last here.
In the 2010 study published by the Canadian Centre for Policy Alternatives, they outline the persistent and growing income inequality of aboriginal peoples, which is generally 30% lower than the immediate income of non-aboriginal Canadians. At the current rate of change, the author has estimated it would take 63 years for that gap to be bridged.
According to StatsCan, in 2010 the average annual income of a first nations person on reserve was $14,000, compared to $18,400, which is the poverty cut-off line for those same communities. In northern remote communities, the cost of essential goods and services is at least 30% higher. We're seeing tremendous income inequality, and also gaps and opportunities.
So many of our communities are facing crippling poverty and wider social implications. The question is, how do we handle this, and what do we do? To paraphrase Mr. Scott Brison, who introduced the motion for this current study...he said that first nations income inequality is a demographic and economic ticking time bomb. The question is, what do we do for change?
For many years, AFN has made submissions to the federal government on their budget process for needed investments in these various areas, although significant change has not yet occurred. That's what I would like to focus on briefly here: the change that's required.
I'd like to speak briefly on taxation issues. For first nations governments and citizens, which this committee has heard before, what I'm about to say will be fundamentally different.
In the past 20 years of erosion, the courts are breathing new life into the tax immunity provisions of the Indian Act and how they impact our communities. The fishermen's decisions in the Robertson and Ballantyne as well as the Bastien and Dubé cases represent legal outcomes that we need to build on, and frankly this is a shared success.
We need to work together to ensure that the law develops in a positive way so that we can achieve corresponding policy outcomes by engaging and working with the federal government to restore fairness, predictability, and fair rendering of the tax rights of first nations governments, as they agreed to as part of the treaty-making with this country and as part of the go-forward solution.
Another practical component addressing inequality is building instruments to assist first nations governments in addressing their tax priorities, tax issues, and tax jurisdiction. The AFN has proposed a national conference on revenue options and generating revenue streams. There's much to be learned from other governments, both indigenous and non-indigenous.
I'd also like to talk briefly about natural resources. In 2011 KPMG introduced a guide to Canadian mining taxation, which was specifically targeted towards potential foreign investors and partners. There's not one single reference to first nations governments, first nations peoples, or first nations rights. This is not an oversight by KPMG, but it shows you that the tax system, which ignores first nations governments whose communities these very natural resources are on, is certainly a challenge that we must work together to address.
We can talk about lots of examples, but I want to talk about a positive example. Out of Fort McKay First Nation is one great success story. There are only 700 on-reserve residents in Fort McKay. After over 20-plus years of creating companies to serve the oil sands industry, they now employ 4,000 people, both aboriginal and non-aboriginal. Imagine if we had 100 more Fort McKays across this country. What would the income inequality be in these communities then?
This past March, Fort McKay Chief Jim Boucher told the Canadian Association of Petroleum Producers that the federal government has failed to acknowledge first nations rights to resources and to have a say in how these resources are to be developed. I quote:
Canada has not stepped up to the plate with respect to dealing with the First Nations on a treaty issue basis,’s not contributing to a healthy economic development situation.
For us this solution appears relatively simple.
Peter Dinsdale
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Peter Dinsdale
2013-04-30 9:02
One minute. Thank you. I'll summarize that solution in one minute.
If Canada truly wants to benefit from the projected $650 billion in new resource-based projects, then make sure, either through tax breaks or by recognizing treaty rights and treaty jurisdictions, that every first nations community has the opportunity to share in that prosperity.
In closing, the Assembly of First Nations' recommendation on how to reduce income inequality and how best to improve equality and opportunity and prosperity for first nations and all Canadians is to work with first nations to bring about fundamental and transformative change. This includes a re-examination of equalization, fiscal transfers, and resource-revenue-sharing regimes, and an assessment of a taxation framework that reflects first nations jurisdiction and supports investment in our communities, as well as targeted investments in education, literacy, and training.
We can no longer allow the human and social costs entrenched in inequality to continue. While the solutions are not simple, the benefits will include us all.
Thank you.
Ed Broadbent
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Hon. Ed Broadbent
2013-04-30 9:03
Mr. Chair, members of the committee, I am really pleased to be joining you today.
This is especially so on a subject of such great importance to a large majority of Canadians, and especially, I note, today, when tax returns of all Canadians are due.
I want to make two points at the outset. The first is that extreme inequality undermines democracy and the common good. The evidence is in. Very unequal societies do much worse, including in such fundamental terms as health and the real equality of opportunity for children.
Second, I want to underscore that the level of inequality in a nation is ultimately a matter of political choice. Despite common exposure to globalization and other forces of economic change, which are real, a good number of advanced industrial countries have clearly been able to remain much more equal than others. They're all facing the global circumstances, but politically, they've made adjustments to that. So I repeat, a number are much more equal than others.
Canada used to do quite well at achieving broadly shared prosperity, but changes in the job market, changes in our tax system, and cuts to social programs from the mid-1990s have pushed us strongly, I believe, in the wrong direction. As a result, Canada today has a major inequality problem.
Part of the solution lies in achieving a fairer distribution of market income by creating more good, middle-class and unionized jobs. Another important part of the solution is to make major changes in our tax transfer system. Experts have shown us that its redistributive impact has shrunk significantly, to the point that it is now one of the least fair in the OECD.
Our institute says that the goal should be to reform our income security system so as to eliminate poverty and significantly narrow the growing gap between low- and higher-income Canadians. This goal should be met by building incrementally on existing income support programs targeted to different age groups and by promoting greater tax fairness. The maximum level of income-tested child benefit should be raised to cover the full cost of raising children.
We should significantly increase the federal working income tax benefit to support the working poor and deal with the growing reality of low pay and precarious work.
I want to give credit to the government for creating the working income tax benefit, a new form of benefit here in Canada that can promote employment as the best path out of poverty. However, the current benefit is extremely modest, as members will know, and is lost completely at low levels of employment income. I believe it should be increased significantly and phased out more slowly as income rises.
In addition, we should eliminate poverty in old age by raising the guaranteed income supplement. Canadian seniors, on a global basis, technically and statistically, are the best off in the world right now. But we still have a number of Canadian senior citizens who need assistance and we should be providing that.
Finally, a long-term goal—this would clearly involve complex negotiations with the provinces—would be to abolish welfare as it currently exists and replace it with an income support program for working-age adults, delivered as a negative income tax. This approach, as again I'm sure members will know, has been broadly championed across the political spectrum, including by my once friend and colleague from a different life, Senator Hugh Segal, and by the late Tom Kent.
To pay for change, these improvements to our income support programs can be financed by making our income tax system much fairer. We have proposed a number of approaches in our discussion paper, which the institute produced on inequality.
We should scale back special tax breaks that deliver huge benefits to the very well off, such as the exclusion of 50% of capital gains income from taxes and low tax rates on gains from stock options. For a functional market-based economy, I believe these existing benefits are not necessary.
We should be looking to more progressive income tax rates, and we should be cracking down on tax avoidance.
Revenues can also be gained by more broadly applying the principle of polluter pay.
In summary, Mr. Chairman, concrete steps can be taken to make our tax and transfer system a much more effective vehicle for closing the growing gap in Canada between the very rich, on the one hand, and the middle class and the poor on the other. Priority, as I've suggested, should be given to fundamental reform of our income security system.
Thank you very much.
Armine Yalnizyan
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Armine Yalnizyan
2013-04-30 9:08
I thank you very much, Senator...not yet “Senator” Brison, right?—
Voices: Oh, oh!
Ms. Armine Yalnizyan: —for bringing forward this opportunity. I thank very much the whole process that permits us to talk about what is perhaps one of the defining issues, not only for Canada but around the world, on the future of democratic capitalism and globalization.
Don't ask me, ask the World Bank what they think about rising inequality. Provocative words coming out of the World Bank are that perhaps rising inequality is increasingly threatening and undermining democratic capitalism.
The International Monetary Fund, again, no left-wing pinko organization, says that the more inequality you have, the shorter the spells of growth you have, the more volatility you have in markets, and the less overall growth you have over a sustained period.
Internationally referenced Canadian academic Miles Corak, from whom you've heard, has noted that there is a tight correlation between the degree of inequality in society and the degree of mobility, both social and economic, for the next generation, which is clearly something that violates the very principles of meritocratic societies. If you think these trends are only happening elsewhere to other people, think again. The same things are happening in Canada.
The Conference Board of Canada has warned that growing income inequality left unchecked in this country will lead to lost potential, increased costs, squandered opportunity, and potential social unrest. Those are words from the Conference Board of Canada.
Data from the Organization for Economic Co-operation and Development show that whereas Canada, from the mid-1980s and mid-1990s, bucked the international trend towards rising income inequality, since then Canada has slipped most rapidly down the international rankings, from 14th place to 22nd place, from above-average to below-average equality, while at the same time, 15 of 34 OECD nations reduced inequality.
The University of Toronto's Centre for Urban and Community Studies has launched path-breaking research showing how income inequality leads to people living in more rich neighbourhoods, more poor neighbourhoods, and fewer middle-class neighbourhoods. If you think you can predict poverty by postal code, you know you're creating problems, and it creates problems for the way we raise our kids and the opportunities that are hard-wired into their environment.
Between 1981 and 2010, the economy more than doubled, in inflation-adjusted terms, but poverty has been on the rise.
I ask you to look at the first table I've distributed for you, the “Percent of People with Incomes below the Low Income Measure”, in after-tax terms, by age group. You will notice that seniors' poverty rates are increasing, working-aged adults' poverty rates are increasing, and children's poverty rates are higher today than they were in 1989, when all parliamentarians stood together and said that child poverty in a nation as rich as Canada was a travesty and it needed to be eliminated by the year 2000. It has been pretty much eliminated in Denmark, Sweden, Norway, and Finland. We know this can be done, should we wish to do it.
I ask you to look at the second chart I've distributed, which shows the percentage of Canadians in low-, middle- and high-income classes. The group of people earning a middle-class income, between $30,000 and $60,000, has been shrinking over time. The group earning less than $30,000 is higher today than it was in the mid-1970s—and this is all in inflation-adjusted terms—and the group earning above $60,000 is rising. This leads to, of course, who at the top is earning the most. Professor Veall indicated that those in the top income group have seen the biggest share of income growth.
I point you to my third and last chart in the presentation, which shows that the top 1% took 32% of all income gains in the decade before the crisis. That, ladies and gentlemen, is four times the amount of a similar period of growth in the 1960s and twice the amount of the Roaring Twenties.
What can the federal government do? You can introduce direct income measures. We've mentioned some of these today: the working income tax benefit, refundable tax credits, enhancing the child tax benefit, the OAS or the GIS, or more sweeping reforms such as the guaranteed income supplement. Also, improving access to EI is important for our macroeconomic strength, so that we can more recession-proof in future.
If you don't choose to do direct measures, you could indirectly support the provinces and territories, eight of which have committed themselves to poverty reduction strategies. The federal government should support these initiatives. You seem to like experimentation at a provincial level, and the alternative federal budget has outlined how such a plan could take place.
In terms of tax measures, we've talked a lot about what could be done to raise taxes, but enforcing the rules that exist requires enhancing, rather than cutting, the staff at the Canada Revenue Agency and following through on prosecution of tax evasion.
I would recommend also that you avoid expanding the tax free savings account, and do not introduce income splitting for families with young children, both measures the parliamentary library has shown increase disparities, rather than reduce them. You can improve the supports and services, as you have done in measures such as Pathways to Education funding, and you can target additional revenues raised or not forgone by alleviating the pressure on the middle- and low-income households through child care, transit, housing, and post-secondary education.
Can I just close by saying that the most immediate concern is the temporary foreign worker program?
Armine Yalnizyan
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Armine Yalnizyan
2013-04-30 9:14
Some changes were introduced yesterday. Pursuing a low-wage strategy is a disaster for Canada. It needs to be further revised, and strengthening the role of labour market policies cannot be stressed enough. A correlation between unionization and greater equality has been well documented, and we'll hear more about it today.
Peggy Taillon
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Peggy Taillon
2013-04-30 9:15
Good morning, everyone. Thank you very much.
Thank you, Mr. Chair, for seating me beside Madame Smarty-pants here, because I get to take a different tack, knowing that Armine would bring forward a lot of great solutions and also help us dissect the numbers.
I'm the head of the Canadian Council on Social Development, the oldest organization of its kind in Canada, founded in 1920. We came up with the concept of EI, disability pension, and old age pension, to name a few important policies.
I want to talk about inequality from the perspective of, “Why bother?” Armine is right, this is a defining issue, and it's important that you are exploring it in the way you are today. But why bother? Is it just a buzz? Is it something that came out of the Occupy movement, or is it something much more substantial than that?
Fundamentally, if inequality is left to fester, it will tear apart the very fabric of Canadian society. Equality connects us. It binds us together and it builds cohesion, and social cohesion is critical. It's not just the absence of conflict, it's the ability to move forward in the same direction with shared purpose. It is a requisite for a smaller trading country like Canada. We can only exercise our full strength through some essential level of agreement as a country. Canada must have a continuous nation-building process by furthering a genuine consensus across provinces, cultures, and languages. We require more than a passive tolerance of one another for us to advance our common problems and our common purpose.
At the core of our Canadian idea there has been a broad definition of success as shared progress for all citizens, measured in terms of income, opportunity, well-being, and the enjoyment of social rights and freedoms. It has been coupled with a special responsibility to ensure that those who are vulnerable are not left behind. In Canada the assumption of common advancement has reached across political perspectives, governments, and generations. This Canadian aspiration gave expression to an underlying individual value of hard work, fairness, merit, and shared responsibility. But we are at a crossroads. We are faced with a choice of shared prosperity or increased polarity. Decades of accomplishment in support of our shared advancement have been followed by a period of stagnation, as Armine and others have indicated today. It's stalling progress, and now that progress is beginning to unravel.
Consider the following. We are running the very real risk that our children will be the first reverse generation in Canadian history: one that is less well off than any one before it—less well off in employment opportunity, health outcome, the environment they inherit, income attainment, and the list goes on. Growing income inequality is becoming entrenched. Middle-class families are working more but not getting ahead, except by borrowing more than they have to spend. Poverty is becoming a bog that entraps people contending with life challenges or transitions caused in part by ineffective government policy. Our collective failure to grasp sustainable development and deal with our environmental concerns puts us on the other side of our values and our international expectations. In part, is this because we have lost the will and the focus? It's a question for all of us to answer.
In recent years, almost imperceptibly, Canadians have been cajoled to reduce their expectations, to accept a lower common denominator of what we can accomplish together. Individuals and families are being encouraged to look after their own interests. Economic problems are now portrayed as the result of international or global conditions well beyond our reach.
Peggy Taillon
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Peggy Taillon
2013-04-30 9:19
Our policy choices are reduced to growth in GDP, our so-called standard of living, regardless of the benefits that are delivered for the well-being of average Canadians. Social needs and government responses are vilified as complex, costly, and muddled jurisdictionally.
We can't afford to take our social cohesion for granted. The increasing contrast between our lived reality and the country that most Canadians presume they live in means there's a short distance between where we are today and further alienation. There's a tremendous opportunity today to forge a new consensus for Canada.
Canadians are fundamentally generous and optimistic people. We still have time to exercise our enlightened approaches to major challenges, from an aging population to a shrinking labour force, to competitiveness and poverty, in ways that can galvanize most Canadians to become engaged in our next nation-building process as a country.
There is no magic in addressing inequality, but it does take leadership.
Thank you.
Michel Venne
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Michel Venne
2013-04-30 9:20
Good morning and thank you, Mr. Chair. I will speak in French.
I want to begin by thanking all the members of the committee for looking into income inequality and, more generally, social inequality. Income inequality cannot be addressed through discussions on income alone, as that problem is often caused by inequalities in health, education, and access to culture and information. Income inequalities are either the result or one of the causes of inequalities among us, in society, such as inequalities in terms of opportunities.
The mission of my organization, the Institut du Nouveau Monde, is to engage Canadians to take an interest in what is happening in society and to discuss it. The institute is an organization that defends democracy and not social rights. Today, you are discussing a topic of key importance for our society in our main democratic arena, Parliament.
Social inequalities are the very issue the institute will address in a large public debate that will be held over the next two years. Since we work in Quebec, the debate will be held in that province, but we would be pleased to open it up to all of Canada.
Why did we choose this topic? Whether we are talking about the World Bank, the OECD, the IMF, the World Economic Forum held in Davos or the Conference Board, everyone—with the exception of a few economists—is saying very clearly that the increase of inequalities has become counterproductive.
Inequalities have always existed and will continue to exist, but their worldwide increase is now threatening peace and economic growth. This information is not coming from me, as I am not an economist. This has been stated in all major economic publications last year, including The Economist. They are saying that we have gone beyond the point where inequalities are productive.
We may think that inequalities are a good thing because they encourage people to do better and do more. However, inequalities are currently so significant—especially between the richest 1%, 3% and 5%, and others—that the incentive to do more and better has disappeared. They are already so rich that the difference between being a bit richer or a bit poorer is no longer a motivating factor for increased productivity. It is also no longer a motivating factor when it comes to creating jobs or investing in the country. So we have achieved a level of inequality that is counterproductive. Awareness of that phenomenon is necessary.
The second reason I am so happy you are discussing this issue is that the main problem with inequalities is the refusal to discuss them. This is something of a taboo topic. People seem to think that the issue is not serious, since inequalities have always existed in society. The other day, someone told me that people have always been jealous of the rich, but all they had to do was follow their lead—as if that were easy or possible. It is not.
The topic is somewhat taboo, and people seem to be reluctant to discuss it. One of your roles, as elected officials, is to study important topics, even when they are taboo. Why?
I want to begin by making a distinction. I am not talking about the fight against poverty.
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