Thank you.
First of all, let me thank the finance committee for their invitation to speak today.
My name is David Macdonald. I'm an economist with the Canadian Centre for Policy Alternatives, a non-partisan economic think tank here in Ottawa.
Although the stimulus package has now wound down and the global economic picture appears no more certain as the great recession drags on, depression-level unemployment in the U.S. and the European sovereign debt crisis continue. To be sure, the situation looks better here on this side of the Atlantic and north of the 49th parallel. Neither our banks nor our sovereign debt are facing anything similar. In fact, while Euro members like Greece are considering default, the Canadian debt-to-GDP ratio remains the lowest in the G-8, equivalent to $500 billion lower than second place Germany.
However, Canadians have not been immune to the global debt crisis. In Canada it has taken the form of much lower economic growth, higher unemployment, and underemployment. And while middle-class Canadians have not seen the price of their homes collapse, as has been the norm in other countries, they are buried under mountains of debt that will serve as a weight around the economy's neck when interest rates rise.
Stagnant real wages for most Canadians over the past several decades has meant that rising prices for houses and everything else were only affordable by piling on more debt. But this Faustian bargain is not likely to continue as household debt to disposable income tops 150%.
As private sector forecasters and the Parliamentary Budget Office revise their economic growth projections downward, Canada may well be in year four of its own lost decade of high unemployment, widening inequality, and slow growth. One and a half million Canadians remain unemployed or have simply given up looking for work. To add insult to injury, CIBC has just today released the fact that the full-time jobs that are being created are primarily low-paying jobs.
At the same time as additional demand is needed in the national economy, corporations are cutting back on investment because of uncertainty. They have instead chosen to keep their tax cuts in a bank account, not investing them in new equipment and not creating new jobs.
Consumer demand is significantly constrained by high debt loads. And the third actor, the federal government, has chosen not only to withdraw from job creation with the end of the stimulus effort, but to throw likely tens of thousands of public sector workers into unemployment lines through austerity measures.
This budget bill contains measures that are much more effective at encouraging capital investment than broad-based corporate tax cuts. Accelerated capital cost allowances for manufacturers and clean energy producers in part 1 of this bill are examples of tied tax cuts: corporations only get them if they take specific actions.
Similar incentives should be adopted for job creation. Tied tax cuts that are linked to actually creating jobs or investing in machinery are dramatically cheaper and can be much more effective than broad-based tax cuts at getting the desired results. This budget bill should look at expanding tied tax cuts not just in accelerated capital cost allowances, but also in job creation. While these measures would cost the treasury, they would cost significantly less than comparably expensive declines in the general corporate tax rate.
Given that Canada has the lowest corporate tax rate in the G-8, according to PricewaterhouseCoopers, we have room to increase that rate by several percentage points while maintaining first place. The additional revenue could provide long-term infrastructure funding for part 9 of this bill by augmenting the gas tax transfer. Not only would this whittle down the significant infrastructure deficit, but it would drive aggregate demand. Job creation would certainly be a result, but so too would stronger economic growth.
If the committee accepts that the federal government was successful in blunting job loss in the crisis of 2008, there is little reason why it couldn't employ similar tactics today--that is, job creation through infrastructure spending. However, employment itself is only part of the problem. This budget bill fails to address rising inequality in Canada. If anything, the children's arts tax credit from part 1 of this bill would go largely to higher-income families and only exacerbate the problem.
I encourage the committee to consider measures that might help to reduce instead of increase the after-tax income gap through the introduction of a new income tax bracket above $250,000 in income. The funds raised through this could support stronger social programs that ease the burden of stagnant wages for middle-class Canadians.
To conclude, dark clouds remain on the economic horizon, and the changes I've suggested above to this bill will take steps to better protect Canadians against the possibility of another lost decade.
I'd like to thank the committee for their time.