Thank you for the opportunity to provide input on the next federal budget.
Our message is that the federal government needs to increase its revenue in order to have the resources required to reduce income inequality and poverty, boost investments in social and physical infrastructure, and tackle climate change.
The government can do this by, number one, not introducing any more unfair and ineffective tax cuts. The finance minister is expected to declare that there will be a surplus, and announce more tax cuts in the next budget. But before considering any further tax cuts, the government should evaluate what previous tax cuts, totalling an annual $43 billion since 2006, have accomplished in terms of their stated objectives.
Let's examine a few examples. The corporate income tax cuts did not boost investment or stimulate job creation. Jim Stanford convincingly demonstrates in a chapter of a book we published called The Great Revenue Robbery that business investment spending in Canada has declined since the federal government began reducing corporate income taxes. According to Statistics Canada there is now $630 billion in dead money in cash reserves that is not being invested to create jobs. Far more jobs would have been created if the government had kept this money and invested it in infrastructure and public services. This is backed up by a 2011 study by the finance department that shows the infrastructure spending had a 1.6 multiplier effect, while tax cuts had little or no multiplier effect.
Many of the boutique tax cuts have also not generated the intended results. The children's fitness tax credit, for example, went disproportionately to upper-income families, and according to a University of Alberta study it did little to encourage participation in youth sport.
Given the clear evidence that tax cuts have been unfair and ineffective, it's sheer madness to consider income splitting for families in the next federal budget. An analysis by Queen's University tax law professor Kathleen Lahey that was done for Canadians for Tax Fairness shows that almost 30% of the benefit of income splitting would go to the top 10% of families with incomes of over $170,000. If supporting families is the goal, then a far better way to do this would be to fund quality, non-profit child care.
Second, we need to close unfair and ineffective tax loopholes. Many of the tax loopholes, tax breaks, disproportionately benefit the wealthiest and increase income inequality. They also make the tax system more complex, making it difficult for an ordinary taxpayer to know all the deductions and tax benefits they might be entitled to claim without the assistance of a professional tax expert. The most unfair tax loophole, in our view, is the stock option deduction that allows highly paid company executives and directors to pay at half the rate of tax on their compensation that is given in the form of stock options. This policy exacerbates the problem of growing income inequality when the government should be doing more to close it.
According to the tax expenditures and evaluations report of the finance department, the stock option deduction costs the federal government $785 million a year. If losses to provincial governments are added to the total, the revenue would top $1 billion. How can we justify subsidizing the incomes of the wealthiest Canadians and then claim we don't have the resources to end child poverty or ensure clean drinking water for aboriginal communities?