2012 Federal Budget: The Good, the Bad and the Ugly

Ted Hsu
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The Easter recess is over. After an event-filled two weeks working out of our constituency office in Kingston, I’m heading back to Ottawa.

We’ve had a few weeks to digest the budget. Details, such as the announcement of the closing of Kingston Penitentiary, will trickle in over the following months. During the coming weeks and months, more federal government workers will find out if their jobs are the ones being cut. Citizens directly affected by federal programs will see their lives change. As we await the tabling of the budget implementation bill, which is legislation to implement some of the policies announced in the budget, I thought I would post some thoughts.

This is a good time to take stock of the majority government’s budget and whether or not it will change Canada for the better.

I am critical of this budget and the ideology it reflects. However, it is a thick document and I am pleased to notice some good ideas.

The Good
First, small businesses can now get written responses from the Canada Revenue Agency through an online service. Previously, a businesses sometimes got two different verbal answers from two different people at the CRA. Now, with a single, written answer, small businesses will have more certainty about tax consequences, and that’s good for business.

Second, federally regulated private sector employers will be required to insure long-term disability plans for their employees. This will avoid situations like the Nortel bankruptcy, where employees on long-term disability were stranded without their needed benefits.

Third, Canada will eliminate the penny. This may be ridiculed as a small gesture, but it’s still a good way to save money.

And fourth, there will be support for centralized clearing of standard over-the-counter financial derivatives. From my experience working in finance, I believe this is an important step to monitor and manage systemic risk in the financial system, which in turn helps to protect the rest of our economy.

Let’s now turn to what disappoints me about the budget and the agenda for Canada that forms its foundation.

The Bad
The 2012 budget does not really address the challenges of an aging demographic by simply raising the qualifying age for Old Age Security from 65 years to 67 years. Unlike countries such as Italy, where government pensions cost 14 per cent of GDP, the Canadian OAS is sustainable, according to Canada’s parliamentary budget officer. Today OAS is only 2.4 per cent of GDP. It will rise to a peak of about 3.1 per cent in 2030, and start decreasing anyways just as the proposed increase in retirement age to 67 would kick in.

This increase just isn’t needed, and it misses the point. Increasing the qualifying age for OAS (and the Guaranteed Income Supplement) simply puts an extra burden on low-income seniors, and on physical labourers who have the hardest time working an extra two years. These are the very people whose health-adjusted life expectancy is not much more than 65 years, the very people who are not getting healthier and not living longer.

The 2012 budget continues an agenda of tax cuts, and smaller government — especially the parts of government that are inconvenient for those currently in power. The budget does not touch the size of ministers’ offices or the Prime Minister’s office. If the Prime Minister is going to cut taxes (and thereby asking Canadians to accept service cuts), he should make the same sacrifice.

The budget also lacks critical details. What services will be cut? The budget simply does not say. Instead it speaks of “efficiencies.” These are weasel words. Shouldn’t a government that has been in power for six years already have been streamlining, consolidating, and automating?

In previous budgets, detailed lists of cuts were usually produced. Today, government workers are frustrated because they can’t figure out what is coming. Here in Kingston, the Royal Military College was hit by cuts that were only announced in the last few days. Border Services have now been notified about over 1100 jobs lost, probably meaning more back-ups at the border. Who and what is next?

Canada desperately needs to train young people in the skills required for good jobs, and make long-term investments to promote innovation and commercialization so that the well-paying jobs of the future will be created. But this budget does very little for skills training, and contains few details about new innovation or commercialization programs, in particular the radical transformation that is going on at the National Research Council.

The Conservative budget continues a trend to cut funding for basic research, instead favouring short-term R&D driven by industry priorities. This threatens the pipeline of unexpected, game-changing discoveries that is needed for Canada’s long-term economic growth. The budget cuts tax credits for research in favour of direct grants from government. It plays a shell game with research funding, moving around about $1 billion over five years, but adding no new money.

Finally, let’s take a look at the plain ugly in this budget — the types of budgetary actions that say a good deal about the underlying motives of a government:

The Ugly
Our environment, and those who care about it, took a huge hit. The world’s most fateful challenge, climate change, is not mentioned once in this 500-page budget document. Rather, what we see is the annihilation of  the National Round Table on the Environment and Economy, funding cuts to the Ministry of the Environment and Fisheries and Oceans, funding cuts to environmental science and Statistics Canada, plans to gut the protection of fish habitat, and spending money to probe the activities  of environmental charities.

The very ugly picture that emerges from this is a government that wants to suppress environmental protection and remove inconvenient opposition to resource development.

In fact, this budget exacerbates regional income inequality in terms of resource development. The Conservative government supports resource extraction sectors, while making many cuts to Atlantic Canada and making little investment in developing human resources.

The economic recovery since 2008 has been very uneven across the country. Those provinces that don’t rely on resource extraction are not doing very well. This is an ugly path for a national government to tread: baiting provinces to show discontent with each other instead of building up the nation as a whole, and continuing to base economic growth on exporting raw materials instead of making it a priority to reinvest revenue from those activities into developing more value-added exports.

In light of the economic, environmental, and human resource problems that Canada faces, it’s an ugly thought to know that a government that should be leading and empowering its people cannot or will not take the necessary steps to prepare for the future.

Your Time to Speak Up
These are my comments on the 2012 federal budget that was tabled on March 29. But the real judges of this budget are the Canadian people. Now is the time for all Canadians to tell their elected representatives and the government in power whether this is the budget they want for Canada. Speak up when the budget implementation or any other related legislation is being debated!