Canada’s watchdog for federal spending recently issued his report and the news was definitely not upbeat.
Coming off a budget that racked up Canada’s biggest deficit ever, many are aware there will be difficult times ahead. What they may have forgotten is how thin the line between surplus and deficit was before we engaged in last year’s unprecedented stimulus funding.
Kevin Page, the Parliamentary Budget Officer, warned of this last year. He claimed that Canada had already entered a structural deficit while the Conservatives were claiming minute surpluses. A structural deficit is a deficit that exists when the economy is performing at its potential.
How did we get in this position? Quite simply, the appetite for tax breaks and the wrong-headed belief that reduced taxes would help the economy grow. The market melt-down made all investors nervous at best and wiped out many gains the average person had made through investment tools such as RRSPs. The jobs lost have further reduced our fiscal capacity as tax revenues dried up and social spending increased.
The economic crisis has exposed serious inadequacies in Canada’s retirement savings system. Faced with the collapse of many workplace pension plans and private savings the government’s response has been to tell Canadians to “save more”. This is the wrong advice. The government should take $700 million (less than half of the proposed corporate tax cuts) and invested it into reforming Canada’s retirement savings system thus helping to eliminate seniors’ poverty. A further step in the right direction would be a doubling of CPP benefits from about $907/month to almost over $1,800/month. The cost would be an additional 2.5% of wages (matched by employers). This is less than what we pay for private savings plans.
No one likes taxes and it is easy to rally against them, but taxes pave roads and put defibrillators in hospitals; they educate our children and defend our country. Like it or not, we need some form of taxation. That is where our current government has failed us miserably. They have made tax an evil word and run successful campaigns that have not helped the bottom line in most households. A 2% reduction in the GST might save a few pennies but costs dearly in the end.
We are now dealing with reduced capacity and will have a structural deficit of 18.9 billion dollars by 2013 according to Kevin Page. Compounding the problem is Canada’s aging population. The baby boomers that are moving from work to retirement will change the balance sheet irrevocably and Canada has not prepared for this.
The finance Minister is still clinging to the belief that tax cuts will stimulate the economy. As we enter into pre-budget consultations, with Parliament closed and the Harper government in hiding, it will be difficult to make this case before next year’s budget is written. Every year we refuse to look at the looming fiscal crisis is a year lost and an abandonment of the hard work done to build this country.
Tags: Add new tag, CPP, pensions