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Community Dispatch - An InfoFax of the Halton Social Planning Council & Volunteer Centre

December 1999

On behalf of the Halton Social Planning Council and Volunteer Centre, I would like to extend our Seasons Greetings to all and our best wishes for a fruitful New Year and a Millennium that brings peace and justice to all.

This Community Dispatch continues our tradition of sharing the highlights of the keynote address presented at the Council’s Annual General meetings. The address in our June 1999 meeting entitled, Communities, Inequalities and the Global Economy: Moving Beyond the Cult of Impotence, was presented by Linda McQuaig, well-known journalist and author. She examines the myth of powerlessness in the global economy and challenges us with difficult and pertinent questions that must be answered if we are to build a healthy and cohesive community.

The Halton Social Planning Council and Volunteer Centre hopes that the thoughts and insights of our speaker will encourage us to pause and reflect on the future of our community and of civic society on the eve of the year 2000.

Joey Edwardh Executive Director

How can we rebuild a society focused on the public good – a society which serves the public good? I am referring to a society which pools its resources to create a community which includes everyone. In the decades, after the Second World War, that was the kind of society that we created in Canada. It certainly had its short comings, but if you think back to those decades, we did pool our resources through taxation to create strong public institutions and public programs. As a result, we became a more egalitarian society.

Before World War II, you found that access to health care, education, a degree of financial security, were confined for the most part, to the elite. What happened in the post war period was a shift where health care, education, financial security, pensions, became accessible to a wide range of Canadians -to the majority of Canadians. Tragically, what’s been happening in the last two decades is the dismantling of so much of what we have built. Government spending on public programs is at its lowest level in 50 years, according to Finance Minister Paul Martin. As a result, we have retreated from those egalitarian gains that we made in the post-war period. In fact, we have rejected the notion that society should serve the common good and should be built around the principle of the common good.

Increasingly, we are becoming a society built around the principles of the market place, and the notion that people are out for themselves. I believe that people are very unhappy about the direction that we are taking. Interestingly, I think the common response is to lament what has happened and to say, ‘Well, you know there’s nothing we can do about it, there’s no alternative – this is the nineties, this is the reality of the global economy. Governments don’t have the power and resources anymore to do much more, to do the kinds of things they used to do. Governments are pretty much powerless in the global economy.’ You hear this all the time! Let me state very clearly that I don’t buy those arguments at all, in fact, I think that this whole notion of government powerlessness is fundamentally wrong, it’s what I will call a cult of impotence…

For years, we have been told the deficit was the problem. We were told the deficit imposes enormous restraints on us. Because of the deficit, we could not properly fund our social programs – we had to cut back tremendously. I want to make the point that I think was always exaggerated. In fact, to illustrate this I want to take you back to 1995, the height of deficit hysteria in the country. February 1995 was when Paul Martin brought in a brutal budget – cutting so deeply from social spending that this had ripple effects throughout the country at both provincial and municipal levels. In the months leading up to the budget of February 1995, we were constantly told about our dramatic debt crisis, and if we did not slash social spending – we were going to hit the debt wall. Investors were going to pull out their capital, threats were made about how we were facing national bankruptcy, and we really did not have an alternative but to cut very, very deeply.

Interesting, in the midst of all that deficit hysteria promoted by our government, business, and the media, there was a report produced for the Finance Department in Ottawa by Goldstein, a leading Wall Street firm. This report said that Canada’s deficit was not nearly as bad as everyone seemed to think. In fact, the report went on to say the extent that Canada had a deficit problem was almost entirely a problem of too much unemployment. If Canada would only return to full employment, its budget deficit would disappear…

Of course, that is not what happened. In fact, we never heard about that report. What actually happened is that report set off a panic inside the Finance Department because it contradicted everything they had been saying all along. It showed there were other alternatives and the last thing the government wanted was a real public debate of the issues. They were straining to control the debate and convince us that there were no alternatives but deep spending cuts…

Even if you believed those dire scenarios back then, that situation is not true today. Our circumstances have dramatically reversed. The deficit has disappeared at the Federal level, in fact a federal surplus is expected next year in the range of 17 billion dollars. This surplus is expected to grow. You would think this raises the possibility of social reinvestment, rebuilding the programs that we dismantled. Unfortunately, what has happened is that the debate has been completely dominated once again by business, government, and the media. They are determined to keep the level of social spending at the current low level. In fact, they reject categorically the idea of serious social reinvestment – for one very specific reason, they want that money distributed in the form of tax cuts…

What is it that we would need to get us back to where we want to be? We would need about 15 to 16 billion dollars a year reinvested for the next four years compared to Martin’s spending of two to three billion. The good news is that we have that money. We could take our surplus and put it back into rebuilding our social programs without going back into a deficit situation. The reason we aren’t doing this and the reason we apparently can’t, has nothing to do with fiscal responsibility but everything to do with the desire of the rich for tax cuts…

I will just mention a few things about tax cuts. They favour the rich. When they talk about ‘tax cuts,’ it sounds like something everyone is going to benefit from. They never reduce the GST or Provincial Sales tax. It is the income taxes that the rich are concerned about and want reduced, because this is where they pay their large taxes. You can see this very dramatically in the Harris tax cuts – in the first part of the tax cuts – (the 30% cut) – Harris was concerned that it would be attacked as it favoured the rich, so they actually put a limit on the top dollar that the rich could get back from the tax system. For instance, someone earning about $25,000 a year would get about $300, versus someone making $300,000 a year would get $5,000 in tax savings, which is the maximum anyone could get. In the 20% round of tax cuts, (the current round), that Harris promised during the last election, there is no limit. The upper end’s benefits are unlimited; so under the 20% tax cuts the person earning $25,000 would get about $250 and someone earning $300,000 would get a tax cut of about $9,000. Someone earning $500,000 – their tax cut would be $13,000.

The other thing we hear about tax cuts is they create jobs. In a way this is true, since anything which pumps money into the economy will probably create jobs. The big question is how do you pay for that? If you pay for a tax cut with a spending cut, you aren’t necessarily further ahead, in fact, you have a tax cut which creates jobs, but you are paying for it with a spending cut which eliminates jobs, therefore, we aren’t any further ahead…

We are left with this situation today, where, I would argue, we have incredible choice. We have the choice of spending our surpluses on tax cuts or public reinvestment. There are people who feel I am naive to get into that type of social spending again. They believe that social reinvestment will just get us back into a deficit situation. This is a widely held view. I would argue that this view is wrong. I don’t feel that social spending was the cause of the deficit. In fact, it has been argued that government spending increases were never more than a minor factor in increasing the deficits throughout the 1980s and 1990s.

The real cause of our deficit in the 1990s was, in fact, something which is rarely even associated with deficits and that was the extreme actions of the Bank of Canada, which conducted a bizarre fight against inflation with the use of high interest rates. This policy, even though we did not have an inflation problem, drove interest rates up. In fact, in the early 90s, we had interest rates five whole percentage points higher that the Americans. This drove the country into recession, and that was not only terrible for the country but also for the deficit. We ended up in a recession with high unemployment. All those people who were paying their taxes are suddenly out of work. Hundreds of people are no longer paying their taxes, that drives up your deficit. Furthermore, these people need some sort of social assistance, which creates additional costs too. The high interest rates add to the cost, therefore adding to the deficit…

I would argue that the best thing we could do with the debt is to just leave it alone. As long as the economy keeps growing and the debt stays the same size, what happens is that over time, the debt becomes affordable. That is exactly what we did as a country in the post-war period as we built our social programs. In fact, we got out of the war with proportionately a much bigger debt – it was something like 110% of GDP. In the post war years, we put virtually no money into paying the debt. What we did was focus on growth and employment, and in the mid 70s the debt was still the same size, but the economy had grown so much that the debt was only 15% of GDP by that point.

The real choice we have today is between tax cuts or public reinvestment and I would argue they are both fiscally responsible in terms of not getting into deficit problems. The question is, what kind of society do we want? Do we want a society based on the common good, or do we want a society based on a kind of free market individualism?

Season’s Greetings and A Happy New Year!

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