[as published in the EWA Newsletter V.7 #1 - Winter 1996: The Impact of Funding Cutbacks on assaulted Women]On a seemingly daily basis in Ontario (and Canada generally), we
see social programs - such as social assistance, legal aid, programs for assaulted women, child care and children's programs, immigrant services, health, and education - being cut.
We are told, by governments and
business leaders, that the reason for these federal and provincial social spending cuts is our government's "debt crisis". We are told that we can no longer afford these programs, that we have hit a
"debt wall". That we must decrease social spending - otherwise we will face a bankrupted and penniless future.
But government spending on social programs has not increased as a
percentage of GDP in 20 years. (GDP - Gross Domestic Product is the value of all goods and services produced in a country in a year). In addition, a 1991 Statistics Canada study on the origins of the debt found
that only 2% of the debt was caused by social programs. If the debt did not come from social programs, where did it come from?
What is the "Deficit"?
A "Deficit"
occurs when the government takes less money in (through taxes, lotteries, etc.) than it spends (in services, interest on the debt, etc.) in a year. The "debt" is the sum of yearly deficits as they add
up.
Where did the Deficit Come From?
Canada's Tax System
Canada's tax system has changed significantly since the mid-1970's, increasing the amount of taxes paid by
middle class and poor individuals and decreasing the amount paid by corporations and wealthy individuals. Canada also now relies more on sales taxes that are paid equally by rich and poor people (i.e. the GST).
Similarly, user fees for services introduced by the government of Ontario will be paid equally by rich people and poor people.
Statistics Canada identified that tax breaks to Corporations and Wealthy
individuals contributed to 50% of the debt. Due to tax policy changes (tax breaks, benefits and loopholes), corporate tax rates in Canada have declined since the mid-1970's. For example, in the mid 1960s,
corporate income tax provided 20% of federal government revenue - but it was 7% of government revenue in 1994. This corporate taxation rate is lower than for all G-7 countries, including the United States, and lower
than the G-7 average of 10%.
As corporate taxes fell, personal income tax rose from 32% to 50% of federal revenue. In addition, personal income taxes have not been paid proportionately by wealthy
Canadians. For example, in 1992, there were 98,347 Canadians with incomes of $100,000 or more who paid absolutely no income tax.
High Interest Rates
Interest rates have
also been extremely high in Canada (until the past few months) since the 1980's. Statistics Canada states that these abnormally high interest rates accounted for 44% of the federal government's debt. For
example, from 1933 to 1985, the average real interest rate in Canada (interest rates minus inflation) was 1.4%. But the average real interest in the mid-80s to 1990s has been 7.5%. In fact, in 1988, Canada had the
highest real interest rates in any G-7 country. This was due to the Bank of Canada's "war on inflation".
These high interest rates increase the debt by increasing the amount paid by the
government to people who hold Canadian bonds. In fact, without interest payments on the debt, Canada would have had a surplus of $4 Billion in 1994.
High interest rates also increase unemployment rates
because it becomes too expensive for people and businesses to borrow money. This increases the number of bankruptcies and throws many people out of work.
High Unemployment
High Unemployment
also increases government deficits because unemployed people cannot pay taxes, and require assistance from the government social programs.
The impact of unemployment on the debt in Ontario is
seen in the shift from a budget surplus in 1988/1989 to a $12B deficit in 1992. This is deficit increase was linked to the rise in the unemployment rate from 5.1% in 1991 to 10.9% in 1992.
What should we do about the deficit?
Attempts to fight a problem should address its causes. For this reason, cuts to social programs will not address the "debt problem". So, along
with enormous human misery caused by program cuts, the debt will continue to grow. Solutions to the debt problem must therefore focus on three factors: Canada's taxation system; Canada's interest rates; and job
creation.
Some groups and publications that address alternatives include:
Canadian Centre for Policy Alternatives
251 Laurier Ave W - Ste #804, Ottawa, ON, K1P 5J6. Phone: (613) 563-1341; Fax: (416) 233-1458.
Available from CCPA: Alternative Federal Budget 1996: Framework Document
Ottawa, ON: Canadian Centre for Policy Alternatives, 1996. Cost: $5.00 + postage & handling
Ten Deficit Myths. Ottawa, ON: Canadian Centre for Policy Alternatives, 1996. Cost: $5.00 + postage
& handling
Committee on Monetary and Economic Reform (COMER) 3284 Yonge Street - Ste 500, Toronto, ON. Phone: (416) 486-4686; Fax: (416) 486-4674
Ecumenical Coalition on Economic Justice 77 Charles Street W - Ste 402, Toronto, ON, M5S 1K5. Phone: (416) 921-4615; Fax: (416) 922-1419
Low-Income Families Together
238 Queen St W, Lower Level, Toronto, ON, M5S 1Z7. Phone: (416) 597-9400; Fax: (416) 392-6650
Available from LIFT:
Understanding deficit mania: an illustrated guide. Toronto,
ON: LIFT, 1996. Cost: $2.00/each
Stop Blaming the Poor [Poster}. Toronto, ON: LIFT, 1996. Cost: $2.00/each
Metro Network for Social Justice
c/o 2 Carlton St - Ste 1001, Toronto, ON, M5B 1J3. Phone: (416) 351-0095; Fax: (416) 351-0107.
Available from MNSJ: An Economic and Political Literacy Primer: A Training Manual for
Economic and Political Literacy Training. Toronto, ON: MNSJ, 1996. Cost: $10-12
The debt is a problem..but it's not the problem that they say it is [Brochure]. Toronto, ON: MNSJ,
1994. Available from: MNSJ (see above) Cost: FREE
National Action Committee on the Status of Women
234 Eglinton Ave E - Ste 203, Toronto, ON, M4P 1K5. Phone: 1-800-665-5124; Fax: (416) 932-0646; e-mail: nac@web.net
National Anti-Poverty Organization (NAPO) 316-256 King Edward Ave, Ottawa,
ON, K1N 7M1, Phone: (613) 789-0096; Fax: (613) 789-0141; e-mail: napo@web.net. Contact: Rosemary Spendlove
