Federal Budget 2014 Analysis
What’s in it for us
The 2014 Federal Budget lacks any vision about how to stop growing inequality and stimulate the economy.
The Conservative plan continues to focus on austerity measures to balance their budget by 2015, and rests their hopes for economic growth on no-strings attached corporate tax cuts. But this plan is not delivering the promised investments in R&D, machinery and training needed to create better paid and more secure jobs.
To compensate, this budget introduces a myriad of small, limited and targeted measured in R&D and training, proposes to create internships instead of good jobs, all paid for with more spending cuts, such as cuts to federal employees’ sick benefits and increased costs to retirees benefits.
Overall, federal government spending will be lower in 2014-15 compared to this year, dragging down economic growth and job creation.
The Economic and Fiscal Context
The major economic problem faced by Canadians today is not government deficits, or balancing the budget by the next federal election. The most pressing problems faced by Canadians are a sluggish economic recovery, a stalling job market, and record high levels of household debt, along with inadequate employment insurance coverage and lack of retirement security. Canadians expected their federal government to tackle these problems in the 2014 Federal Budget. Instead, this budget stays the course on a path that hasn’t worked for most Canadians.
Canada’s economic recovery has been weaker than expected due to low business investment, high household debt, and weak global growth. Lower than expected exports along with a slowdown in construction starts, and historically high consumer debt, along with ongoing budget cuts, are having a negative impact on Canada’s economic growth and its labour market.
The Federal Budget points to a strong record of job creation compared to other G-7 countries. But job growth in Canada hasn’t kept up with population growth. Canada has had more population growth than many of these nations, and when the increase in job seekers is considered, Canada falls behind the rest of the pack. Job growth stagnated in 2013, particularly for workers under 55.
Canada’s unemployment rate remains higher than it was prior to the great recession, at 7.0% in January 2014, more than 1.3 million people. It is discouraging to look for work when there is only 1 job available for every 6 unemployed workers seeking work. The underemployment rate, which includes underemployed part-timers and discouraged job seekers, was 14% in January 2014―double the official rate.
Exports have been slow to rebound post-recession, and predictions of stronger economic growth have repeatedly been moved back. Still, signs of strengthening global growth and corrections in the value of the Canadian dollar have led to modestly rosier predictions for our economy, between 2.2% and 2.5% for 2014. These predictions are predicated on increased global demand, and on Canada reaping the rewards of that through higher exports. Even if this growth materializes, improvements in exports are necessary, but not sufficient to drive improvements in our economy and labour force.
A synthesis between smart economic development and pro-active labour force development is required to meet the challenges facing Canada today and in the future. High underemployment, low productivity growth, rapid technological changes, and an ageing population are serious challenges that Canada is facing. We must tackle them to sustain and improve economic and social well-being.
The Canadian Labour Congress has called for action in five areas to help create a prosperous and equitable economy in 2014 and beyond: training and skills development; infrastructure; income security; retirement security and fair taxation.
A. Training and Skills Development:
What we need:
Canada’s economic success and future prosperity depend on a skilled and educated workforce. Unfortunately, Canada falls well below the OECD average in the average hours of job-related, non-formal skills training for employees, and employer investment in skills training generally. We also lag well behind many of our major OECD competitors in terms of adult participation rates in job-related non-formal education—including the U.S., Germany, Norway, Belgium, and Denmark.
We need a skills development strategy in response to a growing skills gap, an ageing workforce, and the need for greater educational opportunities for groups such as Aboriginals, recent immigrants, and youth.
We need better collaborations between all skills development stakeholders, more and better labour market information, and better labour market planning.
We need investment of new money in training workers in Canada, instead of making it easier for employers to bring in more vulnerable migrant workers. What we don’t need is money taken away from programs that are already addressing specific issues of labour market integration, such as support for unemployed and underemployed workers in the area of literacy and numeracy, to have it given to subsidize employers.
The goal should be to invest in building the best educated, skilled, inclusive and adaptable workforce in the world. We need the 2014 Federal Budget to make nine strategic investments to ensure Canada is a lifelong learning super-power:
- A new Early Childhood Learning and Care Fund. It should work with the provinces and territories to ensure all Canadian families can find affordable, high-quality early learning and care spaces when and where they need them.
- Stable, predictable, sustainable, and equitable investments in First Nations education. This requires immediate investments in classroom-level funding to close the gap, coupled with annual escalators so that investments do not once again fall behind. Funding is also required to support existing regional First Nation Education Organizations and to create new ones where needed. Investment in First Nations education should include funding to support language and cultural programming, maintain existing schools, and build new schools. The federal government must conduct ongoing meaningful dialogue that respects First Nations control of First Nations education.
- Increase funding for the Labour Market Agreements (LMAs) with the provinces and territories so they can be rolled out on a broader scale. LMA programs prioritize the needs of vulnerable unemployed workers who are under-represented in the workforce, including: immigrants, Aboriginal peoples, persons with disabilities, women, older workers and less skilled individuals. A recent federal government study by Employment and Social Development Canada shows these programs have been very successful: 87% of participants got a job; 72% increased their weekly earnings; and 87% received a credential.
- Increase funding for the Labour Market Development Agreements (LMDAs) which transfer Employment Insurance (EI) funds to the provinces and territories for training and skills development programs for EI-eligible clients. According to the EI Act, up to $4.3 billion dollars can be spent on training this year―but only $2 billion will actually be spent. And, according to the Parliamentary Budget Officer, the EI fund will have a large annual surplus for the foreseeable future.
- Expand eligibility to EI training and skills development programs provided through the LMDAs so more workers can upgrade their skills. It should allow workers with 360 qualifying hours to access the LMDA training programs. And it should allow employed workers to access EI benefits for education and training leaves as part of a formal training plan. This would represent an extension of the current apprenticeship training provisions under EI, which provide income support for apprentices during the classroom part of their training.
- Invest new money in the Canada Jobs Grant. The federal government should abandon its plan to fund the Canada Job Grant by cutting money from existing LMA and LMDA training programs that are helping vulnerable, unemployed and low-skilled workers.
- Make investments that will increase apprenticeship promotion, recruitment, hiring, training and completion rates. It should ensure the income assistance provided to apprentices under the EI program is effectively aligned to their needs by eliminating the waiting period and/or pre-approving EI claims for apprentices. It should also partner with unions to create programs that will increase the participation of women in skilled trades.
- Return to a robust permanent immigration system and introduce measures to prevent employer exploitation of migrant workers under the Temporary Foreign Worker Program. It should ensure all immigrants to Canada receive a Canadian Certification of Skills based upon an efficient, objective and transparent assessment of international credentials and work experience.
- Finally, the 2014 Federal Budget should invest in better labour market information and collaboration between skills development stakeholders, and establish a national Labour Market Partners Forum that includes labour, business, government, and the education sector.
What is in the budget:
There are multiple targeted initiatives in the 2014 Budget to address training and skills development. Despite the fact that claims of a widespread skills shortage have been repeatedly debunked by economists, this government centers its programs in this budget around the assumptions of too many jobs without people. As has been the case in other recent federal budgets, most of what is contained in the budget is not new money, rather rehashing of previous announcements or re-allocated spending.
- Funding for the First Nations Control of First Nations Education Act – the budget allots $120 million for First Nations K-12 education as well as building and repair of schools, starting in 2015-2016. Many of the details of this Act have yet to be worked out, but hopefully this funding is a step in the right direction for First Nations youth.
- Training for vulnerable workers:
This budget contains no mention of funding for Labour Market Agreements, which expire this year. It appears that the federal government remains determined to use this money to fund their Canada Job Grant program, which the budget indicates is going ahead on April 1st, with or without the provinces.
The funding for Labour Market Agreements for Persons with Disabilities was announced in Budget 2013. Notably, vocational training for individuals with Autistic Spectrum Disorders will be funded through Autism Speaks Canada and the Sinneave Family Foundation.
3. Labour Market Development:
The EI Account was in annual surplus in 2013, and is expected to be in annual surplus again in 2014. EI Premiums have been frozen through to 2016/2017. Despite high demand for training, the federal government ignored calls to expand funding to the LMDA, or expand access to LMDA programs.
Targeted Initiatives for Older Workers – this budget renews the program introduced in 2006, at a cost of $25 million / year for 3 years. This addresses the needs of workers over 55 who have been affected by significant downsizing or plant closures. Second chance programs are necessary and important, but should not be limited to those over 55, as workers under 55 have had a particularly difficult time during this protracted recovery.
Job Matching Service and National Job Bank – continued improvements of the National Job Bank bring the technology in line with the 21st Century, but remains inaccessible to many, and doesn’t address the very high unemployment to job vacancy ratio many workers in Canada are struggling with.
4. This budget makes modest efforts to help apprentices through several targeted programs:
The EI waiting period will now only apply to the first period of an apprentice’s classroom training, and be waived for subsequent training. However, EI claims for apprentices will not be pre-approved, which leads to significant delays in receiving benefits for many apprentices.
Canada Apprentice Loan Program – $100 million in interest free loans to first time Red Seal apprentices through the Canada Student Loans Program. Apprentices will be able to access up to $4,000 per period of technical training, and should help 26,000 apprentices per year.
Investing in Apprenticeship Technical Training – a pilot project to examine innovative ways to deliver technical training and reduce non-financial barriers to apprenticeship completion. This includes remote learning and e-learning, as well as in-class simulators.
5. Youth Unemployment – The federal government’s Youth Employment Strategy, in place since 2006, barely touches the tip of the iceberg for struggling young workers in Canada. This budget announces several initiatives that sound great, but are unlikely to address structural issues facing young workers today and in the future.
Canada Accelerator and Incubator Program – adds $10 million per year for 4 years to previously announced funding, for total funding of $100 million. For profit and non-profit organizations will bid for funding to mentor young entrepreneurs.
Internships in High Demand Fields – $30 million over two years for an Industrial Research Assistance program, which will fund science internships in small and medium sized enterprises. $10 million over two years will be administered by the Youth Employment Strategy.
Supporting paid internships in small and medium sized businesses by reallocating existing Youth Employment Strategy funds of $15 million per year, to fund a maximum of 1,000 internships for recent post-secondary graduates.
Eliminating Vehicles from Canada Student Loan Assessment –There is currently a $5,000 exemption limit for vehicles when students list their assets on a Federal Student Loan Application. Students will no longer have to list the value of their vehicle, at an expected annual cost of $7.8 million per year.
Women Entrepreneurs – $150,000 to study the increase of mentorship among women entrepreneurs.
Building on reforms to the Temporary Foreign Worker program in 2013, the budget spends $11 million over two years to limit the use of the program in high-unemployment areas and to encourage employers to transition to a Canadian workforce. Details on how this might be accomplished are thin.
This budget replaces the suspended Immigrant Investor and Entrepreneur program with an Immigrant Investor Venture Capital Fund pilot project. Details of the pilot project are not provided.
Expression of Interest System – this program would allow governments and employers to target highly skilled individuals who are interested in coming to Canada. Expressions of interest would be sorted and ranked, and government and employers could consider candidates based on their labour market needs.
7. Improvements in Labour Market Information – The central premise of this budget is based around anecdotal information from employers that a skills shortage exists, rather than critical analysis of hard evidence. Despite desperate need for improved labour market information, this budget is completely silent on the issue. Policy based on partial and unreliable information is unlikely to address real needs. Canada does face real labour market issues that cry out for policy responses from the federal government, but this budget largely fails to address them because they refuse to examine the evidence.
B. Infrastructure for a Good Jobs Economy:
What we needed:
Greater investment in infrastructure increases Canada’s productivity while addressing the needs of Canadians. The CLC called on the federal government to launch, in partnership with the provinces and cities, a major multi-year public investment program. Such a program has to include increased support for basic municipal and First Nations infrastructure; mass transit and passenger rail; affordable housing; quality, affordable childcare; energy conservation through building retrofits and renewable energy projects.
The 2014 Federal Budget should encourage value-added production and investment in key sectors, along with green jobs and green skills initiatives, which will enhance innovation, training and labour productivity.
The federal government can take the lead in sectors and industries that demonstrate promising technological innovation that is based on the opportunity for growth, productivity growth, higher-than-average incomes, environmental sustainability, and export intensity.
The CLC supports targeted measures to sustain and create good jobs in manufacturing, and to maximize job creation in industries linked to the resource sector and green economy.
We need to involve all key stakeholders, sector by sector, industry by industry, to look at potential growth and needs. We need to invest in an economy built on a highly qualified workforce where growth and wealth are fairly shared, creating better paid and more secure jobs.
Federal and provincial governments must assist in a transition to a more sustainable economy by supporting research and development; education and training programs; demonstration projects, such as public building retrofits; programs to retrofit low-income and rental housing; and other initiatives which demonstrate the job potential of a more sustainable economy.
What is in the budget:
The 2014 Federal Budget doesn’t show the needed leadership to build Canada’s future infrastructure to support productive and sustainable economic growth. For a total of approximately $1 billion of investments that have been announced, most of it is going to repair, rebuild or replace current infrastructure, such as the Champlain Bridge in Montreal ($117M in 2014-15) or the Windsor-Detroit corridor ($195M in 2014-15), and to measures that were previously announced, such as support for Canada’s auto industry, with $250 million in 2014-15. The other measures are for targeted and limited research and development initiatives.
C. Employment Insurance (EI):
What we needed:
Employment Insurance is a necessary complement to training and skills development, and a good jobs strategy.
In its 2012 budget, the Conservative government introduced measures preventing more unemployed workers from getting access or keeping EI benefits while between jobs. Seasonal and temporary workers are directly affected, many of who are young workers and women.
These changes saved the federal government money that was used to pay down the deficit ahead of schedule. The Actuarial report on EI had projected EI coverage levels to return to their 5-year pre-recession average of 43%, but instead coverage has reached all-time lows of 37%. Savings from the lower coverage rate have helped the federal government pay down the deficit faster, at the expense of unemployed workers.
Ottawa should scrap the recent changes introduced to the EI program. The budget should also provide means to improve access to EI. Currently just 37% of unemployed Canadians receive EI benefits. The CLC calls on the government to implement a uniform, national entrance requirement of 360 hours worked for EI benefits, to increase the benefit level from 55% to 60% of insurable earnings, and to base benefit and duration calculations on a 30-hour work week.
What is in the budget:
There are very few measures around Employment Insurance in this budget. The premium rate remains frozen at $1.88 through to 2016/2017, and is forecast to fall to $1.47 in 2017 / 2018. The operating account recorded an annual surplus of $3.1 billion in 2013, and is forecast to have an annual surplus of $3.6 billion in 2014. The annual surpluses are being used to repay the deficit accumulated during the recession. The remaining amount owed to the federal government should be repaid in time for 2015.
Only one change to Employment Insurance is proposed, enhancing access to sickness benefits for parents of critically ill children. This is expected to cost about $1.2 million per year.
D. Retirement security:
What we needed:
With high personal levels of debt above 160% of income and stagnant wages, Canadians are finding it difficult to adequately save for their retirement. The CLC calls for concrete actions to improve retirement security for workers in Canada.
Commit to enhancing the Canada Pension Plan, acknowledging the more than 11 million Canadians without workplace pension plans, and inadequate retirement savings among current and future middle income-earners.
- Increase GIS benefits to address the 40% jump in Canada’s senior poverty rate between 2007 and 2010.
- Reverse Budget 2012’s commitment to raising the OAS/GIS eligibility age to 67 beginning in April 2023.
- An action plan to expose and limit mutual fund, group RRSP, and defined-contribution pension fees, as part of the government’s efforts to improve financial literacy among Canadians.
- Reverse the concessions forced on federal public-service employees in Budget 2012 (eg. raising the retirement age for new hires from 60 to 65) in recognition of the strong performance of the fund in 2013, the likely improvement in the funded status of the public-service pension plan, and the $28 billion removed from the federal public-service employee pension fund in 2000.
What is in the budget:
The 2014 Budget fails entirely to recognize the inadequate retirement savings of too many Canadians, and furthermore, outright rejects the common sense solution favoured by a majority of Canadians.
While the rest of the budget document crows about the federal government’s economic record, on the subject of expanding CPP they cite a fragile economy as the reason to avoid providing the next generation of workers in Canada with retirement security.
“Expanding the CPP… would impose a burden on employers and employees. For example, doubling the CPP replacement rate would result in an estimated increase… of up to $2,600 per worker… The Government heard the concerns of small businesses and believes that now is not the time to consider an expansion of the CPP given the fragility of the global economic recovery and the importance of small businesses in supporting the recovery domestically.” (Economic Action Plan 2014; p.95).
E. Fair Taxation:
What we needed:
Due to ongoing corporate tax cuts, corporate income taxes make up a falling share of all government revenues. Between 1997 and 2009, tax revenues of all levels of government fell from 36 percent to 31 percent of GDP, creating a $75 billion per year shortfall. At the same time, the tax system has become much more unfair. There have been deep cuts to the top personal income tax rates. The top combined federal-provincial income tax rate today is 43 percent, one half the level of the early 1950s. Dividends and stock options are taxed at much lower rates than wages.
Citizens are much better off paying taxes for public services than they would be paying for equivalent private services themselves. A study has shown that the average Canadian receives public services worth $16,000 every year, much more than she or he pays in taxes. Public health care paid for through taxes, is far more cost efficient than health care funded through private insurance, and lowers costs for both private employers and governments. Public services offer large economies of scale, and have no profits syphoned off.
Taxes also pay for income transfers so key in a fair society―such as Old Age Security (OAS), child benefits, disability benefits, and social assistance―which provides greater income security to all working people, a basic cushion for those most in need, and greater economic stability in times of high unemployment. The equalizing impacts of public spending are all the greater when the tax system is progressive, taking a higher share of the income of those who can afford to pay.
Because of the lost ability to maintain and improve social programs and public services, the vast majority of Canadians were made much worse off by tax cuts, like the two-percentage-point Conservative cut to the GST.
Corporate tax cuts have failed to encourage new investment while undermining our tax base. Corporate tax rates should be returned to at least 19 percent for all industries. At the same time, generous tax credits should be available to support tangible investments in productive, job-creating initiatives.
In addition, corporate tax cuts have allowed private, non-financial corporations in Canada to hoard over $575 billion dollars in cash reserves, money that is not invested in creating jobs in Canada.
To help create jobs and help fund investments in infrastructure, training, and income security, the Finance Minister should have provided a framework for corporations to put that money to work in the 2014 Budget, or he should have taken it back and invested it for the benefit of all Canadians.
What is in the budget:
The 2014 Federal Budget is a continuation of the Conservative agenda to balance the budget by 2015 by cutting program spending and federal worker’s benefits. Instead of putting the “dead money” back to work to create better paid and more secure jobs, the 2014 Federal Budget will be a drag on economic growth, spending $1 billion less on programs in 2014-15 compared to 2013-14. The Federal Budget continues to rely on its no-strings attached corporate tax cuts as the main measure to stimulate the economy.
In order to pay for the $12 billion per year in corporate tax cuts, the Federal Budget confirmed freezes to budget operations, announced cuts to benefits for federal employees, such as sick leave provisions for current employees and retiree benefits for future retirees. The Budget also announces increases in revenues from tobacco products, and from certain targeted tax loophole closures
The Budget is a matter of choice. Clearly, the choices presented today confirm that the Canadian government does not want to take advantage of its current fiscal position to invest in the expansion of a more sustainable economy, productivity, training, and helping to create good jobs while ensuring Canadian workers’ income security today and in years to come.
Cutting federal spending to balance the budget is not good for the economy. It slows down short-term economic growth and prevents Canada from reaching its maximum potential.
This budget stays the course – a course that is undeniably the wrong course for Canada. This budget mostly re-allocates spending, rather than making new investments where they are critically needed. A grab bag of boutique measures and unproductive corporate tax cuts are paid for with continued austerity. This is not a budget that will help create jobs in 2014.