1

Taxation, the Public Sectorand the CFIB

Presentation for CUPE Western Canadian

Municipal Workers’ Conference Regina, Saskatchewan

11 June 2010

Toby Sanger, Senior Economist, CUPE National

2

Stimulus has worked so far: strong recovery 20

05

2006

2007

2008

2009

2010

2011

2012

2013

2014

-4%

-2%

0%

2%

4%

6%

8%

10%

GDP Growth GDP forecastUnemployment rate Unemployment rate forecast

3

Ontario and West hardest hit by job lossC

an

ad

a

NL

PE

I

NS

NB

Qu

e

On

t

Ma

n

Sa

sk

Alb

ert

a

BC

0%

2%

4%

6%

8%

10%

12%

14%

16%

Unemployment Rates in Canada Oct 2008 - May 2010

Oct-08 May-10

4

Canada’s debt situation good, will get better

Source: Federal 2010 Budget, page 154

5

Economic growth being driven by government and households

GD

P gr

owth

Hou

seho

ld S

pend

ing

Gov

't sp

endi

ng

Gov

't in

vest

men

t

Hou

sing

inve

stm

ent

Busi

ness

inve

stm

ent

-10%

-5%

0%

5%

10%

15%

20%

25%

Components of Economic Growth% increase 2009Q1 to 2010Q3 adjusted for inflation

6

Corporate profits up but investment down

Wages and salaries Corporate profits Business investment-15%

-10%

-5%

0%

5%

10%

15%

20%

7

Canada’s corporate tax rates slashed

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

20%

25%

30%

35%

40%

45%

50%

Corporate income tax ratesCanada and US federal and prov/state

Canada

US

8

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

50

100

150

200

250

300

350

400

450

Who benefited from the boom?Economic growth and wages

since 1991=100

GDP per person (2002$) Real average hourly wage

Real Minimum Wage Profits per capita (2002$)

Corporate profits take record share but not investing in economy

9

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008-5%

0%

5%

10%

15%

20%

Rising profit shares, declining productivity

Profit share of Economy

Investment in Machinery and Equipment share of Economy

Productivity growth

10

Record household deficits—and corporate surpluses—developed

-80

-60

-40

-20

0

20

40

60

80

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Bill

ions

of

dolla

rs

Record Household Deficits--and Corporate Surpluses

Corporations

Persons and unincorporated businesses

Governments

11

Growing inequality, spoils to the richest

19

17

19

21

19

25

19

29

19

33

19

37

19

41

19

45

19

49

19

53

19

57

19

61

19

65

19

69

19

73

19

77

19

81

19

85

19

89

19

93

19

97

20

01

20

05

30%

35%

40%

45%

50%

Top 10% takes half of US incomeS

ha

re o

f to

tal i

nc

om

e t

o t

op

10

%

Economic crisis caused by finance, not workers

12

“I made a mistake…I found a flaw in the model…that defines how the world works.”Alan Greenspan, former head of U.S. Federal Reserve 23 October 2008

“We are facing a systemic failure. This global crisis …was created by a toxic combination of unethical behavior by companies and a faulty regulation and supervision of their activities.” OECD Secretary General Angel Gurría, 22 January 2009

Financial crisis was caused by “people over-leveraging” and ``over- deregulation'' Stephen Harper, Bloomberg News 28 September 2008

Cuts to wages won’t help

13

• “The recipe has to be trickle-up economics…cuts in the corporate tax rate can’t help much...” – Avery Shenfeld, CIBC economist, 23 January 2009

• “Cuts in hourly wages and salaries (and).. salary freezes (can lead to a) wage price deflationary spiral (that) is very difficult to stop…”– Sherry Cooper, BMO chief economist 23 January 2009

14

Federal and provincial budgets With:

• Households spending but at record debt levels…• Corporations with record surpluses, but not

investing…They:

Freeze public sector salaries Increase sales taxes (HST) Cut corporate and business taxes even further No new stimulus Plan to sell off public assets and privatize

15

Wage squeeze for federal and provincial workers across Canada

Federal: Legislated wage increases, freeze departmental spending.

BC: Two year freeze bargaining mandate; net zero increase in overall wages.

Manitoba:Two year wage freeze public employees.Ontario: Two year wage freeze.Quebec: Offering 7% over five-years.NB Policy for two-year wage freeze.

16

Public sector wages only just recovered

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

90%

95%

100%

105%

110%

Public and Private Sector Real WagesMajor Agreements, Adjusted for Inflation 1988 = 100%

Public Sector Private Sector

17

CFIB attacking public sector—again

18

Reality is average wages are comparablewage “advantages” from pay equity, experience

Total - Age Groups

15 to 24 years

25 to 40 years

41 years and over

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

Average Wage and Salary2006 Census Data, all Occupations

Men and Women FT/FY Workers

"Private" Sector "Public" Sector

Total - Age Groups

15 to 24 years

25 to 40 years

41 years and over

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

Average Wage and Salary2006 Census Data, all Occupations

Women FT/FY Workers

"Private" Sector "Public" Sector

19

Corporate taxes: further cuts and revenue lossespaid, partly for, by public sector wage freezes

Federal Federal Ontario OntarioRate Loss

(billions)Rate Loss

(billions)2009 19% 14%2010 18% -$0.6 b 12% -$1 b2011 16.5% -$2.8 b 11.5% $-1.5 b2012 15% -$5.2 b 11% -$1.9 b2013 15% -$5.8 b 10% -$2.6 b

Meanwhile….• Department spending freeze to save Ottawa $1.8 billion a year

20

Public spending strongest economic impact?

Source: Center for Spatial Economics, Informetrica, Federal 2010 Budget (p. 281)

Child

car

e

Hea

lth c

are

and

...

Publ

ic In

fras

truc

...

Educ

ation

Inco

me

tax

cut

Corp

orat

e ta

x cu

t

-

5

10

15

20

25

30

35

40

45

$-

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

Public Investment Yields Strongest Economic Impact(per $1 Million invested or spent)

Jobs GDP

Jobs

Gen

erat

ed

$mill

ion

GD

P im

pact

21

All Canadians, especially lower income, lose out from cuts to public spending

Canada’s Quiet Bargain, Canadian Centre for Policy Alternatives, 2009

22

Thank you!

For more information:

CUPE Economic Climate for Bargaining, TableTalkhttp://cupe.ca/economics

Progressive Economics Forum blog:http://www.progressive-economics.ca/relentless/

mf/cope491