Benefits From Public Spending

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    i s b n 978-1-897569-39-9

    Canadian Centre or Policy Alternatives

    2 Carlton Street, Suite 1001, Toronto, Ontario

    (416) 263-9896www.GrowingGap.ca

    Acknowledgements

    The authors wish to thank the organizations that provided core unding or this project. Theauthors are also indebted to Statistics Canada, whose database on government revenue andexpenditures enables consistent comparison o public revenue and expenditures across Canadaand whose Social Policy Simulation Database and Model and Survey o Labour Income Dynamicssupports the distributional analysis which orms the core o this study. Trish Hennessy, ArmineYalnizyan, Bruce Campbell, Kerri-Anne Finn, Tim Scarth, Andrew Jackson, Stan Marshall, TobySanger, Howie West, John Staple, Ian Boyko, Larry Brown, Sheila Block, Charles Pascal, MarcLee and Seth Klein all provided help ul guidance, advice and encouragement as the projectproceeded. None o the above is responsible or any errors, omissions or disagreeable opinions

    presented in this paper. The ndings refect the work o the authors and do not necessarilyrefect the views o the Canadian Centre or Policy Alternatives or o the unding organizations.

    Financial assistance or this project was provided by:The National Union o Public and General Employees, The Public Service Alliance o Canada, TheCanadian Union o Public Employees, The Canadian Teachers Federation, The Canadian LabourCongress and the Canadian Federation o Students.

    About the Authors

    Hugh Mackenzie is a Research Associate o the Canadian Centre or Policy Alternatives and parto the research team o the CCPA Inequality Project. He has written reports and backgrounders

    or the CCPA on a wide range o issues including his July 2006 CCPA study o the public economyin Canada, The Art o the Impossible: Fiscal Federalism and Fiscal Balance in Canada whichserves as the macroeconomic counterpart to the distributional analysis in the current report.

    He created the CCPAs popular gas gouge meter and conceived and writes the CCPAs annualreview o executive compensation in Canada. He is principal in Hugh Mackenzie & Associates,which provides economic consulting services to the trade union movement and the not- or-pro t sector. He co-chairs and is principal economist or the Ontario Alternative Budget project.He has written extensively on a wide range o budgetary issues in Ontario, including tax and

    scal policy, elementary and secondary education nance and postsecondary education nance.From 1991 to 1994, he was Executive Director o the Ontario Fair Tax Commission. He was oneo the ounders o the Alternative Federal Budget project o the Canadian Centre or PolicyAlternatives.

    Richard Shillington is a Senior Associate o the Ottawa-based economic consulting rmIn ormetrica Ltd. and principal o his consulting business, Tristat Resources Ltd. He has post-graduate degrees in statistics rom the University o Waterloo and has been engaged in thequantitative analysis o health, social and economic policy or the past 30 years. His researchhas covered several policy elds; health manpower planning, program evaluation, incomesecurity, poverty, tax policy and human rights. He has worked or several provincial and ederaldepartments as well as commissions studying the economy, unemployment insurance, humanrights and tax policy. Richard has been an active participant in policy and public debatesconcerning the relationship between the tax system and the retirement income system inCanada. He has also contributed his statistical and analytical talents to a number o CCPAprojects, most notably the analyses o the growing gap published by the CCPAs InequalityProject.

    http://www.growinggap.ca/http://www.growinggap.ca/
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    4 growing ga p pro jec t

    e bene t middle-income anadians receive rom public services represents a

    signi cant proportion o the total resources available to them. ven in the $80,000

    to $90,000 household income range just below the richest 20% the bene t they

    receive rom public services is equivalent to about hal o their private income.

    No matter how you cut it, the data in this study shows how power ul a role public

    spending plays in ensuring the majority o anadians enjoy a better quality o li e.e paper also shows that the vast majority o anadians would have been better

    o i the scal capacity lost through tax cuts had instead been invested in improv-

    ing public services.

    t estimates that an astounding 80% o anadians would have been better o i the Harper government had trans erred money to local governments to pay or more

    and better public services instead o cutting the GST by 1%.

    imilarly, 75% o anadians would have been better of i their provincial govern-

    ments had invested in public health care and education instead o administeringbroad-based income tax cuts in the late-1990s and early-2000s.

    And had the ederal government invested in improved ederal public services in-stead o cutting capital gains taxation by one third in the early-2000s, 88% o ana-

    dians would have been better o .

    is path-breaking study raises serious questions about continuing anadas tax

    cut agenda and provides robust evidence that the taxes anadians pay contribute

    substantially to their standard o living by providing them with some o the best

    public services in the world.

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    5canada s q u i e t barga in : th e benef i t s o f publ ic spending

    Introduction

    over the past 30 years, and particularly since the early-1990s, public debate

    over broad scal issues in anada has been dominated by tax cuts, without re er-

    ence to the services or which taxes pay.

    e tax and service debate in anada in the past 15 years has been almost com-

    pletely one-sided, and has created a political atmosphere in which tax cuts have be-

    come the de ault answer to virtually every political question.

    e overall impact o tax cuts and the cuts in public services that accompany

    them has not been addressed in any substantive way.

    At the philosophical level, opponents o widespread tax cuts o ten make argu-

    ments that are a variant o the o t-quoted view o ormer U upreme ourt Justice

    liver Wendell Holmes that taxes are what we pay or civilized society, although

    this leaves open the questions o how we de ne civilized society and how much o

    civilized society we actually want to buy.

    Another approach is to list services that are dependent on revenue rom the tax

    system or their existence. While this serves politically and rhetorically to remind

    advocates or tax cuts that there is another side to the question, it doesnt actually

    provide a meaning ul measure o the bene ts we receive rom public services or ad-

    dress direct ly the trade-of between the taxes that we pay and the bene ts we receive

    rom the services those taxes und. is paper provides answers to these questions.

    Using data and analytical tools rom tatistics anada, we estimate that ana-

    dians enjoy an average $17,000 bene t rom the public services which our taxes

    und roughly equivalent to the annual earnings o an individual working ull-time

    at the minimum wage.

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    6 growing ga p pro jec t

    ower-income anadians bene t more rom personal trans er payments (most o

    which are income-related) but middle- and upper-income anadians bene t airly equally rom all public services. e public services we use and bene t rom change

    as we go through the li e cycle. eniors, or instance, bene t less directly rom publiceducation than they do rom public health care but when they were young parents

    raising children, the opposite was true.No matter how you cut it, the data in this study shows how power ul a role public

    spending plays in ensuring the majority o anadians enjoy a better quality o li e.

    For the vast majority o anadas population, public services are, to put it bluntly,

    the best deal they are ever going to get. e median anadian household income

    (hal o anadians live in households with incomes below that amount; hal live inhouseholds with incomes above that amount) is approximately $66,000 in a 2.6 per-

    son household. at median household realizes a $41,000 bene t rom public serv-

    ices. at is equivalent to roughly 63% o that households private income.

    More than o Canadians bene t rom public services which are worth more

    than 50% o their households total earned income.is paper also shows that the vast majority o anadians would also be better

    of without tax cuts. ur analysis estimates that 80% o anadians would have been

    better o i , instead o cutting the GST, the Harper government had trans erred the

    money to local governments to pay or more and better public services.

    ompared to the broad-based income tax cuts implemented by provincial govern-

    ments in the late-1990s and early-2000s, 75% o anadians would have been better of

    i their provincial governments had spent the money on health care and education.

    And had the ederal government invested in improved ederal public services in-

    stead o cutting capital gains taxation by one third in the early-2000s, 88% o ana-

    dians would have been better o .n other words, the tax cuts made to sound like ree money to middle-income a-

    nadians are any