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ALTERNATIVE BUDGETS BUDGETING AS IF PEOPLE MATTERED John Loxley

Fernwood Publishing • Halifax Canadian Centre for Policy Alternatives—Manitoba

Copyright © 2003 John Loxley All rights reserved. No part of this book may be reproduced or transmitted in any form by any means without permission in writing from the publisher, except by a reviewer, who may quote brief passages in a review. Editing: Doug Smith and Donna Davis Cover photo: Gilbert Dong CHO!CES demonstration, “Milking the Public School System Dry” University of Winnipeg Archives. CHO!CES fonds, 02.002. File 14 Design and production: Beverley Rach Printed and bound in Canada by: Hignell Printing Limited

A publication of Fernwood Publishing Site 2A, Box 5, 8422 St. Margaret’s Bay Road Black Point, Nova Scotia, B0J 1B0 and 324 Clare Avenue Winnipeg, Manitoba, R3L 1S3 www.fernwoodbooks.ca and Canadian Centre for Policy Alternatives—Manitoba 309–323 Portage Ave. Winnipeg, Manitoba, R3B-2C1 Fernwood Publishing Company Limited gratefully acknowledges the financial support of the Department of Canadian Heritage, the Nova Scotia Department of Tourism and Culture and the Canada Council for the Arts for our publishing program.

National Library of Canada Cataloguing in Publication Loxley, John, 1942Alternative budgets: budgeting as if people mattered / John Loxley. Includes bibliographical references. ISBN 1-55266-105-9 1. Fiscal policy—Canada. 2. Budget—Canada. 3. Public welfare—Canada—Finance. I. Title. HJ2054.L69 2003

336.3’0971

C2003-900130-X

CONTENTS Acknowledgements ............................................................................. 7 Introduction ..................................................................................... 9 1. Budgets: The Technical Side Made Easy ........................... 16 Expenditures, Revenues, Deficits, Surpluses and Debt: An Introduction ....................................................................... 16 Expenditures Taken Further .................................................... 19 Revenues Taken Further ......................................................... 21 Other Types of Revenue ......................................................... 24 More on Deficits and Debt ...................................................... 25 Notes ....................................................................................... 28 2. The Public Policy Side of Budgets ................................... 30 The Role of the State Budget .................................................. 30 The Dynamics of Government Spending ................................. 32 Principles of Taxation .............................................................. 36 Budgets, Constitutional and Intergovernmental Relations ........ 46 Notes ....................................................................................... 48 3. Why Alternative Budgets? ................................................ 50 The Neo-Conservative Attack on the Public Sector ................ 51 Opposing Neo-Conservatism ................................................... 54 Notes ....................................................................................... 56 4. Making Alternative Budgets: Some General Considerations ........................................... 57 Objectives and Principles ......................................................... 57 Balancing Politics and Technical Concerns .............................. 60 Putting the Numbers Together ................................................ 62 Access to Information .............................................................. 65 Getting the Word Out ............................................................. 66 Working with the Media ......................................................... 68 Popular Education .................................................................... 70 Follow-up ................................................................................ 71 Notes ....................................................................................... 73

5. The Alternative Federal Budget in Canada ........................ 74 Context ................................................................................... 74 The Structure of the Federal Budget and the Fiscal Situation Since 1994–95 ................................................. 76 The Objectives, Principles and Organizational Structure of the AFB ................................................................. 79 There Is, in Fact, an Alternative: The Macroeconomic Framework of the AFB ............................ 81 The Expenditure Side of the AFB ............................................. 84 Financing the AFB: Tax Fairness ............................................... 88 Fiscal Forecasting ..................................................................... 90 The AFB and Poverty ............................................................... 91 The AFB and Gender Concerns ................................................ 92 Gender-Sensitive Budgets Elsewhere: Alternative Approaches to the AFB ........................................... 93 The AFB and the Environment ................................................. 95 The AFB as Participatory Budgeting ......................................... 96 Critiques and Weaknesses of the AFB ....................................... 97 Accomplishments of the AFB Exercise .................................... 103 Notes ..................................................................................... 105 6. Alternative Provincial Budgets ........................................ 107 Context ................................................................................. 107 The Manitoba Case ................................................................ 109 The Budgets of Cho!ce, 1991–2000 ....................................... 114 Alternative Budget Exercises in Other Provinces: A Synopsis ............................................................................. 121 Notes ..................................................................................... 126 Appendix to Chapter Six: Balanced Budget Legislation or Bad Budget Legislation? ..................................................... 128

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7. Alternative Civic Budgets ............................................... 133 Context ................................................................................. 133 The Winnipeg Case ............................................................... 134 The Alternative Budget for the Ottawa Region, 1997 ........... 152 Participatory Democracy in Porto Alegre Brazil ..................... 153 Notes ..................................................................................... 156 8. Accomplishments and Potentials ..................................... 157 The Impact of the AFB on Government Policy ....................... 159 Assessing the Manitoba Budgets of Cho!ce ............................. 162 Notes ..................................................................................... 168 Bibliography ................................................................................. 169 About the Author .......................................................................... 176

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Dedication In memory of Reuben H. Mogan 1929–2001

ACKNOWLEDGEMENTS The people who have worked with me on alternative budgets in Canada and elsewhere number in the hundreds. It is impossible to thank everyone personally. I acknowledge their help. I thank them for all they have taught me and for the pleasurable times we have spent working together for a more just society through alternative budgeting. There are, however, a number of people to whom I am especially indebted. In Winnipeg and elsewhere in Manitoba, from the Cho!ces group, and in no particular order, they include Shirley Lord, Gilbert Dong, Jean Altemeyer, Esyllt Jones, Shauna MacKinnon, George Harris, Doug Smith, Tom Simms, Don Sullivan, Jim Silver, Jeff Lowe, Bob Chernomas, Greg Selinger, Victor Dobchuk, Errol Black, Phil Lancaster, Jerry Sopko, David Martin, the late Jim Findlay, Neil Cohen, Judy Wasylycia-Leis, George Floresco, Dave Plummer, Angeline Simbandumwe, Fletcher Baragar, Kemlin Nembhard, the late Mike Gidora, Dave Condon, Jeremy Nelson, Glen Koroluk, Irene Haig, Phil Trottier, Will Seymour, Barry Hammond, Kerniel Oslund, Al McLelland, Donne Flanagan, Fred Tait, Chris Tait, Eugene Kostyra, Ardeshir Sepehri, Pauline Riley, Jean Wilson, Betty McGregor, Anne Marie McEwen, Todd Scarth, Paul Vogt, Buffie Burrel, Muriel Smith, the late Murray Smith, Harold Shuster, Rich Orlandini, Twilla MacDonald, Bill Jansen, Paul Moist, Harry Mesman, Rob Hilliard, the late Judy Cook, Tim Sale, Peter Olfert, Brian Ardern and Chris Dooley. CSSC contributed significantly to this book, both through the contributions to alternative budgeting of Pete Hudson and Ian Hudson and through the moral, political and physical support my teammates have always provided me. In Ottawa, the steering committee of the Alternative Federal Budget was a constant source of creativity and insight and others were a great help. Special thanks to Bruce Campbell, Jim Stanford, Lynn Toupin, Andrew Jackson, Cindy Wiggins, Hugh Mackenzie, Paul Leduc Browne, Jane Stinson, Ed Finn, Denise Doherty-Delorme, Liz Carlisle, Jocelyn Charron, Armine Yalnizyan, Anne-Marie Lalonde, Sharon Chisholm, Mike McBane, Kevin Hayes, Mandy Rocs, Kerry Pither, Geoff Bickerton, 7

8 / Alternative Budgets

John Dillon, Kathleen Connors, Brian Tomlinson, Bob Baldwin, Larry Katz, Isabella Bakker, Larry Brown, Jean Swanson, Michael Farrell, Keith Newman, Steve Jelly, Bob Dale, Wendy Atkin, Marcella Munro, Kerri-Anne Finn, Agathe Gautier, David Robinson, Roy Culpeper, Carl Sonnen, Mike McCracken, Marianne Roy, Matt Sanger and Diane Touchette. I acknowledge the energy and commitment of activists across Canada, especially Larry Haiven, Mary Boyd, Don Kossick, Doug Allen, Seth Klein, Marc Lee, Sandy Ellis, Karin Perry, Robert Wright, Erin Stephenson, Gail Lasiuk, Bill Hind, Dorothy Inglis, Martin Saunders, Brian McIntosh, Jean Claude Basque, Michael Bradfield, Paulette Sadoway, Fred Furlong, Everett Baker, Marilyn Manzer, Michael Toye, Carolyn Coombs, Pierre Serinet, Alex Conradi, Angela Connors, George Kelly, Charlie Stock, Ben Burd, John Lewis, Jill Ritchie, John Filo, Chris Mather, Rick Coronado, Judy Rebick, Sunera Thobani, Joan Grant-Cummings, Andy Ranachan, Kathryn Robertson, Michael Sheridan, Kelly Finigan, Bill Moore-Kilgannon, Charlene Ball, Don Hepburn, Shannon Daub, Joop Schyff, Peter Reid, Karen Cooling, Suzette Montreuil, Ben McDonald and Toby Sanger. Thanks also to the Douglas-Coldwell Foundation for its grant to CCPA–Manitoba to support the publication of this book. For reading and helping to edit the book, I thank Lois Harder, Wayne Antony, George Harris and Todd Scarth. Special thanks to Doug Smith who, more than anyone has improved the structure and readability of the book. Also, my thanks to Donna Davis for copy editing the final draft of the manuscript, to Debbie Mathers for typing the final changes, to Tim Dunn for proofreading and to Beverley Rach for design and production of the book. Thanks to Aurelie, Raina, Matthew, Salim and Camille for their love and support.

INTRODUCTION In his February 1995 budget speech, federal Finance Minister Paul Martin spoke of the “fundamental challenges” facing Canada and the need for government to make “fundamental choices” (Minister of Finance 1995: 3). He promised his budget would chart a new course for the country, and it did. His cuts to program spending totalled $25.3 billion over three years, slashed $7 billion off social transfers to provinces and cut 40,000 federal jobs, that is 14 percent of the federal labour force (Department of Finance 1995a). Martin accurately described these cuts as “unprecedented in modern Canadian history” (Minister of Finance 1995: 25). He has since boasted that “between 1992 and 1999, Canada implemented the largest reduction in program spending relative to GDP [gross domestic product] of any G-7 country: program spending as a percentage of GDP dropped about 8.5 percentage points, compared to an average of about 1.5 points for the G-7 countries” (Department of Finance 2000, Annex 4, p.2). A government elected on a mandate to protect and enhance the public sector had savaged public spending with a zeal surpassing that of the Conservative government it had replaced. Martin outlined a new, reduced role for government, bringing its “size and structure in line with what we can afford” (Minister of Finance 1995: 9). In a budget speech laced with hyperbole and rhetoric, he justified this sea change as the only way of dealing with a debt and deficit that had spiralled out of control: “Our resolve, our values, our very way of life as Canadians are being tested. The choice is clear. We can take the path—too well trodden—of minimal change, of least resistance, or leadership lost. Or we can set out on a new road of fundamental reform, of renewal—of hope restored” (Minister of Finance 1995: 1). Martin cynically talked about fairness and hope while slashing spending on health care, education and social assistance. His message was clear. There was no alternative to the introduced cuts; today’s painful medicine now was vital to avoid immediate bankruptcy and to secure our country’s future prosperity. But Martin was wrong. There were alternatives. Only a few days 9

10 / Alternative Budgets

before this abrupt change of policy direction, a group of social activists had presented Canadians with a different vision. The Alternative Federal Budget (AFB), the work of the Winnipeg-based social justice coalition Cho!ces and the Ottawa-based Canadian Centre for Policy Alternatives presented a financial plan that would create employment, strengthen social programs and reduce the deficit. Unlike the federal budget, which had been prepared in secrecy by bureaucrats actively hostile to the policy platform on which the Liberal government had been elected, the AFB had been developed openly through consultations and discussions across the country. In this way, Canadians affected by budget decisions could influence the budget-making process. The values and priorities of the economic advisers to the AFB differed from those of their federal counterparts. The latter were seen to be implementing the agenda of the business and finance community: reduce the size of the public sector, reduce taxation and allow the wealthy to get richer, whatever the impact on the poor. AFB advisers emphasized the importance of public services to the well-being of Canadians and the need to strengthen those services. They stressed the overwhelming importance of putting Canadians back to work, as both a benefit in and of itself and because the growth generated by increased employment would finance public services and reduce the deficit. They also advocated increased taxes on the wealthy and reduced taxation of the poor. The AFB was a remarkable innovation in Canadian political debate. It laid bare the differences in viewpoint between those who held power and those whose lives were affected by the decisions of the powerful. It gave a voice to the hitherto powerless in a detailed programmatic way, with the fiscal implications being carefully measured. The preparation of such a fiscal framework is a demanding task. It is much easier to respond negatively to policy proposals and budgets put forward by others than it is to develop policy and budget alternatives. The preparation of budgets requires clarity of position on broad fiscal parameters, such as levels of spending, growth of taxation and the size of deficits. It also calls for clarity on the composition of spending. This can be arrived at only after detailed consideration of policy in different areas of government and the assignment of relative priorities between areas. A similar exercise is called for on the details of the composition of taxation. These are politically demanding tasks that take time to complete and that ultimately necessitate hard political choices and, sometimes, a careful phasing in of policy initiatives over several budget periods. In this way detailed policies are subjected to the discipline of fiscal parameters, and

Introduction / 11

this, of course, puts clear limits on the size and range of the political promises that can be made and honoured. It is precisely for this reason that opposition parties are often loathe to get involved in alternative budgeting. They prefer to leave open the extent to which they can actually meet campaign promises until well after they have been elected to office. Comprehensive alternative budgeting is premised on the belief that the electorate is increasingly sceptical about the fiscal sustainability of left-wing policy prescriptions. Therefore, demonstrating the fiscal feasibility of socially progressive policies is first and foremost, a tool of political mobilization designed to overcome political scepticism. An essential component of that mobilization, however, is the participatory nature of budget preparation itself. Government budgets essentially are elitist documents prepared by technicians under varying degrees of political direction. Alternative budgets are premised on a belief that the broadest possible participation and the most open discussion by ordinary citizens are desirable and, indeed, necessary to the preparation of a product designed to secure their political support. Technical parameters of budgets must be consistent and budget constraints must be respected, but these are of quite secondary importance to both the tax and expenditure contents of budgets and the assignment of relative priorities between budget items, which require no technical ability. Opening up the budget preparation process to popular input is, therefore, an essential feature of alternative budgeting. The philosophy underlying participatory budgeting is that anyone with sufficient time and interest can be part of the process and can make a positive contribution to drawing up the budget. Securing broad-based participation in the exercise is at least as important as the end product, and hence considerable attention must be paid to budget process. Contributing to the development of a budget increases awareness of policy options, of how policy converts to programs and of how programs translate into financial demands on the budget. This type of awareness also empowers ordinary people to participate with confidence in a political process that requires them to do more than exercise their vote every few years. It helps people to understand possible approaches to a given area of social need, the competing program demands for limited resources, the various ways of increasing tax resources and the likely political, economic, social and environmental ramifications of such increases. It helps to develop an appreciation of the need for priorities and for phasing in innovative or expanded programs. It helps ordinary people to evaluate budget pro-

12 / Alternative Budgets

nouncements by government and to see through the arguments about the inevitability of particular fiscal stances. Slashing budget expenditures, cutting taxes and reducing the size of the public sector, both services and jobs, constitute a key platform in the right-wing political agenda. The budget has become a prime area of political struggle and the left has come to understand that fighting back requires more than a purely defensive posture. It demands no less than a rebuttal of right-wing fiscal arguments and the generation, with broad popular input, of progressive economic and social policies within a coherent and responsible fiscal framework. Therefore, alternative budgets are as much tools of political empowerment as they are blueprints for a more progressive political outlook, and these two elements should not be separated. Until quite recently, the budgets of governments at all levels, from the federal government down to school boards, generally were considered too technical for the average person to understand in any detail and certainly too complex for the ordinary citizen to help design. Budget Day, as an event, was and still is often reduced to simple headlines about whether or not taxes have gone up. The media portray tax increases as little more than disastrous while tax reductions are welcomed, and many of the deep cutbacks experienced in the early 2000s have been driven by hasty and ill-considered cuts in taxation. Whatever their origins, almost all cutbacks are justified in the media as necessary to responsible budgeting. The ordinary taxpayer is not usually encouraged to go beyond this simplistic frame of reference, to get to the meat of budgets to see, for example, why taxes need to go up or down or to understand how the government is raising and spending money. Nor are ordinary people expected to enter what governments like to portray as a very technical area. The result is that most budgets are presented as if no alternative is possible. Budgets do indeed have technical dimensions and sometimes these can be difficult to understand, even for people who have worked in the area for years.1 The basic technical concepts and relationships are not beyond the reach of the person in the street, however, and, as the recent proliferation of alternative budgets suggests, Canadians who are not experts can critically examine budgets and pose well-constructed and plausible alternatives. In the process, they have demonstrated that technical issues pose no real barrier to popular participation in budgeting. Chapter 1 outlines the most important, basic, technical aspects of budgets, common to all levels of government. It will explain the

Introduction / 13

relationship between government spending, government revenue and debts and deficits, and illustrate how to determine the appropriate amount for each, relative to the community’s ability to manage them. It will show the importance of the cost of borrowing money—the rate of interest on debt—in the growth of government debt and in the ability of governments to fund important social programs. It will also show how the various levels of government are linked together through budgets. The oddities of budgets of different levels of government are not difficult to comprehend and can be understood relatively quickly. None of this is so complicated that only experts can understand it. Why, then, do governments and bureaucrats insist that budgets are beyond the grasp of ordinary Canadians? The answer to this question lies in the essentially political nature of budgets and budgeting. Budgets are political statements put to numbers or to dollars and cents. They reflect the policy priorities of the level of government in question, and their contents can affect various groups of citizens quite differently. Sometimes this is fairly obvious. For instance, in the 1990s the Filmon government in Manitoba cut back funding for public schools and allocated it to private schools for the relatively wealthy. Equally obvious is the example of a government choosing to raise tax revenue in a way that hits the poor or average taxpayer harder than the rich, for instance by raising the sales tax rather than a highincome surtax or a capital gains tax. At other times, the impact of budget measures is less obvious, but no less real. Government spending and taxation have class, gender, regional and intergenerational impacts (as well as environmental and natural resource implications) that can be fully appreciated only by a careful analysis of the detailed content of budgets. Sorting out these impacts may call for a degree of technical expertise, but which impacts to examine is also a political question, well within the capabilities of ordinary Canadians. These and related public policy issues involved in budgeting are dealt with more extensively in Chapter 2. The full impact of recent budget cutbacks on different income/ wealth groups, in terms of job losses, cuts in wages and salaries, reduced access to public services, increased insecurity in the future and such like, usually has not been assessed up front and put on the table as part of the political debate. Neither has the real cost of cutting taxes, in terms of the implications for levels of service and for growth in “hidden” taxes such as user fees. Failure to make public the basic impact analysis of budgets and the justification of cutbacks in a broader context of alternative ways of dealing with perceived fiscal problems are logical outcomes of an

14 / Alternative Budgets

approach to budgeting whose underlying assumption is the purely ideological notion that there is no alternative and that budgets are properly the preserve of the expert or the elite. Increasingly, however, popular movements are rejecting the take-itor-leave-it approach to budgeting and are stepping into the fiscal arena to challenge governments politically. They are developing alternative budgets, and they are putting pressure on governments through essentially non-parliamentary means. The rationale for choosing this venue for political struggle and the goals such a strategy hopes to achieve are addressed in Chapter 3. Major considerations in choosing an approach to alternative, more participatory, forms of budgeting—including how best to mobilize people to prepare budgets and how to disseminate the final product—are dealt with in Chapter 4. Inevitably, choosing to organize politically around budget issues has meant confronting governments on the technical assumptions of their budgets since it is these that have been used to justify the lack of alternative political approaches to budgeting. The balance between the technical and the political aspects of preparing alternative budgets is a difficult one to deal with in the abstract. The appropriate mix will be determined by specific political and economic circumstances, but some general considerations are raised in this chapter too. Chapter 5 analyzes what has perhaps been the most sophisticated broad-based participatory budget exercise in Canada in recent years: the Alternative Federal Budget (AFB). Coordinated by Cho!ces and the Canadian Centre for Policy Alternatives, the AFB has evolved into a detailed, credible alternative to federal public policy and has gained widespread popular support. This chapter will explain the origins of the AFB exercise, its organization, its principal recommendations and its dissemination. Comprehensive, participatory alternative budgeting began in Canada in the early 1990s at the provincial level in Manitoba and has spread to most other provinces. Chapter 6 examines the background to recent fiscal developments at the provincial level. It discusses and evaluates the Manitoba alternative provincial budget exercise in some detail and then looks at the very impressive and more recent ones in New Brunswick, Saskatchewan, Ontario and Prince Edward Island. In passing, it assesses the rationale for and wisdom of balanced budget legislation which a number of provinces have introduced principally, it is argued, as a means of imposing a fiscal straightjacket on current and future governments at that level.

Introduction / 15

Fiscal options available to lower levels of government, such as municipalities and school boards, are often more limited than those available to the federal and provincial governments because of the limited mandates of these levels of government and the restrictions imposed on their legal ability to raise revenue. At the same time, their budgets are often much more amenable to influence from ordinary members of the public because they are so much more accessible and their decision-making processes a little more transparent. The impact of their budgets also often has an immediacy not shared by other levels of government, as for instance when the snow is not cleared or when libraries or classrooms are closed down. This immediacy comes partly from the types of service delivered and partly from the relatively small geographic area usually encompassed at this level of government. Chapter 7 examines some experiences at the civic level in Canada and also looks at an exciting experiment in participatory budgeting at the civic level in Brazil that could have some important lessons for Canada. Chapter 8 considers what alternative budgets have accomplished and might hope to accomplish in future, recognizing that they are but one possible arena for political action against neo-conservative public policies and that they might have several different, and not necessarily mutually compatible, objectives. It concludes that the efforts to date have been worthwhile, principally because they have demonstrated the budgetary credibility of progressive economic and social policies, establishing that there are indeed alternatives and, equally importantly, that ordinary people can play a role in developing these. They have provided a much-needed focus around which to build coalition politics on the left. There is, however, much room for improvements both in the technical content of participatory budgets and in the political process through which they are constructed and disseminated. More thought needs to be put into how such exercises might best be fitted into broader political movements, involving their integration with non-budget reform programs and with parliamentary political processes. Note 1.

For example, the government of Manitoba transferred surpluses from its Lotteries Fund into the budget and from there to a Fiscal Stabilization Fund. In 1996, however, the remaining surplus in the Lotteries Fund was transferred to an Accumulated Deficit Fund and, in effect, disappeared with no impact on the budget or the Fiscal Stabilization Fund. There seemed to be no logic in this and, in a telephone conversation, the Provincial Auditor’s Department did not agree that the transfers reflected the true picture of the government’s fiscal state.

1. BUDGETS THE TECHNICAL SIDE MADE EASY Expenditures, Revenues, Deficits, Surpluses and Debt: An Introduction At the simplest level, budgets are statements about how much money a government or agency plans to spend, what it plans to spend that money on and how it plans to raise it. On the one side of the budget, therefore, are expenditures, and on the other side revenues. If the two sides of the budget are exactly equal, so that the amount of money being spent is the same as that being raised, then the budget is said to be balanced. If, however, money being spent exceeds that being raised, then the budget is said to be in deficit; if revenues exceed expenditures, then the budget is said to be in surplus. All budgets, regardless of how complicated they may look, can be reduced to three lines—spending, revenue and the bottom line. The bottom line will be zero if the budget is balanced, negative if it is running a deficit and positive if it is running a surplus.1 If a deficit is being budgeted, the government or agency in question must cover it, or finance it somehow, from sources other than normal revenue. There are a number of ways of financing a deficit. The government could use up reserves of cash it might have lying in a bank deposit or have invested in interest-bearing assets, such as the bonds (debts) of other governments or agencies. Alternatively, it could sell off other assets, such as Crown corporations (publicly owned companies), land or buildings, and use the proceeds to finance the imbalance in the budget. Normally, however, where permitted, the government will finance the deficit by borrowing money from banks, pension funds, companies, individuals or even other governments. Thus, running a deficit usually means increasing borrowing or incurring debt. There is, therefore, a direct link between budget deficits and the amount of money a government owes. Debt owed by the government can be looked at as the sum of deficits accumulated over time. The amount of debt outstanding will rise every year a deficit is incurred. 16

Budgets: The Technical Side Made Easy / 17

Table 1.1. The Relationship Between Budgets and Debt $ billion Revenues - Expenditures = Deficit (-)/Surplus (+) Debt Before Budget Debt After Budget

Case 1 152 152 0

Case 2 135 152 -17

Case 3 162 152 +10

593 593

593 610

593 583

By the same token, if a government is spending less than its normal revenue in any budget period (normally the financial year, but it could be longer or shorter than this) then it will run a budget surplus. This surplus will enable the government to put money in the bank, lend it out to other governments or agencies, buy real assets (land, buildings or Crown corporations) or, more normally these days, repay debts it owes from running deficits in previous budget years. The only way the government can reduce its debts without selling off the family silver (e.g., public assets such as Crown corporations, land, buildings or cash in the bank) is to run budget surpluses. There is, therefore, usually a close relationship between running a deficit and increasing outstanding debt and running a surplus and reducing outstanding debt. This is shown in Table 1.1, which is based on the 1997 federal budget, the last year in which a budget deficit was experienced. The government plans to spend $152 billion in each of the three cases but revenue estimates range from $135 billion to $162 billion. In Case 1, revenues and expenditures are budgeted to be equal. This is a balanced budget; the government has no need to borrow, but neither will it generate any new money to reduce outstanding debt. The debt outstanding after the budget is implemented will be exactly the same as it was before the budget, i.e. $593 billion. In Case 2, which was the actual budget in 1997, a budget deficit of $17 billion raises debt from $593 billion to $610 billion. If, for some reason, revenue were to rise to $162 billion (Case 3), a budget surplus of $10 billion would result. This could be applied to debt reduction, lessening outstanding debt to $583 billion at the end of the year. When a government borrows it must pay interest on the debt or, put in other terms, incur debt-servicing charges. Thus, a portion of government expenditures goes to debt-servicing costs. It is useful to separate this amount from the total amount available for spending, the balance then being what is called program spending. The size of debt-servicing costs

18 / Alternative Budgets

depends upon the amount of outstanding debt and the cost of borrowing money (the interest rate). For any given amount of debt outstanding, an increase in interest rates payable on debt raises the cost of servicing debt. The government then faces a number of choices. It can meet the increased cost of borrowing by raising revenues, usually through increased taxes. It can reduce its other expenditures (i.e., program spending). Or, it can allow its bottom line to adjust to increased debt cost (i.e., allow deficits to rise or surpluses to fall). If revenues are limited, pressures will be felt either on program spending or on the bottom line of the budget, either by increasing deficits or by reducing surpluses, both of which increase outstanding debt. If, alternatively, program spending cannot easily be reduced, taxes must be increased or the deficit allowed to increase (and the surplus to reduce). If, for some reason, a government must stick to a planned deficit (or surplus), then increased borrowing costs must be met either by reducing program spending, by raising taxes or by a combination of the two. In 1997, as illustrated in Case 2, the federal government was planning to spend $152 billion in total. Of this, $46 billion, or 30 percent, was budgeted for public debt-servicing charges. Since the debt outstanding at the beginning of the year was $593 billion, this suggests that the average cost of borrowing for the federal government was expected to be 7.75 percent (46/593 x 100) in 1997. Most federal debt is short-term, outstanding for only 90 days, which means that changes in interest rates have a fairly immediate impact on debt-servicing charges. If, for instance, rates were to rise or fall by 1 percent, the annual cost of servicing the debt would rise or fall by $5.93 billion within three months, with important implications for one or more of taxes, program spending or the deficit. Where borrowing is more long-term, as is often the case with provinces and municipalities, the impact of changes in the interest cost of borrowing will be felt more slowly, as only a portion of the debt comes up for renewal each year. The immediate impact will be felt only on monies needed to finance the current year’s deficit and on the cost of any debt maturing (falling due) in the current budget year which will be refinanced or renewed. To estimate the extra cost of borrowing when long-term debt is involved, one needs to know the maturity profile of debt: how much was borrowed when, at what interest rate and when it falls due. While the average cost of borrowing by the federal government was about 7.75 percent in 1997, the cost of borrowing new money had fallen to about 3.8 percent for short-term borrowing and to about 5.9 percent for twenty-five-year borrowing.

Budgets: The Technical Side Made Easy / 19

One other complication on debt-servicing charges is that sometimes the debt is denominated in foreign currencies, which means it must be repaid in that currency. This is often the case for the provinces but less so for the federal government. In these cases, the amount of debt outstanding, and the Canadian dollar costs of servicing the debt, will depend to some degree on the exchange rate between the Canadian dollar and the currency in question. Thus, if a province were to borrow U.S.$100 million at 8 percent a year at an exchange rate of U.S.$0.75 to the Canadian dollar, or Cdn$1.33 to the U.S. dollar, then the Canadian dollar costs of the debt would be $133 million and annual debt servicing costs would be $10.67 million (8/100 x133). If the U.S. dollar were to appreciate or grow stronger relative to the Canadian dollar—by, say, 10 percent—then the Canadian dollar value of the outstanding debt would rise immediately by 10 percent to $146 million ($133m x 1.1) and the cost of servicing the debt would rise from $10.67 million a year to $11.7 million (8/100 x 146 a year), with absolutely no change in the interest rate. If the exchange rate changes were to be reversed, with the Canadian dollar growing stronger relative to the U.S. dollar, then debt and debt-servicing costs in Canadian dollars would decline. Foreign currency debt can, therefore, introduce some unpredictable fluctuations both in the dollar value of outstanding debt and in the cost of debt servicing. This was particularly evident in 2001 and 2002 when the Canadian dollar fell in value from U.S.$0.68 to about U.S.$0.62, increasing the Canadian dollar value of U.S.-denominated debt by almost 10 percent. Expenditures Taken Further As mentioned above, expenditures in budgets are usually broken down into program spending and debt-servicing charges. Program spending can then be broken down into more detail in a number of different ways, depending on what one wants to see in the budget. Frequently, program spending is broken down according to the amount allotted to each government department or ministry—health, education, family services and so on. This type of categorization is useful for showing trends in broadly defined administrative or policy areas; for further information, one needs access to the detailed budget of each department or ministry. Provincial budgets and much of the federal budget is set up in this way. Other ways of presenting expenditures—by type of expenditure or by economic function—serves other purposes, e.g., to illustrate the extent to which government spending finances wages and salaries,

20 / Alternative Budgets

supplies, travel or consultancy fees. This type of detail is almost always published after the event in governments’ financial statements, but it is often not readily available in budgets themselves, civic budgets often being the exception. Should one want a breakdown of transfer payments by governments to individuals, that information is readily accessible at the federal level for such items as unemployment insurance and seniors’ benefits, but it is often more difficult to derive from provincial budgets for items such as social assistance, educational grants and so on, even though governments have it. Transfers to individuals may take the form of tax expenditures, spending by government that appears not on the expenditure side of the budget but as a reduction in tax collected on the revenue side of the budget. Credits for young children and support of the elderly and sick to offset the cost of sales taxation to low-income families are all examples of tax expenditures that might interest us. Usually they cannot be found in budgets; their totals become known only after income tax statistics are published, which means at least a three-year delay. Likewise, we might be interested in transfers to companies. If these take the form of cash subsidies, they ought to be included as expenditures and show up in the budget as such, though often they are not easily isolated. If, however, they take the form of tax expenditures, as for instance when companies are allowed to write off certain capital investments or expenditure on sports or entertainment, again delays in reconciling income taxes mean that the amounts involved will not be known for four or five years and will affect the revenue, not the expenditure, side of the budget. It is sometimes useful to know how much government spending is for current purposes and how much takes the form of investment spending, which will have longer-term beneficial implications. This involves dividing the budget into current and capital expenditures. Usually, the definition of capital spending stipulates that the item has to have a life greater than one year and be above a certain minimal cost. There are problems with this somewhat arbitrary definition, however. Roads, bridges, schools, hospitals and large machines are classified as capital expenditures while lap top computers, because they cost too little, may not be, yet both add to our capacity to produce goods and services. In addition, and more importantly, it can be argued that nonbuilding, non-machinery spending on education and health really represent a long-term investment because they build up the capital of society and its ability to develop in the future. Nevertheless, all governments in Canada treat these expenditures as consumption items or as current

Budgets: The Technical Side Made Easy / 21

spending, suggesting that their impact is felt all within a single budget year. The federal government and some provincial governments do not distinguish between current and capital spending in their main budget summaries, but why is it useful to do so? Some would argue that, apart from its importance in economic analysis, the distinction is useful in accurately measuring government deficits and surpluses. Some believe that it is quite legitimate for governments to borrow for capital investment purposes because such expenditures have a life that goes well beyond the current budget. When this distinction is made, the deficit is calculated only on the current account of the budget, the deficit disappears altogether and what initially appeared as overspending is shown to be prudent budgeting. For example, in 1994/95, the province of Manitoba showed a deficit of $196 million but, when capital expenditures of $309 million were allowed for, an operating surplus of $113 million appeared. Further discussion of the expenditure contents of budgets will be reserved for future chapters. Suffice it to say here that most provincial, municipal and school board budgets across Canada would contain basic similarities regarding what they spend their money on but differences arise, depending upon how the division of fiscal and administrative responsibilities has evolved historically in various jurisdictions. For example, in some provinces all expenditures on social assistance show up in the provincial budget while in others some municipalities assume a portion of welfare costs. Revenues Taken Further The revenue side of government budgets consists mainly of taxation, with different levels of government having jurisdiction over different forms of taxation. The federal government relies mainly upon income tax on both individuals and corporations, the sales tax, customs duties on imported goods and excise taxes levied on specific home-produced goods or services (often luxuries, such as automobile air conditioners). The provinces rely mainly on income tax, which is administered jointly with the federal government; provincial sales tax, which may or may not be integrated with the federal sales tax; and a variety of other taxes and fees. Municipalities tend to rely heavily on property taxation and a whole slew of local fees and taxes, while school boards often share property taxes collected by municipalities. All governments below the federal level rely very heavily on transfer payments from higher levels of

22 / Alternative Budgets

government. Thus, the budgets of provinces are financed to a significant degree by various transfer schemes operated by the federal government, such as those contributing to health, post-secondary education, social assistance and, for poorer provinces, equalization payments. The activities of municipalities, in turn, are funded to a degree by transfers from provinces and sometimes, as in the infrastructure program, by transfers from the federal government. In the year 2000, for instance, the province of Manitoba raised $6.7 billion in revenue, $2.1 billion of which, or 31 percent, came in the form of federal transfers (see Table 6.3). In the same year, the city of Winnipeg derived $92.5 million or 13.8 percent of its revenues (ignoring sales of services by the utilities it owns) from transfers (see Table 7.1). School boards rely heavily, almost entirely in some parts of the country, on transfers from provinces. This means that the budgets of different levels of government are inextricably intertwined, and the dynamics affecting them often come from higher (and sometimes lower) levels of government. Thus, if one level of government cuts back its expenditures by reducing transfers to lower levels of government, the lower level of government must meet this reduction in its revenue either by cutting its own services or by offsetting it and maintaining services by taking other measures, e.g., by increasing taxes. This shifting of fiscal problems is called offloading and, as we shall see in later chapters, it has been a serious problem in recent years. Transfers often bring with them a kind of conditionality, meaning that the money can be spent only for purposes approved by the higher level of government. This conditionality can be expressed in broad policy terms, as it is for federal transfers to provinces for health purposes (provinces have to adhere to the Canada Health Act), or it can be narrow and project-related, as when transfers are tied to a particular capital project such as a road or bridge. In general terms, higher levels of government desire greater conditionality and accountability for their transfers, maximizing the political impact of transfers to their advantage; recipient governments are interested in gaining maximum flexibility in the use of transfers so that they can direct them towards their own political priorities. Taxes and other own-source revenues, such as fees, interest earnings and dividends from Crown corporations, are the major source of revenue for most levels of government. For the federal government, taxation accounted for 82 percent of total revenues in 1997/98.2 The share of taxation varies greatly from province to province. Those that are heavily dependent on federal transfers and that have a relatively small economic base have relatively low tax and other own-source revenue

Budgets: The Technical Side Made Easy / 23

shares (e.g., New Brunswick, 64 percent; and Manitoba, 70 percent). Those that are less dependent on transfers and that have a large economic base have higher levels of taxation in total revenue (e.g., Ontario, 97 percent; Alberta, 93 percent) (Treff and Perry 2001: Chapter 2). The share of taxation in the total revenue of municipalities depends upon the range of services offered at that level, the extent to which provinces finance those services and the power of the local authority to vary its revenue base. The City of Winnipeg draws about 66 percent of its total non-utility revenue from taxation, Montreal 80 percent, and Calgary 61percent (Treff and Perry 2001: Appendix C). Taxation clearly remains the most important source of fiscal revenue in Canada. It is important to distinguish between the tax base and the tax rate. The base is what the tax is collected upon. This could be some definition of earnings (personal or corporate income tax), a range of purchases (e.g., sales, customs, excise or gas tax), the value of property (municipal or school board tax), the value of output (mineral or oil tax) or some other variable. In practice, the tax base is often quite complicated for most taxes. Taxable income, for instance, is different from income actually earned, and many companies and individuals need the services of an accountant to derive one from the other. Taxpayers can deduct from taxable income a number of expenses related to employment, education, disabilities and child care. They may also receive tax credits, which directly reduce the amount of tax payable for such things as increases in the cost of living, payment of property taxes, tuition fees, contributions to pension schemes and donations to charities. Some tax credits (such as the dividend tax credit paid to those earning income from stocks and the Goods and Services Tax (GST) credit for lowincome earners) are refundable so that they are paid even if taxable income is zero or negative, but the bulk of such credits (such as personal, spousal and family credits) are non-refundable. Likewise, the GST has quite a complicated base with some goods, such as groceries, pharmaceuticals, purchases by provincial governments and by treaty Indians on reserves, being taxed at a zero rate with full deduction of any GST on intermediate purchases. Other goods and services are exempt from GST but with no deduction of GST on intermediate purchases, such as rents, financial services and many health and dental services. Revenue from any particular tax is equal to the base of the tax times the rate of tax. In the case of federal income tax the rates are 17, 24 or 29 percent (before tax credits), depending on taxable income, while the GST is 7 percent.

24 / Alternative Budgets

Other Types of Revenue Apart from taxes and transfers, all levels of government derive revenue from a variety of other sources. All earn interest on any money held in the bank or in the form of bonds of other entities. Provinces and municipalities rely quite heavily on revenue gained from the purchase of licenses for motor vehicles, businesses, dogs, bicycles, etc. Court fines, land titles fees, fishing and park licenses are features of most provincial budgets; parking fees and fines and user fees for parks, pools, libraries and even golf courses are common in civic budgets. The earnings of Crown corporations can be significant items in provincial budgets, especially where liquor commissions operate or where hydro and telephones remain in Crown hands. At the civic level, the net earnings of water, sewer, hydro, asphalt, land or other locally owned operations will find some reflection in revenues after appropriate transfers to reserve funds. Such reserve funds need to be examined carefully as they might be available to support operating budgets in times of acute need. Two other sources of provincial revenue need to be mentioned. The first source is water rentals, which is a form of taxation on hydro utilities, based on their use of water to generate the electricity. In essence, this is best interpreted as a tax on the monopoly earnings (called “rents” in economics, representing earnings above those that would be enjoyed in a competitive situation) of the utilities. These can be significant and reasonably reliable sources of revenue. The second and much more important and controversial source is gambling. The governments of most provinces regulate the gambling industry and derive revenue from it. Some provincial governments actually own gambling establishments and lease out video lottery terminals (VLTs), the most lucrative and rapidly growing form of gambling. The growth of gambling revenue in Canada has been absolutely staggering, and the federal government has vacated that field in favour of the provinces in return for a guaranteed slice of the profits. In Manitoba, for instance, provincial revenue from gambling rose from $60 million or 1.2 percent of total revenue in 1990 to a high of $387 million or 7 percent of total revenue in 1995–96. Finally, some provinces have established fiscal stabilization funds, a kind of provincial piggybank for storing revenues to be drawn upon when faced with recession, cutbacks in federal transfers, etc., or when extraordinary expenditures take place. While this appears to be a prudent move, provincial auditors and others question the wisdom of putting money into such a fund when governments have large debts or are actually running deficits on their operating budgets. Such funds tend to

Budgets: The Technical Side Made Easy / 25

obfuscate or confuse the real, underlying budget realities and the net debt position of the government, while giving the false impression of fiscal prudence and responsibility. More on Deficits and Debt Are there any technical limits to the ability of governments to run budget deficits? The answer is yes but only in the limiting case of their having borrowed so much that no one is prepared to lend them any more. Few governments anywhere are in that position. Well before that position is reached, however, there will be signs that deficits and debts are becoming problematical. The first sign will be a steady rise in the proportion of the deficit and/or debt to total incomes earned or to the value of all final goods produced, which is the same thing, i.e., the Gross Domestic Product (GDP) of the country in question or the Gross Provincial Product (GPP) of a province. These ratios are deemed to reflect the burden of deficits and debt because income is a rough proxy for the ability of the government to sustain them. There is, however, no magic number representing the point at which the running of deficits or the increases in debt should cease. At the federal level, the deficit-to-GDP ratio reached 5 percent in 1994–95 while the debt-to-GDP ratio reached 74 percent in 1996–97, levels which many, but not all, observers would say were too high. The European Community has set a target of 3 percent for the deficit-to-GDP ratio and 60 percent for the debt-to-GDP ratio, but there is no technical magic in this either. Provincial ratios have generally been much lower than those of the federal government. In 1994–95, for instance, the highest deficit-to-GPP ratio was that of Quebec at 3.4 percent, the lowest that of Alberta with a surplus equal to 1.2 percent. Debt-to-GPP ratios in 1996–97 ranged from 17 percent for Alberta to 49 percent for Newfoundland (TD Economics, May 1997) but, again, there are no absolute right or wrong levels. Nonetheless, the ratios are helpful in that they give us measuring rods against which to compare absolute levels of deficits and debt, to judge their movement and to make initial comparisons across countries or provinces. Sometimes conservative politicians or media measure levels of deficits and debts as the debt per capita or per person in the country/ province. Their motive is to frighten people by suggesting that each person has a direct and immediate responsibility for the sum in question. According to this measurement, figures range from $5,479 for each Albertan to $10,781 for each Quebecker, with federal debt being about $19,800 per person. Sometimes groups such as the right-wing Fraser

26 / Alternative Budgets

Institute will also include the debt of Crown corporations, such as provincial telephone or hydro companies, into their calculation of government debt despite the fact that these are actually self-sustaining, profit-making entities that service their capital borrowing from earnings.3 Doing this raises the per capita debt figure in Manitoba from about $7,000 to about $12,500 in 2002.4 By making the debt per person figure look huge, such groups hope to persuade people of the necessity to reduce it by cutting back on government programs. As in so many other aspects of budgeting, it is difficult to separate the political and the ideological from the technical. Some would argue that a more meaningful indicator of the manageability of debt is the proportion of total government spending devoted to servicing debt. Again, there is no magic absolute number at which alarm bells begin to ring, but the movement of this ratio is deemed informative, especially in a situation in which it is politically difficult to deal with the issue by raising taxes. But one must be very careful how one uses this and other such simple ratios. Ironically, federal cuts in program spending were so deep in the mid-1990s that they succeeded in actually raising this ratio from 26 percent in 1994–95, when cuts started in earnest, to 30.3 percent in 1997–98, after program spending had been cut by 11 percent! It would be perverse to conclude that because the ratio was rising even further program cuts were necessary. In any event, as interest rates fell in the late 1990s, and as the economy recovered, the debt-servicing burden of both the federal government and provinces fell significantly, in both absolute terms and as a percent of spending and GDP.5 It is perfectly rational for governments to borrow money to finance their activities and, in normal circumstances, one might expect debt and debt burdens to rise during recessions as borrowing needs rise and as income stagnates or falls, and to fall during economic booms as debt is repaid and as incomes rise. As we shall see, debt repayment did not figure prominently in alternative budget exercises in the second half of the 1990s, even as economic growth recovered, because priority was given to reversing draconian program spending cuts enacted earlier. Finally, on measuring the technical, as opposed to the political, sustainability of debt policy, one can always refer to the ratings given government debt by bond-rating houses such as Standard and Poors. These institutions assess the economic and fiscal performance of borrowing countries, provinces and others and then assign them a ranking or rating, the highest being AAA. Ratings for Canada and the provinces for both 1997 and 2002 are given in Table 1.2. The absolute level of the

Budgets: The Technical Side Made Easy / 27

Table 1.2. Bond Ratings and Costs of Borrowing, 1997 and 2002 1997

Bond Rating

Canada AAA Alberta AA+ British Columbia AA Manitoba A+ New Brunswick AANewfoundland and Labrador BBB+ Nova Scotia AOntario AAPEI BBB Saskatchewan A Quebec A+

2002 Cost of Bond Rating Cost of Borrowing Borrowing Average New Average New % % % % 7.7 7.3 7.0 7.9 11.0

5.29 5.27 5.37 5.45 5.44

AAA AAA AAAAAA-

7.2 8.6 7.9 7.3 9.6

5.10 5.32 5.42 5.42 5.49

12.3 8.9 7.9 11.9 11.0 9.0

6.38 6.87 5.45 7.75 5.46 5.60

AAAA A A+ A+

11.4 9.0 8.5 10.4 9.5 9.3

5.52 5.52 5.39 5.51 5.43 5.49

Source: Standard and Poor and Department of Finance, Manitoba (personal communication). Average costs are for 2000–2001. New costs are for 10-year bonds.

rating and recent movements in it indicate both how the institutions that lend money view the current fiscal policy of the borrower in question and their assessment of the debt worthiness of borrowers. Each oneplace reduction in rating usually entails an increase in the cost of borrowing, by about 0.25 percent, as this signifies an increase in the riskiness of the debt of the borrower, and vice versa when improvements take place. Table 1.2 shows the average cost of borrowing of the federal government and provinces in those years, arrived at by illustrating debtservicing costs as a percent of debt outstanding, and the approximate rate of interest at which provinces and the federal government could borrow new money for ten years in both 1997 and 2002. Clearly there is, indeed, a relationship between bond ratings and the cost of borrowing, but differences in cost are often quite low and some anomalies seem to exist. For example, New Brunswick and Ontario had the same rating in 1997 but different costs of borrowing, as did Saskatchewan and Quebec in 2002. Sometimes, however, the bond market adjusts borrowing costs before bond-rating agencies change their rating. Also, increasingly, rating houses have been taking positions that reflect their political preferences, giving a positive weight to governments that reduce deficits by cutting spending rather than by raising taxes, and commenting favourably on sales of Crown corporations. Finally, while

28 / Alternative Budgets

borrowing costs do vary greatly from province to province, all provinces continue to have access to capital markets: therefore, at best, bond ratings can indicate the wisdom of further borrowing rather than establish firm limits. For some purposes it is important to know who is holding the debt in question, Canadians or foreigners. This is a different issue from the currency in which the debt is expressed or denominated, as foreigners may be quite happy to hold the debt of Canadian governments denominated in Canadian dollars; indeed, most federal debt held abroad is so denominated. It can be argued that the less dependent Canada is on foreign borrowing, the less prone will it be to pressures from abroad to follow economic policies that may not be in our long-term interest. The risks in ignoring such pressures include capital flight (private holders of wealth moving their money out of the country), a capital strike (businesses refusing to invest in the country), and an unwillingness of foreign bond holders to continue holding Canadian debt. The underlying assumption is that domestic bond holders might be less willing or able to behave in the same manner as foreign lenders. This assumption as well as the impact of the constraints of debt, capital flight and capital strikes on the ability of Canada to pursue domestic economic policies will be examined in Chapter 5. The technical side of budgets is relatively uncomplicated and its essentials are grasped readily by most ordinary citizens who have sufficient time and interest. But budgets are about much more than numbers. They are the financial expression of public policy towards people and, therefore, have important implications for how people live. The essence of budgets is not whether they balance or whether the numbers are internally consistent, important though that might be. What counts most is how they affect society at large. What kind of country, province, city, health care or school system do they help create? Budgets embody important aspects of public policy and, hence, are intensely political documents. Careful analysis of the structure and impact of budgets reveals valuable insights into the political priorities and social basis of the government in question. Indeed, an understanding of budgets and their underlying premises is essential to understanding the true political nature of governments and the state in general. Notes 1.

For an excellent review of the basics of budgeting see Show Us The Money: The Politics and Process of Alternative Budgets (Cho!ces and CCPA 1998).

Budgets: The Technical Side Made Easy / 29

2.

3. 4. 5.

The federal government includes Unemployment Contributions as taxation, bringing the total of taxation to 96 percent, but I view these as insurance contributions, not taxation. Governments may guarantee this debt but the Crown corporations service it from earnings. Calculated from Manitoba Government 2002: A24 and B25. Federal debt charges fell as a percent of GDP from 1995 to 2001, from 5.8 percent to 4.0 percent and, relative to budgetary revenues (a better indicator than spending), from 36 percent to 24 percent (Department of Finance 2001).

2. THE PUBLIC POLICY SIDE OF BUDGETS Budgets are far more than arithmetic exercises, designed with the ultimate goal of having the numbers add up. To prepare a budget is to make a series of policy choices. Each budget is a vision of the role that the state plays in society, a plan for influencing economic activity, a statement of principles relating to taxation and, of particular importance in Canada, an articulation of the role that budgets play in constitutional and intergovernmental relations. This chapter outlines the issues in each of these four policy areas. It is apparent that while these issues have technical components, they are ultimately political in nature, which means that the decision makers are always choosing between a wide range of policy options. In short, to budget is to choose. The Role of the State Budget Government spending accounts for a significant proportion of the Canadian economy. In 1992–93, federal program spending was $123 billion while program spending by provincial governments was about $140 billion, for a combined total of $263 billion or 38 percent of GDP (Department of Finance 2001). Even after the large cuts in spending at both levels, by 1996/97 it still totalled $242 billion or 30.3 percent of GDP, and by 2001 $279 billion or 26.4 percent of GDP.1 Clearly, the activities of government are extremely important in their own right, but there is no agreement politically on the precise role they play in the economy. Many Canadians, often but not always the wealthier ones, are critical of government spending on social programs, whether they be available to all or targeted at the poor. They believe they could buy better versions of these services directly from the private sector or that they will never make use of these services themselves. They would prefer to have lower taxes and greater personal control over how their money is spent. Some economists, known as neo-conservatives2 because

30

The Public Policy Side of Budgets / 31

their brand of conservatism does not reflect an older conservative respect for community as well as for the individual, have converted this individual argument into an economic one. They argue that government spending is bad because it reduces the money available for people to spend on private sector activities. In effect, they say that government activities crowd out private sector activities and that by drastically cutting back government and government activities, private activities will flourish and we will all be better off. More radical observers point out that this view ignores the fact that much government activity benefits the private sector and is vital for its continued operation. First, the public sector provides human and physical infrastructure—from water, sewage and roads to an educated labour force—without which the private sector could not operate. James O’Connor (1973) calls this the accumulation function of the state. Without this, the profits of the private sector would be much lower as it would have to provide these services at its own expense. Second, many services provided by the public sector are designed to compensate for the inequalities and hardships created by a private sector that is driven by the bottom line. For example, private business requires a pool of unemployed workers in order to keep wage demands of workers in check. By building almost solely on the most profitable, the capitalist system creates regional disparities and poverty among those excluded from participating in the system. The state picks up the pieces by providing social programs, such as social assistance and unemployment benefits, for those left behind by the system or periodically thrown onto the unemployment rolls. O’Connor describes this as the legitimation function, which is essential to social peace under modern forms of capitalism and which, together with spending on the police, courts and prisons (or the repressive functions of the state (Panitch 1977), is seen as a kind of social control. To these more radical observers, therefore, government spending is highly functional for capitalism and suggests an important symbiosis between the state and private enterprise. In fact, they argue that public sector spending actually “crowds in” the private sector, facilitating its growth and smoothing over the social and political problems produced by capitalist accumulation. While it provides a valuable insight into the role of the state under capitalism, this type of analysis is a little too functional. It plays down the importance of state services to workers and dismisses the crucial political role of workers, their organizations and the parties supporting them in the long struggle to secure social services through the state (see Finkel

32 / Alternative Budgets

1979).3 Access to public health and education and the availability of a social safety net for the poor, unemployed or sick are valued in and of themselves and are considered by most people to constitute an important determinant of their standard of living.4 This being so, one might expect workers to be as willing to defend the welfare state through political action as they would their employment income through industrial action. In Canada, however, the neoconservatives have had some success in persuading Canadians that much government spending is wasteful and that even vital social services can no longer be afforded. This comes as no surprise to political analysts who, years ago, expressed concern about the seemingly tentative and fragile commitment of Canadians to the welfare state (Chorney and Hanson 1992). Hindsight shows these concerns as remarkably prescient. Still, as we shall see, there does seem to be a political bottom line in Canada that limits the extent to which publicly provided services can be cut back, with health care and seniors’ benefits being particularly sensitive areas. These differing views about the role of state spending give rise to different views on how much the state should spend, the types of things it should be spending on and how it should be spending. Those involved in creating alternative budgets have favoured increased social spending, job creation and a reduction in poverty, all of which increase the amount of control Canadians have over their social and economic lives. The Dynamics of Government Spending Government activity, through taxation and spending, can have an important impact on the level of activity in the economy. Governments create budgets partly with that impact in mind. Decisions reflected in budgets are called the government’s “fiscal policy.” The term fiscal policy refers to the stance of the government with regard to the levels and composition of revenues and expenditures and surpluses and deficits and, therefore, debt management. Fiscal policy is used by governments in their efforts to regulate the level of output and employment in the economy, and to change the level of demand by changing taxation and government spending. It contrasts with “monetary policy,” under which the same objectives are pursued by altering the amount of money or credit in the economy and by changing the cost of borrowing money (the interest rate). Monetary policy is carried out by the Bank of Canada, a publicly owned but independently run bank that deals only with other banks, not the public. Unlike fiscal policy, which is pursued by a

The Public Policy Side of Budgets / 33

government elected by the people, monetary policy is conducted by a board appointed by government and not answerable directly to parliament. As will be discussed later, fiscal and monetary policy are closely tied, and trying to fix misguided monetary policy in order to allow a more enlightened fiscal policy has figured prominently in alternative budget exercises. Government spending on wages, services, purchases, buildings and grants can have a large impact on the economy. The state in modern capitalist societies is a significant employer of people. In 1992, before the major cuts to public spending, total public sector employment in Canada was about 2.82 million, or 26 percent of total employment (Statistics Canada 2000: 34). Thus, more than one in four jobs were in the public sector and most of these were reasonably well-paid, unionized jobs, many involving highly skilled labour. A number of jobs in the private sector would, of course, be directly dependent on these public sector jobs. By 1999, public sector employment had fallen to about 2.71 million, or about 22.4 percent of total employment (Statistics Canada 2000: 34). The state also purchases goods and services directly from the private sector, in the form of vehicles, computers, stationary supplies, consultancy advice, travel, food and so on. All this spending creates further economic activity in the private sector as people who work in the public sector, or receive transfer payments from it, buy homes, food, necessities and luxuries, thereby creating jobs and incomes in businesses providing those goods and services. Therefore, state spending through the budget has what is called a multiplier impact on economic activity in the economy, as a dollar of government spending can have an impact that creates more than a dollar’s worth of economic activity. Of course, the same can be said of private spending. So, to the extent that the state raises money through taxation, it also takes money out of the economy. The net impact of government spending funded by taxation depends upon two factors. The first is the extent to which the multiplier effect of government spending exceeds the impact of government taxation. For example, orthodox economists argue that it is a better job creation strategy to cut taxes, thereby giving consumers and businesses more money to spend on goods and services. However, the multiplier effect of a tax cut is not as great as the multiplier effect of direct government spending. This is because taxpayers would choose to save a portion of the tax cut, reducing its economic impact. The second factor is the extent to which the budget is balanced. Let us assume that the government is running a

34 / Alternative Budgets

deficit. Even if there were no multiplier differentials, the state would be putting more into the economy than it is taking out. How much more it is putting in equals the amount it has borrowed to cover the deficit. In this way, the state is adding to economic activity. Since capitalist economies have a chronic tendency to overproduce (i.e., to produce goods for which the demand does not exist), unemployment and deficient levels of private investment are constant problems. The state budget, then, plays an important role in keeping up the level of demand and the level of employment, both through its normal program spending and through infrastructure and other forms of capital investment, while at the same time enriching the lives of people through the provision of important social services. Thus, decisions about spending and taxation and about the level of the deficit/surplus have important implications for the operation of the entire economy in terms of economic output and the level of employment in the private and the public sector. By influencing the level of employment and economic activity generally, government budgets can have an indirect “loop effect” on both government spending and taxation. These effects can be quite important in budgeting. For instance, if government spends money on a job creation program, the initial impact on the budget will be to raise spending and put pressure on the budget balance, reducing surpluses or raising the deficit. But if the program is successful, workers will move from unemployment to employment and, in the process, they will reduce their demands on both unemployment insurance and social assistance. This reduces government spending on these items. In addition, because they are now employed, workers will pay unemployment insurance premiums, income taxes on pay cheques and sales taxes on the consumer items on which they spend their wages. This increases government revenues. These indirect effects on both government spending and revenues, amplified by any multiplier effects of the job creation project on the general economy, will significantly reduce the net impact of the job creation program on the bottom line of the budget. This highlights an important distinction between family budgeting and government budgeting, as such indirect effects are usually not present when a family increases its spending. Budgetary decisions to spend on public goods and services raise other types of public policy issues. The most prominent is whether or not these goods and services should be provided by the private sector. Over time, the vast majority of Canadians have expressed a preference

The Public Policy Side of Budgets / 35

for both a state-funded and state-regulated health care system and for a public education system, but there are those who would like to see these and other services provided by the private sector. The argument for public services is one of accessibility, universality and equity. While certain elements of Canada’s health care system remain private—for instance, unlike public servants, doctors are not generally hired on salary but instead are paid a fee for service, and dental care is essentially private—basic health care is guaranteed and funded by the state and hospitals are essentially public institutions. Private education services are seen as elitist and exclusionary, though this is complicated in Canada by the religious dimension of some private schools. Nonetheless, there is an ongoing political debate in Canada about what types of services should be provided by the state, and there is increasing pressure from the right for responsibilities and, of course, funding to be shifted to the private sector for a wide range of services. The debate about the appropriate mix between state and private activities has to do with the quality and reliability of services and with the pay rates for the workers who deliver those services. The state budget is considered by business to be one of the last frontiers available for profitable exploitation, especially after the rather disappointing outcome for capital of soviet bloc liberalization and the recent problems in Asia. Privatization (as when Crown corporations are sold to private investors), contracting out (hiring private contractors who use their own employees to deliver a service previously provided by government employees) and public-private sector partnerships (PPPs) (a partnership into which the government and the private sector enter to deliver a service previously provided solely by the public sector) are some of the ways in which the private sector can encroach on previously public sector turf. Their proponents claim that PPPs offer greater efficiency and, therefore, greater cost reductions than when goods or services are provided solely through the public sector. Often, however, these activities become profitable to the private sector only if wages paid to those delivering the services can be cut back from the level provided in the public sector or if a lower quality of service is offered. Sometimes, these arrangements actually lead to an increase in costs to taxpayers. For instance, in some PPPs the private sector pays to build infrastructure, such as roads or buildings, and then leases these assets to the public sector. The supposed advantage to the state is that it does not have to borrow money or get directly involved in building capital works. If the lease payments are costed properly, though, it may well be that it would have been

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considerably cheaper for the state (i.e., the taxpayer) to borrow money for the project. Examples include the Charleswood Bridge in Winnipeg and the Miramichi Youth Centre in New Brunswick, both of which are lease arrangements with the private sector (De Luca 1997; Loxley 2000). Even when it has been determined that the public sector should provide a service, there is still the issue of how that service should be paid for—out of general revenues or by a separate, additional charge. Thus, services provided “free” in the past, i.e., out of general revenues, are increasingly being subjected to user fees or charges. Toll fees for the use of roads, tuition fees, charges for accessing government statistics, federal and provincial park fees, library charges, zoo fees, charges for school supplies and outings and garbage fees are among the myriad of additional charges now being levied or considered in Canada. Such charges can have important implications for the use of resources and for the accessibility of services. How one assesses their desirability depends upon the principles of taxation being followed for the revenue system as a whole, and it is to a consideration of these that we now turn. Principles of Taxation What factors should be borne in mind then when assessing the suitability or effectiveness of different forms of taxation from a public policy point of view? There are numerous principles by which to assess tax performance, but six will be dealt with here: administrative ease; allocative efficiency; environmental impact; equity; gender impact; and income sensitivity. These factors vary greatly from tax to tax. They can be looked at from a technical point of view (e.g., how to measure who ends up actually paying a tax or which tax would be most effective in protecting the environment), but clearly they also have important political implications (e.g., how the groups who end up paying the tax will react collectively). The administrative ease with which tax revenue can be collected is important because the more difficult it is to collect the tax, the less net revenue (revenue minus collection costs) the tax will bring in. Also, the more cumbersome a tax is to administer, the less popular it may be with taxpayers and the greater the potential for tax avoidance (which is legal), tax evasion (which is not) and high policing and monitoring costs. For several taxes the bulk of administrative costs are borne not by the state but by firms or individuals. For example, pay-as-you-earn income tax is deducted by employers, and the GST is calculated, collected and remitted by firms. These are taxes that have a high degree of administrative ease,

The Public Policy Side of Budgets / 37

although the GST can be burdensome for small businesses to administer. In recommending changes to the tax system, alternative budgets must take the administrative factor into account. Improving the collection of existing taxes by employing more inspectors may be a more effective and politically appealing approach to raising revenues than introducing new tax measures. Replacing a clumsy tax with a more effective tax may also raise net revenue. These types of administrative considerations apply equally importantly to tax credits, especially if they are to be universal (i.e., payable to everyone rather than to people of a certain income group). Thus, if child tax credits are designed to put money into the hands of mothers, regardless of their income levels, then a universal program is appropriate. If the idea is to channel money into the hands of poor mothers, a more selective, income-based tax credit may be in order. The allocative effects of a tax measure the impact on economic efficiency. Economic efficiency is usually the prime concern of mainstream or orthodox economists who dominate the economics profession but whose views need to be scrutinized because of their underlying ideological biases. Orthodox economists, of whom neo-conservatives are an extreme form, argue that a free market will align the plans of both producers and consumers in the most efficient manner since prices are set by supply and demand. At this point, producers will be minimizing costs for a given level of output or maximizing output for a given level of costs, providing consumers with exactly the right type and amount of goods needed to maximize their satisfaction given their level of income. Taxes would then make the economy less efficient because they distort one side or even both sides of the market by making inputs or finished products more expensive than they would otherwise be and by changing the relative prices of inputs or products. By changing prices, therefore, taxes have an impact on resource allocation as producers and consumers change their budgets to accommodate the new, tax-inclusive prices. In reality, however, perfect markets and perfect market efficiency do not exist, and taxes may reduce or help improve market efficiency, depending on the situation. Since all taxes have some distortionary impact, and since some level of taxation is necessary, the trick is to levy taxes that minimize socially undesirable allocative distortions or that correct for existing market distortions. It is quite difficult sometimes to assess the allocative impact of a tax, especially over the long term. As an example, the left has often argued for a payroll tax (a tax on the amount paid in wages to workers) as

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a way of getting at the profits of large corporations such as banks, which can arrange their books to show low profits locally and thus reduce their corporate tax. The right responds that such a tax is a job killer because it reduces the incentive to increase the payroll. Precisely who bears the burden of the tax depends very much on supply and demand conditions in the labour market. There is a good chance that much of the tax is actually borne by workers in the form of reduced wages. But, to the extent that companies do pay the tax, this in itself would not be a good enough reason to oppose it if it were one of the few means available to tax corporate profits.5 Both neo-conservatives and those more supportive of government spending recognize the impact that taxes have on allocation, but they disagree on the implications for tax policy. Neo-conservatives argue that because taxes distort markets, they should be kept as low as possible. They argue that higher tax levels crowd out the private sector. For this reason, tax burdens in different provinces should be brought more into equality by reducing taxes to the lowest level rather than by raising them to the highest. They also argue for across-the-board tax cuts to encourage private sector growth, again an allocative argument. The counterargument that state spending facilitates, encourages and stabilizes private sector growth (i.e., that it crowds in) is, equally, an allocative one. Where specific markets do not work very well in terms of efficiency or social impact, the judicious use of taxation can improve their performance. This is the case with so-called “sin” taxes, i.e., taxes on alcohol, cigarettes and tobacco and, most recently, gambling. High levels of taxation on cigarettes and alcohol are generally accepted in principle in Canada as a means of discouraging consumption of these products on social grounds without making them illegal. The main public policy issue is that of achieving the optimal level of taxation so that consumption is moderated while tax revenue is maximized. If taxes are too high, consumers will evade them by buying smuggled goods or by engaging in illegal games of chance. Beyond a certain point, tax increases may actually bring in less revenue because of this. In the case of cigarettes, the optimal level was exceeded in the early 1990s, when smuggling from the U.S. was so significant that government revenue from cigarette taxes actually fell. The federal government and some, but not all, provincial governments responded by reducing tax rates and tightening policing. The plan was so effective that in the early 2000s several jurisdictions were able once again to increase cigarette taxes. Smuggling of alcohol is

The Public Policy Side of Budgets / 39

also a problem but home brewing is probably more significant and can be dealt with, if desired, by moderate taxation of raw material inputs. Taxation of gambling is currently hotly debated in Canada principally because provincial governments are actively encouraging gambling, which brings in huge tax revenues and profits. VLTs have created new forms of gambling addiction, often with horrendous social consequences. Governments have responded by putting modest amounts of money into addiction programs but they are reluctant to give up this source of revenue, the most rapidly growing in many provinces. Sin taxes constitute but one example of state intervention being justified on allocation grounds. When forests are publicly owned but privately harvested it is important that forestry companies be required to pay for the cost of replacing trees, so that forests can be renewed and managed properly. In such a case, governments can charge an appropriate tax, a stumpage fee, on each tree felled. Similarly, when the short-run market price for gasoline does not accurately reflect the long-run cost or the indirect social costs of using gasoline (such as pollution, noise and the use of land for roads), a gas tax could remedy the problem by appropriately altering supply and demand for gas. These last two examples of state intervention through taxation deal also with the environmental impact of taxation, a third characteristic of the tax system that is closely related to allocation issues but that is so important for public policy these days that it warrants separate attention. The important issues here are the extent to which and the ways in which the tax system contributes towards an improvement in or a deterioration in the environment. Does the tax system encourage or discourage pollution or waste? Does it encourage recycling or conservation? Does it provide incentives to use environmentally friendly energy and transportation sources? Does it encourage restraint in consumption and penalize excess or ostentatious consumption? Does it encourage sustainable development, however one defines this, and the replenishment of renewable resources for future generations? These questions are intensely political in nature, but answering them requires an evaluation of the environmental impact of such tax measures. Such evaluation (again, expenditures are just as important as taxes and the same considerations should apply to both) is far from easy but an effort must be made if public policy is to be debated sensibly. As a general rule, alternative budgets should attempt to improve allocative efficiency or should be aware, at least, of the allocative impacts of tax proposals as it is often on these aspects that the opposition focuses its attention.

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Two related but possibly incompatible approaches to the environmental impact of budgets are discernible in Canada. There are those who suggest improving the “greenness” of budgets by identifying a few key revenue and expenditure measures and, in this way, pushing the margin of the system in the direction one wants society to move. Others take a more root-and-branch approach. They condemn the high consumption, high waste, fossil fuel-driven way we live and argue for the complete restructuring of the tax and expenditure system to support and facilitate a dramatically altered lifestyle. The principle of equity or fairness is an important one on both the taxation and the spending sides of budgets, and it is often a major focus of alternative budgets. Equity is concerned with the impact of taxation (or spending) on the distribution of income and wealth.6 Not surprisingly, mainstream economics, to which most economists subscribe, provides little by way of technical help in dealing with equity issues. It postulates that as an individual’s income rises, the satisfaction gained from incremental amounts of income falls. If all individuals had the same pattern of satisfaction relative to income, then a strong case could be made for reducing income inequalities through the tax system. One could argue that society’s total satisfaction, or welfare, would be improved if income were shifted from higher-income groups (with relatively lower levels of satisfaction at the margin) to lower-income groups (with relatively higher levels of satisfaction at the margin). But mainstream economists avoid this conclusion by arguing that it is impossible to compare how satisfaction is linked to income among different individuals and that, for this reason, one cannot say unambiguously that taking income from the rich and giving it to the poor will increase society’s total welfare. Therefore the issue of equity is considered a political rather than a technical one, and economics is thought to have little to offer by way of policy guidelines. In public policy terms, the right tends to argue against greater equity on what are, in effect, allocative grounds. Increased taxation of the rich, they argue, will destroy their incentive to work hard and to save. At the same time, the poor receive too many benefits in the form of unemployment insurance or social assistance and this reduces their willingness to work. The right recommends a cut in these benefits to force the poor into the labour force. The rich need positive income incentives, and the poor negative income incentives! While it is becoming popular for even social democratic governments, such as those in Saskatchewan and the United Kingdom, to attack state benefits to low-income earners and to refuse to increase taxes on the rich, this is not usually the philosophy driving popular

The Public Policy Side of Budgets / 41

alternative budgets. These still tend to see an important role for the state in ensuring equity by directing income from the well-off to the not so well-off. They reject the allocative arguments of the right, insisting that the rich need no more incentives, that the non-working poor need additional income protection and greater opportunities to work at decent wages, and that state action is necessary to facilitate this. There should be no misunderstanding about the importance of the state in improving equity in Canada. In 1993, transfer payments from governments (for instance, unemployment insurance benefits, social assistance payments, non-refundable tax credits and pension supplements) accounted for 91 percent of total income for the bottom 20 percent of economic families, up from 73 percent in 1973; and transfer payments accounted for 36 percent of the next lowest 20 percent, up from 17 percent in 1973 (Centre for the Study of Living Standards 1996). If left entirely to the market, all but the richest 40 percent of Canadians would have seen their income share decline significantly between 1973 and 1993. After taxes and transfers, income shares were fairly stable, unlike in the U.S. where the gap between rich and poor grew considerably over this time period. In 1996 in Canada, however, “post-tax income inequality increased dramatically,” reflecting cuts in transfer payments (Sharpe 1999: 63; see also Yalnizyan 1998). A tax system is said to be progressive if those with higher incomes pay a higher percentage of tax. When one looks at the Canadian tax system as a whole, including federal, provincial and local taxation, one finds that it is quite progressive up to an income level of $50,000. This is mainly on account of the income tax system, which gives tax credits for lowincome earners and, with the surtax, levies marginally higher rates of tax as income rises. There is also a GST rebate for low-income earners. Beyond that income level, however, progressivity in the tax system is less marked, and people pay roughly the same percent of income in tax because the rich also take advantage of tax credits for pensions, dividends and so on. Some taxes, such as the GST and local property taxes, are regressive in nature since they fall as a percent of income as income rises. Not surprisingly, such taxes reduce the progressive nature of the entire Canadian tax system, causing total taxes to flatten out as a percent of income (Rosen et al. 1999). There is a great deal of room, therefore, for enhancing the progressivity of the tax system at higher-income levels, and a strong public policy case can be made for further reducing after-tax income inequalities in Canada. The question of universality is an important one in public policy

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debates about equity in budgets. Should certain state services or transfers be available to everyone or to every family regardless of income or circumstance? For example, should family allowances or senior’s benefits be payable to all regardless of income levels? Those in favour of universality argue that the service or payment in question is important in principle and for that reason should be available to all. The alternative— that is, targeting benefits—is seen as discriminatory, singling out and ostracizing particular groups, usually for their poverty. Universality proponents posit that a progressive tax system will, in any case, tax back benefits paid to those not really needing them. Opponents counter that universality may involve a huge administrative cost, paying benefits to all with one hand and taxing them back from many recipients with the other. The gross cost of the benefit, before the tax back, will also exaggerate the cost of the benefit, making politicians reluctant to support universality even though the (hidden) net costs may be much lower. Charging user fees raises similar types of equity issues, as access to services becomes a function of one’s ability to pay. Those advocating such fees argue that for certain services it is entirely appropriate that users should pay as only certain members of society benefit from the service. As well, the costs can be clearly identified, and the use of charges will free up resources for expanding other, more widely used or more socially important services. One has to examine each specific case carefully, as often there is much less fairness in these claims than meets the eye. Charging for use of libraries, universities, health facilities, wading pools and immigration processing is perhaps more accurately interpreted as an attack on the relatively disadvantaged and ignores the greater, more long-term, social good that comes from free access. While, in a sense, it is part of broader equity issues, the gender impact of taxation is important and complex enough to warrant separate attention. Canada is reasonably progressive on gender issues, at least at the level of law and policy. Canada has a human rights charter and human rights legislation at both federal and provincial levels. Employment equity, affirmative action and pay-equity provisions are common, albeit contested, at all levels of government. Progress is being made in legal and policy terms towards acceptance of non-traditional family structures, as evidenced by recent same-sex spousal benefits legislation at the federal level. At the same time, the deep structural problems faced by women are ones to which the state, and state budgets, have unquestionably contributed. Most Canadian women become poor at some point in their lives,

The Public Policy Side of Budgets / 43

and “women face a significantly higher risk of poverty than men” (National Council of Welfare 2000: 94). Over a third of poor families are headed by women. The poverty rate for single mothers under 65 years of age with children under 18 years of age was 57 percent in 1997 and for those under 25 with children it was a staggering 93 percent. The overall poverty rate for those over 65 years of age has dropped significantly since 1980, due largely to the provision of state benefits, but the rate for women seniors (at 24 percent) is still double that for men. About 20 percent of Canada’s children live in poverty but the rate of poverty for children with single-parent mothers is three times as high, at over 60 percent (National Council of Welfare 1999). More enlightened government budgets could help address these problems. The participation of women in the labour force has increased rapidly in recent years. In just twenty years the proportion of women with children under the age of three working outside the home has risen from a third to two thirds (Yalnizyan 1998: 37). As incomes for working people stagnated in the 1980s and fell in the 1990s, women’s paid labour was relied upon more and more to keep families out of poverty. And although this trend continues, child-care arrangements remain deficient. The jobs available to women are often irregular, seasonal and lowpaying. Women remain the principal caregivers for both children and the elderly, and they still do most of the housework, prompting Yalnizyan (1998: 38) to ask “How much more can women do?” Women have been severely victimized by successive “reforms” to the unemployment insurance system, an important aspect of Liberal fiscal policy. Cuts in spending on health care have affected women as health consumers, caregivers and employees; cuts to education threaten to reverse the recent progress women have made in post-secondary education; and cuts to social assistance have a consistent and particularly severe impact on women as mothers, homemakers and aspirants to participation in the formal labour market.7 Women have specific concerns about budgetrelated items such as the tax treatment of maternity benefits, child care, alimony and child support payments, educational expenses and pensions. For this reason, budgets should always be examined for their gender implications and the tax system requires special attention in this regard. The income sensitivity of the tax system measures the extent to which tax revenues rise, automatically and without any new legislative measures, as income rises. This is an important concept in budgeting because it measures the ease with which governments can raise money automatically. If the percent increase in tax revenue exceeds the percent increase

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in some measure of national or provincial income (usually GNP or GPP), i.e., if revenues rise faster than income, then the tax system is said to be income elastic. If, on the other hand, the share of taxation falls as income rises, the tax system is said to be income inelastic. If the share of taxation is maintained as income rises, i.e., tax revenue rises at the same rate as income, then the tax system is said to have unitary elasticity. This is a purely technical measure. It carries no value judgement about the desirability or otherwise of tax elasticity. The income elasticity of the tax system as a whole is important in making budget projections. Budgeting usually starts with some assumption about what is going to happen in the economy. With an idea about the likely pace of economic growth and some idea about tax elasticity, projections of the level of government revenue without any new tax measures can be made. Income elasticity is, therefore, important. For example, if government tax revenue is $3 billion, tax elasticity is unitary and the economy is expected to grow at 5 percent, including inflation, then government revenue should rise to $3 billion x 1 + (0.05 x 1.1) = $3.165 billion. An anticipated fall in income of, say, 2 percent would reduce forecasted tax revenue to $3 billion x 1 - (0.02 x 1.1) = $2.934 billion. In practice, it is very difficult to measure the elasticity of the tax system accurately because over the years the assumption of there being no changes in the structure of taxation, in either the rates or the bases, is usually not met. Instead, a very similar and closely related measure is used—the buoyancy of the tax system. This simply measures the sensitivity of tax revenue to income without the assumption of constant tax structure. Thus, buoyancy tells us what has happened to tax revenue relative to income over time, including all changes in tax structure. If the changes in tax structure were relatively minor or took place sufficiently far enough into the past, tax elasticity and tax buoyancy approximate each other. A buoyant or elastic tax system is significant because if government activities increase as national income rises then tax revenue will need to be found to finance them.8 It is, in fact, reasonable to expect some types of government spending to increase with income. As the economy grows, salaries for civil servants and funding for certain important social services and transfers to individuals or other levels of government can be expected to rise. Any new programs planned by government will also need to be funded. On the other hand, certain types of government spending can be expected to fall as the economy improves, e.g., unem-

The Public Policy Side of Budgets / 45

ployment benefits and social assistance. If, on balance, net government spending is to increase as the economy grows or if surpluses are to be run in order to reduce outstanding debt then, many would argue, it is better that the revenue flow automatically to the treasury without the government having constantly to introduce new tax measures to raise the revenue. Tax elasticity ensures this. Different taxes do respond differently to increases in income, however. The income tax system tends to be very elastic, all the more when the federal government stopped indexing it fully for inflation.9 This change in the income tax structure “promoted” people to higher tax brackets purely as a result of inflation, i.e., even though they may have been no better off in real terms, taxpayers ended up paying more income tax when their nominal income rose. Sales taxes are also quite elastic. At the other extreme, the licenses and fees, such as motor vehicle and drivers’ licenses, upon which provincial governments tend to rely quite heavily for revenue are expressed as fixed sums of money and are quite unresponsive to changes in real income and inflation. The prevalence of such revenue items acts as a brake on the income elasticity or buoyancy of the whole tax system for provinces. For short-term projections it is also important to note that, for some taxes, there is a significant time lag between income increasing and tax revenue flowing in on that income. This is especially the case with corporate income tax, revenues from which respond to increases or decreases in economic activity only after a delay of a year or more. While the above discussion of principles focuses on the revenue side of the budget, much of it is relevant to the expenditure side too. This is partly because, as we have seen, tax reductions can be affected by measures such as transfer payments to individuals or families, which show up on the expenditure side of the budget; so questions of administrative ease, equity, efficiency and so on are just as relevant. More generally, though, government spending can affect the allocation of resources, the environment, the distribution of income and gender relations. Some spending is also tied tightly to economic growth and, where this is so, income elasticity of spending is also relevant. For example, unemployment insurance benefits, social assistance payments and certain types of transfer to provinces, such as equalization, tend to move up and down with national income. Therefore, we should not draw too rigid a distinction between revenue principles and spending principles.

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Budgets, Constitutional and Intergovernmental Relations The structure of budgets in Canada reflects agreements about which level of government will deliver what kinds of services and which level of government will have the power to raise different kinds of revenues. These agreements have been arrived at over many years and are constantly subject to change and refinement. We have already seen that federal and provincial levels of government make transfer payments to provincial and municipal or school board levels of government, respectively, in lieu of the recipient levels having to collect (more) taxes. At the level of federal-provincial transfers, equalization payments are provided for in Canada’s constitution. Equalization payments allow poorer provinces access to a greater share of federal revenues than richer provinces in order to even out the revenue take and, theoretically, the level of services among provinces. Other major federal transfers are not provided for in the constitution but instead are arrived at through political negotiation or, like recent ones, are dictated unilaterally by the federal government. Some transfers take the form of tax points, in which case the federal government transfers a portion of income tax collections to the provinces, raising their share and reducing its own without raising total tax revenue. Once this has been done, annual cash budgets show no explicit traces of it, as revenue previously showing up as federal now simply shows up as provincial. The federal government keeps a running record of the value of these tax points over time (as income goes up their value rises and vice versa). Sometimes, for political reasons, it shows them separately or as footnotes in its statements, but they are never showed separately as a transfer receipt by provinces; instead they are simply lost in general income tax revenues. Other transfers take the form of cash and do show up explicitly, in the books of both the federal government as an expenditure and the provinces as income. These are the transfers around which political disputes centre and, as we shall see later, they have been cut back quite drastically. Provincial budgets have come under great strain as a result. On both the revenue and the expenditure sides of federal and provincial budgets, there is budget overlap and budget specialization. Let us examine the first with respect to revenues. Overlap on revenues occurs when both levels of government rely heavily on personal and corporate income tax but when collection of these revenues is administered (with the exception of Quebec) by the federal government. Similarly, both levels of government collect sales tax and, until recently, these were

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administered and collected separately. Since 1996, the federal government has been trying to negotiate a unitary sales tax with shared revenues (so far only successfully in New Brunswick, Nova Scotia and Newfoundland and Labrador). While on the surface this appears reasonable, it has been attacked as another way of raising taxes on low-income earners because the proposed unified approach imposes taxation on more goods than are currently taxed by the provinces. Specialization refers to taxes that are unique to the federal or provincial governments. For example, the federal government raises revenue through unemployment insurance contributions; the provinces relying on payroll taxes, hydro water rentals, automobile licenses and so on. On the expenditure side, both federal and provincial budgets devote significant sums to health, post-secondary education and social assistance. There is little duplication here because the federal money typically is transferred to the provinces, who then administer or delegate the program delivery. Although the federal government traditionally has played an important role in enforcing national standards for program delivery in these areas at the provincial level, it has allowed standards to erode in the wake of recent cutbacks in the amount that it transfers to the provinces. It also directly delivers some programs in these areas, especially for First Nations people. In other fields, such as training, the federal government, amid considerable controversy, is transferring responsibility for program delivery to the provinces as part of a decentralization strategy. This largely is designed to forestall demands from Quebec for sovereignty but, in the process, important national standards for service delivery are under threat. Provinces are solely responsible for expenditures in such areas as primary schooling, while the federal government takes care of defence and foreign policy. The fiscal relationships between provinces on the one hand and municipalities and school boards on the other vary greatly from province to province with regard to both revenue-raising arrangements and service delivery. Provinces that prefer to be the main funder of local services and the sole deliverer of services such as welfare or job creation initiatives allow municipalities and school boards only very restricted revenue-raising ability and very limited service mandates. This was frequently the case under the Harris government in Ontario, an important example being the centralization of funding for school boards as a smokescreen for heavy cutbacks (see Mackenzie 2002). Indeed, neoconservative provincial governments, in their campaign to reduce public services and benefits, often design policies to keep lower levels of

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government on a tight leash. When neo-conservative governments limit the fiscal discretion of dependent levels of government they also limit their ability to raise taxes to improve services at that level to offset cuts made at higher levels of government. In this way, they circumscribe the scope of democracy by centralizing decision-making, and they restrict the flow of financial resources, leaving municipalities and school boards to bear the political responsibility for the program cuts they are forced to make as a result. While there is no template for intergovernmental fiscal relations in Canada, it is obvious that budgets embody and help shape important constitutional and political relationships between different levels of government in this country. The ascendancy of neo-conservative fiscal policy has put enormous pressure on programs at all levels of government. Reductions in transfers and the passing of legislation to prohibit both tax increases and the running of deficits have been used to limit the scope of fiscal flexibility at lower levels of government to enforce restraint across the board. Participatory budgeting can offer a coherent vision of constitutional and intergovernmental relations in Canada that is an alternative to the one now being promoted by the political right. In the following chapter we will examine that rationale and trace the origins and political basis of the “fiscal crisis” in Canada as portrayed by neo-conservative ideologues. Notes 1.

2.

3.

4.

5.

In addition to spending on programs, in 2001 the federal and provincial governments spent an additional $65 billion on debt servicing, equivalent to 6.2 percent of GDP. Neo-conservatives take an extreme position on the benefits of unbridled markets and private enterprise. The term neo-liberals is often used to describe this group, but in a Canadian context in which the Liberal Party dominates federal politics, use of this term may cause confusion. Finkel argues that “the working class and farmers’ struggles were a key factor in the willingness of the ruling class and the state to pursue these programs” in Canada (1979: 174). He stresses, however, that “the working class was not strong enough or radical enough to prevent these programs from being instituted in ways that preserved the existing class structure” (Finkel 1979: 174). These public services are part of what has been called the social wage (see Gough 1979). The social wage is the flow of cash, goods and services from the state to the employed and non-employed and is a vital complement to wages earned in the labour market. Only if demand for labour is totally insensitive to the wage rate will there be

The Public Policy Side of Budgets / 49

6.

7. 8.

9.

no negative impact on both employment and wage rates from a payroll tax. When discussing taxation, there are three kinds of equity to consider: horizontal equity, the principle that taxpayers in similar situations should pay similar taxes; vertical equity, the principle that those better off should pay a higher proportion of their income in taxes because of their ability to pay; and intergenerational equity, which concerns the welfare of future generations (see, for example, Osberg 1993). The AFBs attempted to address each of these but concentrated mainly on vertical equity. For an analysis of the negative effect of the Canada Health and Social Transfer on women’s access to social assistance, see Jackman 1996. Buoyancy and elasticity are also important in terms of the contribution of the budget in automatically stabilizing the economy during the economic cycle. A buoyant or elastic tax system means that income increases in the up-swing of the economic cycle will be moderated through tax increases and reductions in income on the down-turn of the economic cycle will be partially offset by automatic cuts in taxes. The less buoyant or elastic the tax system, the less it will contribute to automatic stabilization of the economy. Indexing means that where different tax rates exist for different income brackets, the brackets are adjusted for inflation. If this is not done, taxpayers can end up paying more taxes and having a significant cut in after-tax real income simply because inflation has pushed them into a higher nominal income bracket even though their after-inflation, pre-tax income has not increased. Indexing also protects the real value of tax credits. The federal government reinstated full indexing in the 2000 budget.

3. WHY ALTERNATIVE BUDGETS? The principal political reason for developing alternative, participatory budgets at all levels of government is the success that the political right has enjoyed in convincing a large section of the Canadian public that there is no alternative to cuts in public sector services and taxes. This success has paved the way for savage cuts to the state sector with very negative implications for the welfare of individual Canadians, social services generally and the humanist landscape of Canadian public policy. Deep though these cuts were in the 1990s, they were only the beginning. The agenda of the right envisages a much more radical dismantling of the state sector and even of the moderate amount of progressive taxation within the fiscal system.1 Alternative and participatory budgets not only point to the availability of feasible fiscal options but they also suggest radical new ways of arriving at those options. They are primarily exercises in political resistance, mobilization and empowerment, which demonstrate concretely that there are political alternatives. But before exploring them in depth, we first need to explain how the right managed successfully to create the view that there really are no alternatives to cutting back government programs and taxes. After all, in the previous thirty years people in Canada and elsewhere in the industrialized world had come to accept that there was an important role for government in providing vital social services, such as health care and education, and in providing economic security to vulnerable citizens through the safety nets of unemployment insurance and social assistance. They also accepted that government had an important role to play in stabilizing the economy through spending and taxation and that in tough economic times it made sense to run budget deficits as this kept up incomes and employment. Since Canada in the 1990s was a much wealthier place than it had been in the 1960s, how can we explain the reversal in thinking about the role of government and the more limited options supposedly facing Canadians?

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The Neo-Conservative Attack on the Public Sector Since the late 1960s, the world economy has become increasingly unstable. The period of recovery after the Second World War was marked by steady economic growth without pronounced booms and slumps. Competition between major capitalist powers was muted by the rapid growth of the world economy and by the acceptance of U.S. hegemony in the international monetary system, which was based on the U.S. dollar. As the post-Second World War economic expansion reached the limits of its potential, growth began to falter and profit rates began to decline. Companies attempted to restore profits through wage reductions. Struggles over the distribution of income between wages and profits ensued and were reflected in increasing worker militancy and the growth of inflation. Internationally, the U.S. faced increasing competition from Japan and Germany, and the international arrangements (the so-called Bretton Woods arrangements) under which currencies were tied to the dollar, itself fixed in price at $35 dollars per ounce of gold, collapsed. The U.S. dollar was devalued and consequently the price of gold was allowed to rise, giving way to flexible exchange rates and more volatility in international currency markets. The decision of the Organization of the Petroleum Exporting Countries (OPEC) to increase oil prices was a reaction to global instability. It helped fuel inflation even further and put even more stress on the fragile social consensus arrived at by workers and business owners in the post-war capitalist world.2 By the latter part of the 1970s, many industrialized countries were facing “stagflation,” high rates of inflation and growing rates of unemployment. The policy reactions of governments to manage these developments had important implications for the structure and composition of budgets. In Canada, the economy became quite destabilized with inflation reaching 13 percent per annum in 1975. Initial steps to deal with this included wage and price controls, which, critics argued, affected wages more than prices. When these controls were abandoned after enjoying only limited success, government replaced them with schemes for reducing wages (and restoring profit rates) through the deliberate creation of unemployment. Control over wage-rate growth was exercised mainly through monetary policy: central banks (the Bank of Canada in this country) raised interest rates to high levels to reduce the demand for borrowed money for houses, factories and consumer durables such as cars and furniture. As demand fell, employers needed fewer workers. And as unemployment rose, the bargaining power of workers declined, reducing pressure on wages. As government officials have readily admit-

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ted (McQuaig 1995), the aim of tight monetary policy was to discipline labour into accepting lower real wages. But tightening monetary policy to drive up interest rates also had a profound effect on the budgets of major capitalist countries. This was especially evident in Canada in the early 1980s and early 1990s when inflation was relatively low (around 4 percent). Tax revenues to governments fell because fewer people and businesses were working and incomes were declining. This reduced personal and corporate income tax revenue as well as unemployment insurance contributions. At the same time, higher levels of unemployment meant increased demands for unemployment benefits and social assistance payments, and this raised government spending. High interest rates also raised the cost of servicing the government’s own debt, putting additional demands on the expenditure side of the budget. These pressures on both the revenue and the expenditure sides combined to push budgets into a deficit position at federal and provincial levels. Government debt began to increase rapidly and, with it, both the cost of servicing debt and the proportion of spending devoted to servicing the debt. Before long the cost of servicing the debt became a primary cause of the increase in debt. This is the backdrop to recent attacks on the public sector, but it took a major campaign of disinformation by right-wing think tanks, the conservative media and their corporate sponsors to identify government spending as the culprit and, hence, to justify addressing fiscal problems by slashing government programs and by reducing the activities of the state generally.3 Thus, while the fiscal pressures were real, there were two conflicting interpretations of the cause. Those involved in preparing alternative budgets saw the pressures as the product of high levels of unemployment created deliberately by the state through high interest rates (tight monetary policy); in effect, the state was using the interest rate as a form of incomes policy. The political right, on the other hand, has blamed the fiscal problems on excessive program spending by government and, implicitly, on government inefficiency. Their remedy flows logically from this distorted and revisionist interpretation of history: namely, cut program spending and taxes and supplant government and public sector activities with an increased role for the private sector, or face bankruptcy. While this view of the fiscal situation has clear appeal to many wealthy people in Canada, who least rely on government services, who always advocate cuts in taxes and who stand to profit most from privatization of government services, the real question is how the

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right was able to promote it so that it has become accepted widely by governments and the general public. When the Liberal government came to power in 1993, it had not yet been fully converted to this way of thinking. It was elected on a platform of increasing growth, reducing unemployment and maintaining social programs while moderating the deficit relative to GDP and opposing the free trade agreement with the U.S. By 1995, it had abandoned these commitments and embarked on dramatic cuts to social programs to reduce the deficit while fully embracing the North American Free Trade Agreement (NAFTA). In the process, the Liberals were simply implementing the agenda of big business as articulated through businessfriendly, business-supported think-tanks, such as the C.D. Howe Institute and the Fraser Institute, and through the corporate media outlets they control.4 The large corporate sector captured key political positions in the government, and more socially minded Liberals were rendered powerless. The fiscal discourse became dominated by the so-called “debt and deficit crisis,” which could be solved only by large cuts in government spending, privatization, deregulation, contracting out, attacks on unions and public sector wages, and the dismantling of the safeguards of the welfare state. Anyone attempting to offer an alternative analysis was held up to ridicule, “shunted to the periphery and marginalized politically” (Workman 1996: 33). Workman argues that “the discourse of fiscal crisis … assigns seriousness, fixes truth, establishes the margins of debate, disciplines participants, domesticates understanding, confirms comprehension, mediates information and routinizes discussion.… It is a sealed and highly impermeable way of thinking” (1996: 31). Thus, while there was eloquent opposition to tight monetary policies—much of it initiated by the Canadian Centre for Policy Alternatives (CCPA) Ottawa (see Chorney 1992; Bienefeld and Cameron n.d.; Barlow and Campbell 1995) but also by independent economists (see Osberg and Fortin 1996; Rosenbluth 1992; Barber 1992)—this tended to be overlooked or dismissed by the bulk of the economics profession and by public policy analysts. By these means, proponents of the political right have been successful in persuading many Canadians that government debt is out of control and, therefore, that government deficits must be eradicated. They have also convinced many that taxes on corporations and the wealthy cannot be increased, that tax burdens generally are too high and that large cuts in taxation are, indeed, necessary. Furthermore, in the early to mid-1990s they insisted that interest rates could not be reduced until the deficit had

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been reduced. The logic of this package of arguments is that the only scope for putting the fiscal house in order, the only viable public policy, lies in cutting and slashing government programs, including those previously deemed inviolable by governments, such as health care, seniors’ benefits and transfers to poorer provinces. Opposing Neo-Conservatism This right-wing view of policy options gained support in the mid-1990s, even among those instinctively indisposed to it, because people were persuaded that there really were no alternatives. The reasons for this went beyond the power of business to control the debt/deficit discourse. Initially, opponents of this view were too busy defending the many specific government programs under attack to develop coherent, alternative theoretical and practical perspectives on budgeting and economic policy as a whole. With jobs and programs at risk, political energy understandably was directed to fighting cutbacks. Second, much of the critique of the neo-conservative view was developed virtually in isolation from a detailed, alternative vision of fiscal policy, almost as if loosening monetary policy was the only requirement for dealing with the fiscal situation.5 Third, the critics’ position on debt and deficits was often inadequate when it came to specifying which levels would or would not be manageable and why. It was often argued that federal debt as a percent of GDP was relatively low compared to what it had been at the end of the Second World War and that it could be nursed down, as it was then, if economic policy were focused on raising and maintaining the growth of employment and GDP. Finally, critics argued that since most federal debt was owed to Canadians as opposed to foreigners, it was less problematical (see Chapter 1; and Bellan 1984). While many of these arguments had merit, they seemed to deny that debts and deficits were in any way a problem, whereas the Canadian public was becoming increasingly persuaded that they were. Also, arguments about the link between high interest rates, high levels of unemployment and growing debts and deficits had to be taken on faith, as no attempts were made to express the relationships quantitatively. The left had failed to subject its political positions to rigorous economic and fiscal analysis. In the absence of this detailed, quantitative analysis, it seemed to stretch the imagination to argue that there was scope for not only maintaining but also strengthening social program expenditures. This failure was an important factor in the growing credibility of right-wing views on debts, deficits, government spending and taxation.

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By influencing a number of governments, the right’s claim to practicality for its platform seemed to be enhanced. It was but a short step from there, in the absence of credible practical examples to the contrary, to make the case that there truly were no other plausible ways of conducting monetary and fiscal policy. “Responsible” budgeting increasingly was seen as the sole preserve of the political right—governments, corporations and the financial press. The left, it was argued, did not understand economic realities and was peddling proposals that just did not add up. Economic policy remained an elitist exercise to be debated only by those in the know. At best, people in the street might be consulted and asked to offer suggestions for policy but only within the narrow parameters already defined by the right-wing elite. By the early 1990s it was becoming clear that the left had to change its approach if it were successfully to meet the economic challenge of the right. Parliamentary and non-parliamentary resistance to cutbacks and layoffs was still called for, and working people still needed to occupy the traditional terrains of struggle allowed under collective bargaining, but additional weapons were required to help recoup the huge ideological losses experienced on the economic front if neo-conservative policies were to be halted and reversed. The right had to be challenged on what it had increasingly come to portray as its own turf, the field of economic policy formulation. The left had to be able to undermine support for the policies of the right by discrediting their numbers then putting their own economic and social proposals to the discipline of numbers to show that they did, indeed, add up. In this way, it was argued, the left would erode the credibility of the right and achieve a coherent framework within which to situate its own specific proposals for policy and program reform. The first alternative provincial budget in Canada was prepared for Manitoba by Cho!ces, a coalition for social justice, in 1991. This group, made up of social and political activists, was formed after the Conservatives took power under the leadership of Gary Filmon in the fall of 1990. In 1995, Cho!ces linked up with the Canadian Centre for Policy Alternatives, a progressive policy research institute based in Ottawa (now with branches across the country), to prepare Alternative Federal Budgets. At both the provincial and the federal levels, these budgets presented detailed discussions of most areas of economic and social policy. At the federal level, these discussions and their budgetary implications were published in book form two years in a row (CCPA and Cho!ces 1997a, 1998a). The left had vigorously rejoined the debate on fiscal policy.

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Notes 1.

2. 3.

4.

5.

This has been made readily apparent by the Liberal government of British Columbia, which in 2001 announced cuts to personal income taxes averaging 25 percent and cuts to corporate income tax of 3 percent. To finance this and to balance the budget, a three-year restructuring plan will see deep cuts to all except health and education sectors, averaging a massive 25 percent but reaching as high as 45 percent in agriculture and 53 percent in transportation (BC Government website, accessed 2/15/02, no longer available). Of the personal income tax cuts, 30 percent will be received by the richest 2.5 percent of taxpayers, who earn in excess of $80,000 a year (West Vancouver–Capilano NDP, website accessed 15/02/02, ). See Loxley 1986 for an elaboration of these developments and their implications. The Department of Finance also played a major role in propagating disinformation, not least by attempting to discredit a Statistics Canada study demonstrating that increased program spending was not the cause of the deficit. The study in question was eventually published in a watered-down version (Mimoto and Cross 1991) and, subsequently, Statistics Canada, under pressure from Finance, distanced itself from it. Frances Russell of the Winnipeg Free Press, who has always been sympathetic to the federal and provincial alternative budgets, was one of the first to publicize the politically motivated attack on the so-called Mimoto study. See McQuaig (1995) for a detailed account of this travesty. See Barlow and Campbell 1995, for an extended and persuasive analysis of how neo-conservative values came to dominate Liberal policy and Greenspon and Wilson-Smith 1996 for a more sympathetic and celebratory view of that process and its outcome. Osberg and Fortin (1996: 163) did have a macrofiscal alternative of maintaining the share of revenue to GDP at its 1994 level while freezing nominal program spending for three years; they emphasized, however, “the importance of monetary policy in solving Canada’s debt problem.”

4. MAKING ALTERNATIVE BUDGETS SOME GENERAL CONSIDERATIONS The first point to be made about creating alternative budgets is that there is no “right” way of doing them. Processes and end products will probably be as varied as the number of groups involved in doing them, and this is a good thing. Different groups will have different interests and skills, come from different regional backgrounds, have different social compositions and pursue somewhat different political objectives. They almost certainly will have different levels of access to resources, financial and otherwise, and often will work under quite different time constraints. So diversity in method, product and dissemination is to be expected if not welcomed. This makes it very difficult to generalize about how to go about making alternative budgets. Nonetheless, drawing on the experience of Cho!ces and the Canadian Centre for Policy Alternatives (CCPA), as well as other alternative budgeting groups in Canada and elsewhere, we can make some general points and raise questions that may be helpful to those new to the exercise or to groups seeking to improve the way they do things. Objectives and Principles Before embarking on a budget exercise it is useful for the group to ask itself what the objective is. Members of the group very often have different goals in mind, which raises the question of the compatibility of objectives. For instance, some people are drawn to the exercise by the idea that they could have an immediate and specific impact on budgets of governments. Their aim may be confined to one area—to forestall planned cuts to child care, social assistance, education, hospitals, libraries or swimming pools—or they may wish to present a credible alternative fiscal policy across the board. In both cases the idea is to be immediately practical and relevant. Others may be attracted to the notion of developing a credible, long-term economic and social policy, using alternative budgets to refine concepts and gradually to mobilize people behind the 57

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political platform underlying the budget. In this case there may be no pretence at having any immediate impact on government policy. Such different goals can lead to significant differences in the composition of budgets, in their presentation and in their dissemination. Those concerned with immediate impact may be less interested in developing budgets that are too radically different from the ones they are seeking to influence, even in areas in which they have no direct or immediate interest. For example, if unions were supporting a budget exercise with the objective of preventing layoffs for civil servants or reversing salary freezes or days off without pay, they may wish to see this accomplished with minimum alteration to the existing tax and expenditure system. Perhaps they believe that radical proposals on income distribution or, for example, on new revenue sources would reduce both the credibility of the exercise and the prospects of their proposals being accepted by the powers that be. This may not always be the case. Perhaps the unions know full well that the alternative budget exercise they are supporting will have no impact on the policies of the government of the day: their involvement may be premised on influencing the policies of the next, hopefully more sympathetic, government or of a party currently in opposition. In this case, they may be quite prepared to see their own demands accompanied by calls for radical reform elsewhere in the budget. Unless objectives are spelled out and agreed upon in advance, there is the possibility of friction arising as the budget is developed further down the road. The Saskatchewan Alternative Budget of Choice for 1997–98 (Saskatchewan Coalition for Social Justice 1997: i–ii) clearly lays out the following objectives, which aim to influence government policy immediately and to build support for a more progressive economic and social policy in the longer term: 1. To provide a means by which the people of Saskatchewan can have input into significant public policy decisions to ensure that the interests of the majority and those with less influence in our society are being served. 2. To develop a consensus approach to budget-making among progressive organizations and individuals and to use the alternative budget process to build links between various communities (e.g., labour, environment, aboriginal) in order to develop a broad consensus on social and economic alternatives.

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3. To develop and prepare alternative budget documents which can be used to provide the public with choices and alternatives to those of the current government. 4. To help mobilize and educate for an economic policy agenda which promotes the interests of working people and the less affluent in society. These objectives also spell out the cooperative and consensual nature of the process by which alternative budgeting will be conducted. Objectives can have a big impact on the form of the finished product and on how the message is disseminated. If the objective is to use the budget to build a popular base across the country, then the product must be brief, accessible, readable and eye-catching. There has to be enough seriousness in the document to command respect and support but not so much that people find the budget too forbidding. Those involved in the exercise disseminate it through church groups, trade union locals, student and women’s organizations and the like with as much face-to-face contact as possible. If, on the other hand, the objective is to lobby the establishment, including the national media, as do the Fraser Institute and the C.D. Howe Institute, then a more polished technical product may be needed. The emphasis will be on press conferences and on small meetings with influential people in government, the opposition and the media. The Alternative Federal Budget is a very sensitive political exercise, in part because different participants have different objectives. In such cases, it has been possible to combine objectives and to tailor different versions of the document to different purposes, but some friction has inevitably persisted on where best to focus scarce financial and personnel resources. Second, it is useful to agree up front on the principles upon which the exercise will be built. These can be the very principles that brought the group together in the first place if the formation of the group predates the budgeting exercise. In the case of Cho!ces, the principles upon which it was founded were thrashed out at the very beginning and the subsequent foray into alternative budgeting simply applied those principles. Otherwise, as in the case of the Alternative Federal Budget, time should be spent formulating such principles so that work on the budget and the product itself can be guided by them. It is important to achieve the utmost consistency between the principles guiding budget content and those guiding the budget exercise itself. Thus, if the budget is to be built on gender equality, the very process of budgeting should

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also be based on gender equality so that this becomes a measuring rod of the appropriateness of how things are done and not just of what is proposed in the final document. Again, the Saskatchewan Alternative Budget of Choice (Saskatchewan Coalition for Social Justice 1997: i–ii) lays out very clearly guiding principles: 1. Economic policy should be committed to full employment. 2. The eradication of poverty should be a major priority of economic policy. 3. Policies should provide for a more equitable distribution of income and wealth in our society and promote gender equity. 4. Policies must promote environmental protection and improvement. 5. Policies must acknowledge and promote the crucial role of public services and social programs in the province. 6. Economic policies should protect and strengthen the rights of working people, both inside and outside the collective bargaining framework. 7. Community based economic development should be a priority of the provincial government. Balancing Politics and Technical Concerns Related to the concept of objectives is that of the balance between the technical aspects and the political aspects of participatory or alternative budgets. If the exercise is to build popular support for political positions expressed through the budget, the balance should clearly come down on the political side. A powerful political message backed up by a reasonably solid technical analysis is preferable to an esoteric, detailed, technical budget with an obscure or weak political message. Preoccupation with the technical may also limit popular participation by turning off people who might otherwise become involved. Some of the technical analysis, such as that dealing with macroeconomics1 —e.g., spending relative to GDP or debt-servicing growth, and tax revenue forecasting—might more easily be done by people with some knowledge of budgeting, economics and finance, but experience has shown that finding such people is not a problem. They may suggest plausible alternative technical frameworks (different assumptions about overall spending, revenue increases or decreases and levels of deficit or

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surplus and, therefore, different assumptions about the level of debt), inviting discussion of the political implications of one technical framework versus another, and non-technicians usually have much to say about this. The difficult technical aspects of budgeting, and by far the more interesting, have to do with the details of government programs. The best people to advise on this are those most intimately affected. Social assistance spending and the rules governing it are enormously complicated. Some professionals, such as social workers and legal aid lawyers, are on top of them, but the people who rely on social assistance payments are equally familiar with the twists and turns involved. They should be the ones to advise on the technical aspects of proposed reforms in this area. To reiterate, the basic premise of alternative, participatory budgeting is that ordinary people can understand and can contribute to much that is considered too technical for them. Regardless of who puts together the necessary technical details of proposals, they must not allow such details to obscure the underlying political message about the need for reform and its general direction. If alternative budgets are too technical or their political message too weak, they will be diminished as participatory exercises and will generate less support for the end-product. Nevertheless, it is possible to achieve both technical respectability and a high level of popular input and support. Participants must take ownership of as much of the technical matter as possible and integrate it into their own ongoing political campaigns. A budget can be based on a sound technical foundation without being technical in the way it is presented and without intimidating or boring people. The trick is to involve as many people as possible in coming to grips with the details of programming and then present the recommendations in a lively and provocative fashion that has wide appeal. Comprehensive alternative budgets need not make recommendations on all aspects of a government budget. They can reserve comment on items not considered politically important, provided sufficient funding is allowed for them if this is thought appropriate. Indeed, alternative budgets may be more effective if they concentrate on a limited number of important political themes, costing out alternative ways of doing things and incorporating them within the whole budget. Trying to get in too many details may be counterproductive by watering down the central message. For parts of the budget not covered by the detailed analysis, participants can simply lay down important operating principles and leave it at that. For example, if no detailed recommendations are to

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be made on the allocation of money for the agriculture budget, it may be enough to suggest that government spending should support a policy orientation that includes the promotion of farm ownership by young people, the use of organic methods, limits to corporate land holdings, and so on. In some situations, a comprehensive budget alternative may not be possible or desired. Proposals for cutting specific services, jobs or programs may be countered with alternative but less socially damaging cuts or alternative revenue measures that would obviate the cuts altogether. At the civic level, Cho!ces had some success doing exactly this before it had the time or the inclination to prepare full alternative civic budgets. Proposed cuts to wading pools, libraries, community health clinics, etc., were countered with a list of ways of raising the money needed. Some of these were so ludicrously simple and unobjectionable, such as charging a few extra cents on a round of golf, that it was politically difficult for the Winnipeg City Council to proceed with the cuts (see Chapter 7). Such an approach is not only much easier than comprehensive budgeting but in some circumstances it can be very effective. The limitations of this approach become evident, however, when across-the-board budget cuts become the order of the day. Putting the Numbers Together Comprehensive budgeting usually starts with an overview of what the government has been doing with its budget and a forecast of what future budget numbers would look like with no change in policy. At federal and provincial levels broad budget framework forecasts are available for at least two years into the future. Using these as a starting point, alternative budgets check revenue growth numbers by examining the latest forecasts of economic growth for the country or province as determined by the Bank of Canada, the Conference Board of Canada, banks and other private sector forecasters. For this purpose, one must know the growth rate of nominal GDP, i.e., the growth of income and output including inflation; this is what drives tax revenue growth. The Alternative Federal Budget uses a fiscal planning spreadsheet.2 Revenue growth is assumed, initially, to grow in line with nominal GDP and is adjusted for any indirect impact the AFB might have on economic growth. In the alternative budgets for Manitoba, the buoyancy of individual tax revenues (their relationship to provincial income) was calculated over a number of years and total revenue is forecasted by applying the findings to economic growth forecasts. Again, these growth

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forecasts are adjusted, where appropriate, for any effects on growth of the alternative budget itself (which would obviously not be accounted for in the base forecasts of banks and other agencies). At the provincial level, some estimate is then needed of transfers from the federal government. These are usually available from the federal department of finance, in preliminary form at least, but they can fluctuate greatly due to “prior years’ adjustments” (over- or underpayments in previous years), population shifts and changes in economic activity across the country, all of which are difficult to estimate. In an ideal setting, it would be helpful to be able to discuss federal estimates with provincial officials, but the willingness of officials to do this depends very much upon the politics of the situation. Having arrived at an independent estimate of revenues and having compared it with any official estimates, the next step is to determine what the bottom line should be: a budget surplus, a budget deficit or a balanced budget. This is the equivalent of deciding whether outstanding debt should be reduced, increased or left untouched, respectively. Next, any unavoidable commitments, such as interest payments on debt or contributions to pension funding, should be entered into the fiscal framework. At the federal level, estimates of debt-servicing costs are made available and are reasonably accurate, although the AFB always makes its own estimates too. At the provincial level, the exercise is quite tricky, first, because debt matures (is paid off) unevenly from year to year and, second, because much of the debt is often in foreign currencies and exchange rate fluctuations can significantly change debt-servicing costs overnight. The remaining item in the budget is program spending. Usually, separate groups or committees will be dealing with different aspects of program spending because each requires some familiarity with the specifics of programs. There may be a committee for health, antipoverty, education, the environment, and so on. Each meets separately, possibly after having been given rough guidelines on total expenditure growth, and then reports back with a policy position and programspending needs. Normally, the committees are expected to cut spending in some areas of government activity, and to raise it in others, in line with the different policy priorities between the government and those preparing the alternative budget. The committees then meet together to review these spending “requests,” agree on a total and determine its allocation among the committees or spending heads. If the total spending number fits into the fiscal framework using whatever bottom line has

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been agreed upon, then the budget balances. If it does not fit, then the bottom line has to be changed (i.e., by running a smaller surplus or a bigger deficit), the goal of balancing the budget must be abandoned or more revenue needs to be raised. Normally there is a separate committee working on taxation and other revenue-raising possibilities, and they can be asked how best to fill the revenue gap. There is no single way of putting the numbers together and one could start with any component of the budget. In reality, there is a lot of “to-ing and fro-ing,” revisiting items because other items have changed. Every time some spending items are increased, others have to be reduced, revenue has to be raised or the bottom line has to change. Using a spreadsheet ensures that the size of necessary adjustments becomes readily apparent when one item changes. Usually, at least three schedules must be drawn up for the budget exercise. The first is the overall framework, usually for one, two or three years. This is a summary statement of the budget. Under the budget one would normally show assumptions about GDP growth and the effect of the budget on outstanding debt and on the debt-to-GDP ratio. Other important ratios may also be shown in this framework, such as debtservicing, program spending and total revenues as a percent of GDP. These are helpful in showing people where alternative budgets are leading over time. There is no science in such ratios but if the tax-, debtor debt-servicing-to-GDP ratios were spiralling upwards over time, this might be a cause for concern. Similarly, if program spending as a percent of GDP was falling steadily over time, one would need to ask why and with what implications for services. A second statement usually lays out the details of program spending, with their growth rates relative to the previous year. The third statement lists revenues to be raised. These last two statements contain the details of how the alternative budget differs from the official one. Given uncertainty about the accuracy of forecasts and the lack of information available to those making alternative budgets, especially at the provincial level, it may be wise to say what action the budget might take if reality turned out to be different from the estimates. Thus, a note could be added to the effect that if, for instance, debt-servicing costs turn out to be higher than forecast, the alternative budget would deal with this by raising certain taxes or cutting back on certain expenditures. Likewise, if revenue raised exceeds expectations, the budget might indicate how the difference could be used, e.g., by lowering certain taxes, spending more in some areas or adjusting debt by running a lower

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deficit or a higher surplus. Such statements provide a comfort level for those preparing alternative budgets and act as a shield against potential criticism about the accuracy of forecasts. Access to Information An important factor limiting the degree of technical sophistication of alternative budgets is access to information. Cho!ces has found the provincial level notoriously unhelpful in this respect. Indeed, politically appointed bureaucrats consistently hide information that should be freely available (e.g., the level of debt servicing actually incurred in a particular year). Other information that would be useful to have but is difficult to get includes the extent to which the forecasts of revenue and spending in the current year’s official budget are actually being met. Quarterly reports are published but with a timelag, and the many adjustments made to them towards the end of the fiscal year are not made public until after year-end. The latest estimates of federal transfers to the province are also important but are normally not made public. For some important purposes, information can be requested under freedom of information legislation; this can take time and money, however, and usually in volunteer projects of this kind both are scarce. Still, if alternative budgeting is to be an annual event, this avenue may be a worthwhile consideration. At the civic level, information often may be more easily available as budgets frequently contain details of the services upon which money will be spent: this is called program or object budgeting. Even where this is the case, however, some important information, such as details of contracts and partnership arrangements with the private sector may not be forthcoming and may even be exempted from freedom of information legislation under the spurious excuse of protecting the competitiveness of the private company involved. This is the case with the Charleswood Bridge project in Winnipeg, in which a private sector partner built, financed and is now leasing the bridge to the city at what appears to be an outrageous cost of borrowing to finance the project (De Luca 1997). Whatever the cause of the problem, however, lack of information need not prevent alternative budget participants from taking a powerful political position on specific items. Often, honest best estimates can be made and a note attached explaining why this was necessary. This puts the onus on the government to rectify any false impression created by making available information that should have been public in the first

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place. Should this be difficult or undesirable, it may be preferable to put no figure in the budget for the relevant item but simply to make the point forcefully in the accompanying text. Getting the Word Out Many supporters of participatory or alternative budgets have little interest in the technical work involved in preparing them. Because budgeting is people intensive and time consuming, however, there are many, equally important ways for these people to assist in the project: organizing meetings, finding rooms, phoning people, helping with child care and transport, obtaining data and publications, converting the final document into something people may be interested in reading, running off copies and circulating them, preparing press releases and overheads, contacting the press and liaising with groups that participate in or support the exercise. Somebody also has to manage the many tensions that inevitably arise when a complicated project based on common principles involves many organizations and individuals with different views, needs and political perspectives. Most work is voluntary, but expenses such as paper, photocopying and postage demand funding and fundraising. These less glamorous but essential jobs need doing, and people will come forward to accomplish them if the process is a positive experience, if their contributions are recognized and if the end-product is something to be proud of. Involvement in the preparation of alternative budgets can be very rewarding and enlightening for volunteers, whatever their role and responsibility in the exercise. It raises one’s level of awareness of what is happening in the fiscal arena, what the issues are and what might be done better. The interaction of technical experts with non-specialists can be mutually beneficial if each listens carefully to the other. Internal discussions about budget content brings home the need for specialists to be able to communicate with ordinary members of the public, to listen to them and to learn from them. As an academic, having one’s material subjected to criticism by a volunteer group and edited for publication by a professional journalist can be a humbling experience but a necessary one in any successful alternative budget exercise. Much of the fetching and carrying involved in alternative budgets occurs during the release of the budget. This is a crucial phase of the exercise for the budget must reach as many people as possible. To achieve maximum exposure in the mainstream media it is preferable to release the budget before the government does its version. On one hand,

Making Alternative Budgets / 67

this is risky. A lot more of the relevant information needed to prepare an alternative budget is available after the government budget is released. On the other hand, waiting for relevant data means being late off the mark, getting less press interest and, obviously, less immediate influence on the government budget if indeed that is an objective of the exercise. At the provincial level, Cho!ces has found that releasing the alternative budget a day or two before the government budget release obtains best results. It then becomes an accepted part of the pre-budget debate without compromising a goal of immediate impact. Indeed, no one in Cho!ces seriously believed the alternative budget would immediately influence the type of conservative policies being pursued by the Manitoba government of Gary Filmon in the 1990s, so nothing was lost. After years of neglect by some of the main media outlets in Manitoba, the Budget of Cho!ce critiques of government fiscal positions grudgingly have been accepted as fair and accurate, and the alternatives have been acknowledged as coherent and consistent. Sometimes it is helpful to present the budget to supportive trade unions and social partners before the release day to strengthen support and to catch any potential problems. Unfortunately, this usually means making changes at the very last minute but that may be unavoidable if the coalition nature of the exercise is to be preserved. One of the annoyances volunteer groups have to put up with is organizations with large professional research capabilities sitting on the sidelines, offering little or no assistance but being quick to complain and criticize if they don’t get exactly what they want out of an alternative budget. The venue for the release of the budget is crucial. At the provincial level, Cho!ces aims for a venue that highlights a major theme in its budget, such as an Aboriginal drop-in centre in the inner city, the house of a senior suffering badly from government cuts in the pharmacare program or the hall of a church committed to the pursuit of social justice. Community activists from a broad spectrum of social life in the community are invited to lend support and credibility, and the press are notified at least twice. Cho!ces does not release the document to any media prior to the release day: doing so would alienate remaining members of the press and compromise the mystique and surprise of the budget. During the presentation, use graphics and props to get the message across. When choosing presenters, aim for gender balance and show as many fresh faces as possible from year to year in order to demonstrate the reach of the exercise and to give the media someone new to interview. The media release should list a number of contact

68 / Alternative Budgets

persons to ease the pressure on selected individuals for radio and television appearances and, again, to indicate the depth of resources involved in the exercise. Many alternative budgets include both a detailed formal version and a popular version of the budget. The popular version can be a brief, eyecatching brochure that highlights the main message of the budget or a tabloid newspaper, which allows for more extensive coverage and the use of cartoons, photos and graphics. Both should attract and hold the reader’s attention and be persuasive. Content, layout and design are all important and ideally are tasks for a professional, even if on a voluntary basis. Cho!ces had access to such expertise and this played an important role in the effectiveness of the budget campaigns. Humour and street theatre guarantee attention for any budget launch, but do ensure that the serious underlying message of the budget is not overwhelmed in the process. Confronting the premier, mayor, prime minister or minister of finance with an alternative budget, with the press in tow, always garners coverage. When Mayor Susan Thompson was cutting jobs and services in Winnipeg, Cho!ces used twenty-foot high street puppets, one entitled “Suzie Scissor Hands,” to promote its civic budget message. Ultimately, however, it is the less sensational, less obvious, day-to-day hard work of preparing a sensible, coherent alternative budget and getting it out steadily to interested people and groups— and then defending it against attack—that builds credibility and a strong core group of political support. Working with the Media Public opinion is shaped by corporate Canada through the thirty-second sound bite. The constant repetition in the corporate-controlled media of simplistic messages, presented as self-evident truths, insists that the only way to proceed is the way outlined. Usually this means less government, fewer government services, lower taxes and reduced compensation and job security for public sector workers. This reality presents a number of problems for preparing and propagating alternative budgets. The first problem is that the mainstream media cannot be used in setting the groundwork for alternative budget exercises. They do not share a vision, and the media are not in the habit of encouraging indepth debate around the issues. Without a suitable media outlet to support this kind of creativity—to publicize the exercise, launch discussions around key issues, set up questionnaires and receive opinions from people based on preliminary analysis of the problems—alternative budget

Making Alternative Budgets / 69

organizers must rely upon direct mailings or word of mouth to reach potential volunteers. This immediately marginalizes the exercise somewhat. But it is on the propagation side that the problem of the corporate media is most acute. It is very difficult for progressive organizations to get their message across in any kind of detail and over any length of time. While the media offer almost guaranteed access to groups such as the Fraser Institute, the C.D. Howe Institute, the research departments of major banks and related financial institutions, the National Council on Business Issues and the Canadian Taxpayers Federation, they are less accommodating to left-wing think tanks, trade unions and other organizations of ordinary people. Access is often denied by the simple expedient of not sending a reporter to cover press conferences. Sometimes reporters do show up, stories are filed and are then vetoed by editors. But with organization and persistence, including meeting with editorial boards to complain about bias, about which there is some sensitivity, some access can be achieved. Then the problem often becomes one of receiving short shrift or of being trivialized. The CCPA, for instance, will be described as “left-leaning” or “trade union-supported”—a less-thansubtle code for saying “Don’t take this too seriously.” When has the Fraser Institute received similar treatment? How often is it described as being funded by business to act as a lapdog for their interests? How often is it described as being “ultra conservative”? Even then, with persistence and perseverance, progress can be made. In 1999 the organizers of the AFB secured a meeting with the editorial board of the Ottawa Citizen, whose editor at that time was William Watson, a very conservative economist at McGill University. After a discussion of a couple of hours or more, the newspaper published a twopage review of the AFB with a measured analysis and critique. CBC radio and television have also devoted time to presenting the AFB and allowing discussion around it. The Globe and Mail, the National Post and commercial television and radio have been less receptive and have never taken the exercise seriously, however, and this limits its exposure nationally. In Winnipeg, it took years for the Cho!ces’ provincial budgets to be accepted as a legitimate part of the fiscal debate. For many years Winnipeg Free Press columnist Frances Russell was one of the few journalists who gave the project a fair-minded and respectful treatment. After more than ten years, coverage still remains spotty, brief and inconsistent. If the media are looking for a reaction to a story on fiscal policy, they will automatically phone a right-wing academic, the Canadian Taxpayers

70 / Alternative Budgets

Federation (I’m a taxpayer and they do not represent me!), the chambers of commerce or other representatives of small or large business. Only occasionally will they seek out a view from the left, from Cho!ces or from the CCPA. This does not mean that the mainstream media should be abandoned in these exercises but that they cannot be relied upon; other means of reaching out to people must be built into the process. This is not seen to be a problem by those who view alternative budgets as an essential part of building a grassroots political movement, but it is by those who put more stock in using the budgets as a tool for lobbying governments for immediate changes in policy. As we have seen above, there is always a tension in alternative budget exercises between these two objectives, a tension made all the more acute when the exercises rely on funders who, like the labour movement, justify their spending by reference to its impact on decision making. When lobbying is the goal, creative ways of securing coverage in the mainstream media are essential, and this means differentiating the budget product every year to maintain what little interest there is and finding new and imaginative ways of presenting the product, varying the venue or using theatre. A major danger in attempting to woo the corporate media is the tendency to emphasize the technical side of the exercise to the detriment of the political. Members of the media want to be assured that they are talking to “experts,” and they are very hung up on the academic or technical credentials of those commenting on budgets. The temptation is to play up this aspect of the alternative budget exercise to the neglect of the broader political dimension of popular participation. Putting together the numbers and writing up a polished policy piece can easily take precedence over the more difficult and more time-consuming process of building popular participation in the exercise. Popular Education The attention of the media never lasts for much more than a day, essential though it may be. Reaching grassroots organizations is much more important and time-consuming. It entails shipping out large numbers of the popular version of the budget and a more limited number of the detailed version, to union locals, church groups, women’s groups, aboriginal organizations, etc., throughout the province. Reaching the grass roots also means having people ready, willing and able to visit these groups to make presentations and defend the alternative budget. In Manitoba, these visits have been combined with

Making Alternative Budgets / 71

budget schools, which offer a basic, systematic introduction to budgets, using the alternative budget as a vehicle for education and political mobilization (see Cho!ces and CCPA 1998). Indeed, the practice of holding AFB budget schools has been adopted all over the country, and their design varies according to the expressed needs of the audience who help plan them. Participants are drawn from all walks of life and the schools are sponsored by local trade unions, party locals, women’s groups and, most often, social justice and anti-poverty groups. Some schools have focused entirely on women’s issues in budgeting and the participants have all been women. Some schools have dealt with civic budgets, others with provincial, but most deal with the federal budget. Instruction time can be as short as an hour or as long as several days. It usually involves a preliminary evaluation of the fiscal policy of the government in question and an assessment of the main problem areas. Participants then examine the budget in detail to learn how it is put together, what the main drivers are on the revenue and spending sides, what the surplus/deficit position is and what the debt and debt servicing looks like. Discussion identifies alternative spending priorities and possible ways of funding them, from new or increased revenues, reallocation of spending or changes in the approach to surpluses or deficits. Participants may also discuss sources of information needed to budget, media strategies and political mobilization around the budget. The schools have proven to be very effective in launching alternative budget exercises and in demystifying budgets for many people. Above all, they build a core of support for the AFB, providing an important outlet for presentation of the finished budget and a source of ideas for future ones. Alternative budget presentations should also be available to the government and other political parties. Cho!ces has always offered to explain its Budget of Cho!ce, but when the Tories were in power in Manitoba, only the NDP and Liberal opposition parties accepted the offer. Then premier, Gary Filmon, believed that it was “not worth the paper it is printed on,” which suggests, at the very least, that he had indeed taken the time to read it (personal communication with the author). Follow-up Ultimately, however, few participants in these exercises would be content merely with deriving personal growth or satisfaction from their involvement. The vast majority want them to achieve a political impact. It is important, therefore, to plan a review and assessment of each

72 / Alternative Budgets

exercise—what worked, what didn’t, where were the weaknesses, what might be done differently in future? Part of this review should assess political impact—what did the exercise accomplished in political terms, compared with the objectives at the outset? If the objective was to shift government policy in key areas, did the budget do this? If the objective was to build a longer-term movement against current government policies, did the budget exercise contribute to this and how? Which groups participated in its preparation; who was missing; where was the alternative budget launched; who attended the launch; who requested briefings; where was it circulated; what were the reactions? If the objective was to hit the media, did it work? How many newspapers, radio stations and television outlets carried it? With what kind of reception? Who were the audiences? This kind of review was carried out routinely as part of the AFB exercise, with the professional media people attached to the CCPA, participating trade unions and NGOs playing a lead role. The thoroughness of the review varied from year to year but each new exercise started with a review of the previous year’s performance. In the alternative provincial budget exercises similar reviews were undertaken but, due to resource constraints, were necessarily more limited. As experience is gained, the preparation of alternative budgets becomes easier. Each year builds on the last in terms of policies, issues, spreadsheet calculations, media contacts, mailing lists, volunteers, etc. The down side of this is that the initial enthusiasm for building an entirely new budget may be difficult to sustain, and involving people mainly to review what they have prepared previously may become progressively less attractive to them. Periodic, thorough reviews of policy positions and ongoing recruitment of new blood, especially youths of high school and college age, re-energize the exercise and improve the product and its social relevance. Shifting responsibilities for preparing sections of the budget is also a good idea, as positions do become entrenched and fossilized. There is no “correct” way of preparing or disseminating alternative budgets. Much will depend upon the purpose of the exercise, the time and resources available and the audience being targeted. Canada now boasts a good deal of experienced budget organizers and there is much the various parties involved can learn from each other. The experiences of Cho!ces and the CCPA need not be a template for all those undertaking similar exercises, but it is hoped that documenting them and reflecting upon them here in general terms will prove useful nonetheless

Making Alternative Budgets / 73

Notes 1.

2.

Macroeconomics deals with large aggregate issues in the economy, such as output, employment, government budgets and inflation, while microeconomics deals with allocation and distribution issues at the level of the firm and the household. Details of this spreadsheet are available in Cho!ces and CCPA 1998.

5. THE ALTERNATIVE FEDERAL BUDGET IN CANADA The first Alternative Federal Budget (AFB) was released in 1995 and the project has been an annual event ever since.1 It is a complete budget within a coherent macroeconomic framework, and it is presented as a progressive alternative to budgets of the federal government, which in recent years have been extremely conservative and damaging to many Canadians. It is produced by representatives of some fifty trade unions and social action groups across the country. The coordinators are the Canadian Centre for Policy Alternatives (CCPA), an Ottawa-based, national, progressive think tank that has close links with the labour movement, and Cho!ces of Winnipeg. The motivation both for the exercise and for participants who willingly undertook the numerous compromises necessary to produce such a budget was to counter the unprecedented attack on public spending, public sector employment and public services launched by the newly elected Liberal government in its 1994/95 budget and to develop an alternative progressive economic agenda that could claim national credibility. Context Table 5.1 shows the huge cuts in federal program spending since 1993– 94. Initially, the Liberals announced a deficit-to-GDP target of 3 percent in the 1994 budget (the first step towards an eventual balanced budget) and cuts to program spending that would have reached some $3.3 billion by 1996–97. It was these cuts that the first AFB was attempting to forestall. In the 1995 budget, the government went much further and announced the need for structural reform (i.e., reform of how government operates), including “deep cuts in the level of federal program spending— not simply lower spending growth, but a substantial reduction in actual dollars spent” (Department of Finance 1995a: 6; original emphasis). They announced sharp cuts in program spending, averaging 18 percent over

74

The Alternative Federal Budget in Canada / 75

Table 5.1 The Federal Budget and Federal Debt, 1993/1994–1999/2000 ($ billion) 1993/94 1994/95

1995/96

1996/97

123.3 118.7 4.6

130.3 112.0 18.3

135.5 109.0 26.5

153.2 108.8 44.4

156.5 112.1 44.4

156.7 111.2 45.5

38.0

42.0

46.9

45.5

40.9

41.4

42.5

Budget Balance

-42.0

-37.4

-28.6

-19.0

3.5

3.0

3.0

Net Public Debt**

508.2

545.6

574.2

593.2

589.7

586.7

583.7

16.3 16.8 5.3 -5.9 71.1

16.5 15.9 5.6 -5.0 72.6

16.8 14.4 6.0 -3.7 73.7

17.0 13.7 5.7 -2.4 74.6

17.7 12.6 4.7 0.4 68.1

17.6 12.6 4.7 0.3 65.3

17.2 12.2 4.7 0.3 63.7

714.3

751.3

779.4

795.6

866.5

887.7

910.0

Budgetary Revenues 116.0 Program Spending 120.0 Operating Balance -4.0 Public Debt Charges

Percentage of GDP Budgetary Revenues Program Spending Public Debt Charges Budgetary Balance Net Public Debt GDP

1997/98 1998/99 1999/2000*

Source: Adapted from Department of Finance 1997a and 1999. Adjusted to show $3 billion contingency in last three years as surplus. * Budget only. AFB anticipated government surplus closer to $7–$9 billion, and was correct in this prediction. ** Official Debt numbers to 1997: Estimated on same base thereafter.

three years but reaching as high as 49 percent in spending on regional agencies, 35 percent on human resources, 32 percent on the environment and 21 percent on foreign aid. Even more ominously, the Liberals announced that federal transfers to the provinces for support of social programs would be reformed and, in the process, slashed by over $7 billion. Severe cutbacks to the unemployment insurance scheme were also announced, as was the means testing of Old Age Security (OAS) payments. These and other measures would reduce program spending by over $10 billion in two years to meet the 3 percent deficit/GDP target by 1996–97. They constituted the biggest proportionate cutbacks in government spending of any western nation in recent history. A further $5.5 billion would be cut in the ensuing two years, reducing program spending from $118 billion or 15.9 percent of GDP to some $103 billion or 11.9 percent of GDP by 1998–99 (Department of Finance 1997a: 44).

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The Liberal government had no electoral mandate for this fiscal bloodletting. On the contrary, it had been elected on a platform of economic revitalization, job creation and maintenance of social programs. The cuts were portrayed as being inevitable, as if the government had no other choice. The AFB was designed to challenge this myth or, as Bruce Campbell, co-coordinator of the project has put it, “to counter the corrosive orthodoxy of inevitability” (Campbell 1996: 13). The Structure of the Federal Budget and the Fiscal Situation Since 1994–95 Table 5.1 indicates that in 1994–95 the federal government was running a small operating surplus, i.e., it was spending $4.6 billion less on programs than it was raising in revenues. Once the $42 billion cost of servicing debt was taken into account, however, it was running a deficit of $37.5 billion, which equalled 5 percent of GDP. Total federal government debt outstanding was almost $546 billion, the equivalent of 73 percent of GDP, and it was growing annually by the amount of the deficit. The absolute and relative burdens of the deficit and the debt provided the government with its rationale for slashing government spending from 1994 onwards. The Liberals argued that these high debt/deficit figures were unsustainable. Large operating surpluses were needed, they said, to prevent the debt-to-GDP ratio from rising exponentially, which it would do as long as the rate of interest on debt exceeded the growth of GDP, as had been the case since the early 1980s (Department of Finance 1995b: 29). The way to achieve those surpluses was to cut program spending. Doing so, they argued, would bring down the debt-to-GDP and deficit-to-GDP ratios, reduce interest rates, stimulate economic growth and protect the future of Canada’s social programs. In this impressive display of doublespeak, the Liberal government argued that the attack on Canada’s social programs was necessary in order to protect them. Table 5.2 shows the breakdown of government revenue from 1994– 95 to 1999–2000. There are a number of key elements in the structure of federal revenues. First, personal income tax is by far the most important source of revenue, accounting for over 45 percent of the total in 1994– 95 and 48 percent in 1999–2000. Second, unemployment insurance contributions are treated as current revenues of the federal government and are another important revenue source. Third, corporate income tax brings in only about 13 percent of total revenue, while the Goods and Services Tax (GST) accounts for about 13 percent of total revenue (about

The Alternative Federal Budget in Canada / 77

Table 5.2. The Structure of Federal Revenue, 1993–1999 ($ billion) 1993/94 51.4

1997/98 70.8

9.4

22.5

20.9

Employment Insurance Premiums

18.2

18.8

18.3

Goods and Services Tax

15.7

19.5

21.6

Other

21.3

21.6

20.9

116.0

153.2

156.7

Personal Income Tax Corporate Income Tax

Total Budgetary Revenues

1999/2000* 75.0

Source: Department of Finance 1996, 1999.

$22 billion) in 1999–2000. Finally, total revenue as a share of GDP rose steadily in the 1990s, from 16.4 percent to a peak of 17.7 percent before tax cuts were announced, suggesting that the tax structure is quite “income elastic.” The federal government estimates that a 1 percent increase in real GDP improves the budget balance (by reducing the deficit or increasing the surplus) by $1.3 billion in the first year and by $1.7 billion by year four (Department of Finance 1997: 135–36). On the expenditure side, Table 5.3 indicates that elderly benefits are the single largest expenditure, consisting of the (OAS) and the Guaranteed Income Supplement (GIS).2 These programs have been important in helping dramatically reduce poverty among the elderly in the last generation, from 27 percent for men and 38 percent for women in 1980 to about 12 percent for men and 24 percent for women in 1996 (National Council of Welfare 1998). This poverty rate is still unacceptably high, especially for women. In 1996, the government announced plans to replace the OAS, GIS and the aged and pension tax credits with a single income-tested Seniors’ Benefit, based on family income. This was supposed to “slow the growth in costs of public pensions by reducing benefits for high-income seniors” (Department of Finance 1996: 65), but the fear was that it might well reduce the income of older women who have little or no personal income. The second major expenditure to persons is unemployment insurance benefits, euphemistically renamed “Employment Insurance” (EI) benefits in 1996. The first thing to note about these is that they are considerably less than the EI income on the revenue side of the budget, by $4.1 billion in 1994–95 and by an estimated $7.1 billion in 1998–99. In other words, the government is making a surplus on the EI account,

78 / Alternative Budgets

Table 5.3. The Structure of Federal Expenditure, 1994/95 and 1997/98 ($ billion)

Major Transfers to Persons Elderly Benefits UI Benefits Major Transfers to Other Governments EPF/CAP -CHST Equalization Transfers to Territories Other Program Spending Defence Foreign Aid Veterans Disabilities First Nations Agriculture Industry Environment Transport Natural Resources Fisheries Immigration Human and Training Justice Heritage and Culture General Govt. and Other Total Program

1994/95

1997/98

20.5 14.8

22.2 11.8

19.3 8.5 1.2

12.6 8.9 1.1

10.7 2.9 2.0 0.2 3.8 2.1 3.5 0.7 2.8 1.4 0.8 0.7 2.5 3.4 2.9 14.0 118.7

8.9 2.2 1.9 0.2 4.3 1.5 3.8 0.5 1.7 0.7 1.1 0.7 2.3 3.3 2.5 16.6 108.8

Source: Department of Finance and Cho!ces

even though the contributions by workers and employers are for insurance purposes. By the end of 2002 it is estimated that the cumulated surplus on the books of the EI Fund will reach $43 billion; but this is a fiction since the underlying cash has been used by the government in deficit reduction. The second point to note is that EI benefits have been cut back drastically, first by the former Tory government and since by the Liberals. In 1989 over 81 percent of the unemployed were receiving benefits. By 1993 that had fallen to 73 percent and by 1999 to a catastrophically low level of around 36 percent (CCPA and Cho!ces 1999: 11). For women the coverage was even lower, at 31 percent. The post 1994 cutbacks under the Liberals have reduced benefit periods and benefit rates and increased entrance requirements. They have been particularly hard on workers in the Atlantic and northern regions of

The Alternative Federal Budget in Canada / 79

Canada and on seasonal and part-time workers, many of whom are women and/or youth. The third major item of spending is federal-provincial transfers. Equalization payments are made to provinces with a less-than-average tax capacity and are written into the constitution. Thus far, these remain unchanged by the Liberals, although the right-wing Fraser Institute and the C.D. Howe Institute, together with their parliamentary mouthpiece, the Reform Party (now the Canadian Alliance), have argued for drastic reductions. The Canada Health and Social Transfer (CHST) was introduced in 1996–97 to replace the Canada Assistance Plan (CAP) and the Established Programs Financing (EPF). The CAP, a 50–50 cost-shared program between the provinces and the federal government, was designed to meet the costs of social assistance. It would rise as the unemployment rate rose and fell as economic conditions improved and as the number of people on social assistance and related programs fell. EPF provided block grants for health (subject to the requirements of the Canada Health Act) and for post-secondary education. The new CHST rolled all of these into one grant; abolished the cost-sharing, anti-cyclical nature of transfers for those on social assistance; and cut the total cash involved dramatically.3 These cuts provide the backdrop to the Alternative Federal Budget exercise. The Objectives, Principles and Organizational Structure of the AFB AFBs have been prepared every year since 1995. Their content has changed to meet the changing economic, social and political environment and to take advantage of new skills and insights available to the exercise as word of its existence and support for it has spread. The basic objectives and principles of the exercise have remained constant, however. Though rarely stated explicitly, the objectives have always been to draw together a broad spectrum of social activists across the country to develop a coherent, progressive economic and social policy for Canada and to demonstrate its feasibility in terms of affordability by integrating it into a complete, multi-year budget framework. All participants have shared this basic objective. Beyond that, some have sought to lobby the Liberals, especially what is left of the progressive wing of that party, to offset somewhat the influence of Bay Street (the big financial businesses) in the cabinet, which many saw as being exercised through former Minister of Finance Paul Martin. Others have seen the AFB as a tool for widening the parameters of the debate on economic and social policy in

80 / Alternative Budgets

the country, especially up to the 1997 election when the presence in the House of the social democratic party, the New Democratic Party (NDP), was negligible. Influencing the platform of the NDP has always been an objective of some participants. Finally, some have relied upon the AFB to mobilize people across the country for grassroots political activism. The basic principles of the AFB include: • • • • • • • •

full employment; a more equitable distribution of income; the eradication of poverty; economic equality between men and women; the protection of civil, political, economic, social and cultural rights; improvement in the environment; the strengthening of social programs and public services; and the creation of a more just, sustainable and peaceful world order.

Any organization subscribing to these principles is entitled to a seat on the AFB national steering committee, which meets in Ottawa and is the final arbiter of what actually goes in the budget. A Winnipeg working group of Cho!ces members operated, until 1999, on more or less parallel lines. Cho!ces and CCPA each provide a coordinator for the AFB. This is a unique structure for a national exercise; rarely does a regional organization in Canada operate in tandem with a national one and have so much input into national decisions. Until 1999, the policy content was developed by a body of policy groups composed of interested people from across the country. Their proposals were fed to the steering committee and the Winnipeg working group. Local participation across the rest of the country is secured through budget schools (most of which are organized out of Winnipeg), seminars, workshops and press conferences. Cho!ces and the CCPA together finalize the alternative budget document and the CCPA publishes it and arranges for its translation into French. The budget is based on a larger “framework document,” which outlines policy issues in some depth, and on a number of technical papers, some of which are thrashed out in special workshops. In 1997 and 1998 detailed background papers were published as The Alternative Budget Papers (CCPA and Cho!ces 1997, 1998). Cho!ces always prepares the popular version of the budget, and often the Canadian Labour Congress, which helps fund the exercise, circulates them across the country. The budget is launched simultaneously in Ottawa and in centres

The Alternative Federal Budget in Canada / 81

across the country a week or two before the government’s budget. In 1999, forty centres were involved in press conferences on Alternative Federal Budget Day. Usually, the coordinators and others visit the minister of finance before his budget day to brief him on the AFB. Normally, he is very cordial and polite, says nice things, argues his point of view and invites us back. In 1995 Paul Martin wrote a 17-page response to the AFB, and in 1999 he attended a meeting of the full steering committee to discuss our reactions to his own budget. As with many provincial alternative budgets, briefings on the AFB are offered to all major political parties. There Is, in Fact, an Alternative: The Macroeconomic Framework of the AFB The main distinguishing feature of the AFB in its initial years was its refusal to accept the government’s arguments about the direction of causation between deficits and interest rates. The government argued that high rates of government spending raised the deficit, which then causes interest rates to rise. The AFB argued that, through the Bank of Canada, the government had been pursuing a policy of restraining wage growth by maintaining very high levels of real interest rates and, therefore, of unemployment. This, in turn, caused the fiscal deficit to rise. The deficit rose because as unemployment rose, more people were unable to pay taxes, which meant that government revenues were lower than they would otherwise be. At the same time, a high level of unemployment puts pressure on the expenditure side of the federal budget by raising unemployment insurance benefits and social assistance payments (through CAP). Finally, high interest rates raised the cost of borrowing by government and, hence, raised the debt-servicing charges in the budget. Each of these three pressures contributed to a growing deficit. The AFB concluded that reducing interest rates was crucial, not only for putting Canadians back to work but also for restoring fiscal balance. The AFB directed the Bank of Canada to lower real interest rates (interest rates adjusted for inflation) by increasing the money supply, a position advocated by a number of reputable Canadian and international economists (see Osberg and Fortin 1996). The AFB continues to see lower interest rates as being essential for raising and maintaining demand for homes, consumer durables and investment. The increased growth in incomes and employment that results from spending on these items raises tax revenue and lowers government spending on the unem-

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Table 5.4 The 1999–2000 Federal Budget Compared with the $Billion

General Revenue Fund (Excluding UI) Revenue Program Spending Debt Service Total Spending Budget Balance Unemployment Insurance Fund Revenue Benefits and Other Payments UI Fund Balance Consolidated Budget Balance Revenue Expenditure Balance

AFB

Projected 1998/99

Martin 1999/2000

1999/2000

137.3 100.0 41.4 141.4 -4.1

138.4 97.8 42.5 140.3 -1.9

147.7 107.1 40.6 147.7 0.0

19.2 12.1 7.1

18.3 13.4 4.9

19.5 19.5 0.0

156.5 153.5 3.0

156.7 153.7 3.0

167.2 167.2 0.0

AFB

Sources: Department of Finance 1999 and CCPA/Cho!ces 1999.

ployed. Lower interest rates lower the government’s debt-servicing payments. In these ways, lower interest rates reduce the deficit (or, these days, raise the surplus) without the need for cutting social programs. Reduced interest rates would lead to a weaker Canadian dollar but this too would increase employment by raising demand for Canadian goods at home and abroad. The AFB also recommended a series of measures to underpin its easier monetary policy and to reduce Canada’s vulnerability to businesses shipping their capital overseas. These include: •







requiring the Bank of Canada to hold more federal government debt, so that the levels are closer to those held in the past; reintroducing reserve requirements for banks; promoting the sale of real-interest-rate bonds; requiring retirement plans to hold a minimum proportion of federal bonds to qualify for tax relief; gradually eliminating the allowable foreign investment quota on tax assisted pension plans (originally 20 percent); taxing the overseas earnings of insurance companies; introducing a surtax on Canadian interest earnings on overseas bonds; and

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promoting a tax on international financial transactions and requiring financial institutions to invest a minimum amount of their assets in community and small business economic development. (This tax is known as the Tobin Tax, and is named for its original proponent, economist James Tobin.)

All of these can be considered forms of capital control and were designed to reduce the ability of business to resist the AFB’s “made in Canada” monetary and fiscal policy. The first AFB (1995) adopted the government’s (and the European Community’s) deficit target of 3 percent of GDP by 1996–97. This controversial decision followed considerable discussion. It was accepted, first, because most participants felt that the deficit should be brought down and, second, because participants believed the exercise would have more credibility if it followed a target that had been set not just by the Canadian government, but also by the European Community (EC). In subsequent years, the EC’s target of a debt-to-GDP ratio of 60 percent, a target not yet adopted by the federal government, was also adopted by the AFB. The AFB has tended to reduce both the deficit-to-GDP ratio and the debt-to-GDP ratio faster than the government, even while maintaining and, increasingly in recent years, actually raising program spending in some areas. In earlier budgets, this more rapid reduction in relative debt loads was achieved by lower interest rates, which provided the stimulus for more rapid income and employment growth than had been forecast by the government. Recently interest rates indeed have fallen and some economic recovery has been experienced. The resulting increase in government tax revenues and reduced debt-servicing charges, accompanied by deep cuts in spending on government programs, have combined to abolish the federal deficit. Thus, the focus of both the federal budget and the AFB has shifted to a debate about how the “fiscal dividend” should be used. Should surpluses be run to actually reduce the outstanding debt? Should services be restored or should taxes be cut? The 1998 AFB “loudly and proudly [came] down in favour of allocating the fiscal dividend in its entirety to starting to rebuild the important and valuable public programs that have been so badly damaged by the budget cutting of the 1990s” (CCPA and Cho!ces 1998b: 14), a position that has been maintained. In other words, the AFB does not run budget surpluses so that they can be used to reduce outstanding debt as this would contribute to reducing the level of activity in the economy. Debt reduction in the AFB

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takes the form of a steadily declining debt-to-GDP ratio as GDP grows.4 Neither does it use surpluses to reduce taxes across the board, which has become the new rallying cry of the political right. Instead, the AFB uses the growth in revenues to restore valuable program spending while targeting tax cuts to the very poor and, essentially, maintaining a balanced budget. This unambiguous stance recognizes that “Canada has achieved a fiscal surplus at a very substantial cost in foregone growth and future growth potential (in addition to the large costs inflicted on the disadvantaged via cuts to social programs and public services)” (Jackson 1998: 257). While the federal government initially seemed undecided about the appropriate balance between debt reduction, tax cuts and spending increases, its 2000 and 2001 budgets adopted the political program of the right-wing Reform/Alliance by opting mainly for tax cuts that favoured the better-off (Loxley 2001). It also ploughed huge surpluses—which had been arrived at from conservatively estimating revenues—into debt reduction. Unlike the federal government budget, the AFB sets out very clear macroeconomic targets for reducing unemployment and poverty. For example, the overall net impact of the AFB for 1997 was estimated to be 930,000 additional jobs over two years, which would bring the unemployment rate down from over 9 percent to about 7 percent in 1998 and about 5 percent by the year 2000. Job creation would also reduce the rate of poverty from 18 percent to 15 percent by 1998-99, while other targeted anti-poverty measures would reduce the rate to below 12 percent by the year 2001. Similar targets were set in subsequent budgets. The AFB has been able to reach these targets by virtue of its expansionary economic policy. Early AFBs relied heavily on a combination of easier monetary policy, restoration of public spending, special employment creation initiatives and a tax policy that shifted funds from the rich to the poor, who tend to spend more. More recently, the focus has been on balanced budgets, which, relative to the government’s policies, represents significant fiscal expansion. The Expenditure Side of the AFB The key features of the expenditure side of the AFB are: • •

the strengthening and restructuring of social programs in a series of social investment funds; a significant job creation initiative;

The Alternative Federal Budget in Canada / 85





the maintenance of employment and spending in program areas at roughly their 1995 level, with provision for program innovation in a number of key areas; and spending cutbacks in areas deemed unproductive or wasteful.

Under the CHST, provinces are free to spend monies previously earmarked for health, social assistance and post-secondary education on any area of programming they wish; significant national standards are retained only in health. To counter the CHST, the AFB developed seven social investment funds in the areas of health, income security, child care, housing, retirement income, post-secondary education and unemployment insurance. Each of these has its own funding formula and national standards (with provision being made for negotiations on these with Quebec, i.e., acceptance of asymmetrical federalism), which guarantee a specified level and quality of service throughout the country in return for federal financial support. The National Health Care Fund is funded at the 1995–96 transfer level and would be adjusted in subsequent years by the average rate of growth of GDP over the previous three years; its guiding principles are universality, accessibility, portability, comprehensiveness and public administration. Provision is also made within the fund for greatly expanded expenditure on the health care needs of First Nations people, for a national drug plan (in partnership with the provinces) and for expanded funding of community health centres and children’s health. By 1999– 2000, the AFB planned to spend some $5 billion more on health than the Liberals did in 1998–99. In reality, the share of federal health spending in GDP rose from 0.84 percent to a mere 1.29 percent. The National Income Support Fund reinstates minimal, anti-cyclical income guarantees from 60 percent of the Statistics Canada low-income cut-off levels and rising to 75 percent over five years, with additional provision for special needs such as disability. To obtain funding, provinces must act on a number of fundamental principles: providing a basic income to all in need; introducing a fair, participatory, accountable and appealable process; rejecting workfare and “learnfare” programs; and maintaining residency requirements. This fund also provides for a significant increase in the benefit for all children living in poverty, doubling it in the first year alone (1999/2000). Accompanying the fund is a National Advance Child Maintenance Support System to enforce national collection of monies payable to custodial parents and their children.

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Table 5.5 The 1999–2000 Federal Budget Compared with the Program Spending Federal 1999/2000 $ million National Social Investment Funds 1. Health Care Fund 2. Post-secondary Education Fund 3. Income Support Fund 4. Child Care Fund 5. Retirement Income Fund 6. Housing Fund Equity Participation Foundation Veterans Pensions Equalization Transfers to Territories VRDP-Disabilities First Nations Common Security Agriculture Industry (inc. INFRA) Environment Transport Natural Resources Fisheries Immigration, etc. Human & Training (Ex. VRDP, student loans) Justice Heritage/Culture General Govt. Services & Other (net) Total Program Unemployment Insurance Fund Total Program and UI Spending

9,761 3,108 4,325 350 23,500 1,889 42,933 1,970 9,288 1,299 195 4,334 12,085 1,976 3,501 542 912 713 1,314 759 1,046 3,609 2,652 8,672 97,800 13,400 111,200

AFB

AFB

1999/2000 $ million

12,130 4,000 7,200 850 24,666 2,263 51,109 200 1,840 8,600 1,232 225 5,000 12,808 2,200 4,082 1,550 1,753 850 1,359 900 1,245 3,275 2,825 6,047 107,100 19,500 126,600

**CHST allocated among Health, P–S and Income Support in 1994–96 proportions. CHST Supplement to Health only. Source: CCPA and Cho!ces 1999–2002.

The Child Care Fund adds significant new monies to existing programs and lays down a series of principles, such as accessibility, quality and affordability. A national child care program is deemed essential by the AFB for “social justice, gender equality, poverty eradication and improving national economic performance” (CCPA and Cho!ces 1997a: 21). The Housing Fund helps strengthen job creation while

The Alternative Federal Budget in Canada / 87

widening access to co-op and social housing. The Retirement Income Fund strengthens seniors’ benefits, which have played such an important role in reducing poverty among the aged. Through the Retirement Income Fund, the AFB targets poor seniors while fully indexing all benefits to average wage levels. For this reason the AFB rejected the government’s plans for a single, incomes-tested seniors’ benefit. The Post-secondary Education Fund reinstates cuts to this sector introduced with the CHST and ties funding both to growth in GDP and to national standards formulated in a “Higher Education Act.” Student loans are to be replaced gradually by grants targeted initially at lowincome and single-parent students. Negotiations on funding formulae and levels, in future, will be entrusted to a newly created advisory council on post-secondary education. Finally, the Unemployment Insurance Fund is designed gradually to reverse the huge erosion of coverage and benefits that has taken place under successive Conservative and Liberal governments. Concentrating initially on improving accessibility to those actually unemployed, the fund aims to reinstate benefit protection to 75 percent of unemployed workers over five years by restoring pre-1994 conditions of entitlement and benefit duration. It also strives for a benefit rate of 60 percent of weekly earnings (three quarters of all claimants now get less than 55 percent and some as little as 25 percent). By putting more people back to work, the AFB funds some of these extra benefits simply by reducing the number of claimants. The 1999 AFB removed the UI Fund from the budget altogether and established it as a stand-alone fund. It also proposed that benefits be increased or expanded to the point where the fund was in balance, i.e., the UI Fund would no longer contribute, net, to the federal budget. These seven social investment funds are designed as a constructive alternative to the cut-and-slash approach of the Liberal government. They strengthen social programs and launch a frontal assault on poverty, while maintaining a strong role for the federal government in setting and enforcing national standards. Closely integrated with the national social investment funds, is the AFB’s Emergency Employment Investment Program. In the 1997 AFB, this program provided $3 billion annually for two years, targeting expenditures on the environment (public transport, water and sewage, waste reduction and recycling); co-op and social housing; building retrofitting; additional community-based not-for-profit child care; investment in research, conservation and innovative technology; public

88 / Alternative Budgets

access to computers; centres for the elderly; home care; services to victims of violence and abuse; and community economic development. The program is designed to enhance access to employment by traditionally disadvantaged groups. To create further jobs, banks are required to invest a minute proportion of their huge assets (0.1 percent in year one and rising to 0.3 percent by year three) in National Capital Funds to establish sector, local and community development corporations and banks administered by democratically elected boards. These and other measures in the AFB (such as public-sector procurement councils, designed to use the purchasing power of government more strategically) would facilitate pursuit of a national industrial strategy. Efforts could also be made to reduce the length of the work week and to introduce more flexible work and leave arrangements. Were they implemented, these initiatives would encourage more employment and more satisfying work. As well as providing important services to the public, the state sector is a source of socially useful employment. The AFB recognizes this and restores many of the recent cuts to program spending while promoting innovative increases in spending in some program areas. It contains a plethora of new ideas across the range of federal responsibilities, from foreign aid and trade to programs for people with disabilities. The proposals in the social investment part of the AFB budget strengthen the anti-poverty measures in the national investment funds and offer a blueprint for a more progressive policy outlook across the board, all within a framework that can be financed. Part of that financing comes from cutting back expenditures on defence, with remaining spending being redirected towards peacekeeping and national security, broadly defined to include fisheries protection, search and rescue, disaster relief and environmental protection. AFBs also cut back on most subsidies to business including, importantly, those given in the form of tax relief. Financing the AFB: Tax Fairness About 70 percent of needed revenue in a typical AFB comes from increased growth in the economy, growth produced by lower interest rates, the employment program and higher levels of government spending. The balance of 30 percent comes from a revamping of the Canadian tax system. In the 1999 AFB, there was no net increase in taxation; all revenue came from growth. Consistent with a system of “fair taxation,” the AFB raises taxes on corporations and wealthy individuals and reduces them on low-income earners. A typical AFB would:

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• • • • • •

• • • •

introduce a wealth transfer tax, along U.S. lines, on wealth transfers in excess of $1 million; eliminate the notorious family trusts;5 impose an “excess profits” tax on banks and introduce a minimum corporate tax; introduce two new income tax brackets for those earning in excess of $100,000 a year; limit Registered Retirement Savings Plan (RRSP) deductibility for those earning in excess of $60,000; abolish favourable tax treatment of meal and entertainment expenses, overseas earnings of insurance companies and income received as stock options; limit the deductibility of salaries in excess of $300,000 per year as business operating expenses; abolish the $500,000 capital gains exemption for small businesses; increase the GST on brokerage fees and commissions; and abolished the GST on books.

Although AFBs differ slightly in the details of their revenue raising, each lays out a detailed rationale for increased taxation of corporations (by about $3 billion per year in the 1999 budget), wealthy individuals and small business owners (by about $4.5 billion). The bottom line is that the gap between rich and poor in Canada has been widening, and corporations have been paying a diminishing portion of the tax revenue collected in Canada. Moreover, even with the AFB tax increases, tax “burdens” in Canada would not be out of line with those in other member countries of the Organization for Economic Co-operation and Development (OECD). For low-income earners, the AFB has argued for the abolition of the surtax and for substantial increases in tax credits. In the 1999 AFB, the latter proposal took the form of new refundable tax credits based on the formula currently in use for the Goods and Services Tax Credit. Each adult would be eligible for a credit of up to $250, depending on household income, and each child for an additional credit of $2000.6 The aim is directly to reach people living below the poverty line, of whom there were in 1996 an estimated 5.2 million (National Council of Welfare 1998) and an estimated 1.48 million children. Such measures would have cut taxes on low-income earners by some $8 billion.7 The AFB has also promoted the adoption of green taxation to encourage protection of the environment; this will be discussed later. In

90 / Alternative Budgets

Table 5.6. Taxation Measures in the 1999–2000 Alternative Federal Budget Tobacco Tax Carbon Tax GST on Books Wealth Tax Income Tax Increase on Rich Income Tax Reduction Adults Income Tax Reduction Children Increase in Disability and Medical Credit Employee Stock Options Capital Gains Farm Exemption End Capital Gains, Small Business Exemption End Capital Gains Freeze, Family Trusts End Meal and Entertainment Allowance, Individuals Excess Profits Tax on Banks GST on Brokerage Fees International Business Income Non-deductability of Capital Gains Corporate Income Distribution Tax Mining, Oil and Gas Research and Development Capital Cost Allowance Atlantic Investment Tax Credit Meals and Entertainment, Corporate Lobbying High Salaries Tax Collection of Back Taxes Net Increase Transfer to Environment Fund

495 500 -47 3012 317 -3000 -5000 -338 135 148 465 300 105 496 190 400 375 350 215 200 105 95 220 50 50 660 498 -500

Source: CCPA–Manitoba and Cho!ces 1999–2002

other tax measures, the tobacco tax would be restored to pre-1995 levels and more money put into collecting outstanding taxes. A breakdown of revenue measures in a typical AFB is found in Table 5.6. Fiscal Forecasting The AFB simulates the impact of its proposals on the future behaviour of the economy and usually projects the anticipated fiscal situation several years into the future. It forecasts revenue and expenditure, the deficit/ surplus, debt and debt servicing, as levels, as rates of growth and as a percentage of GDP. The AFB usually aims for: •

steady increases in government spending, in dollar terms and as a

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• • •

percent of GDP, to help make up for the huge cuts made by the government; the maintenance of revenue growth in line with GDP growth so that revenue remains a constant proportion of GDP into the medium term; a balanced budget (since 1998); debt-servicing charges that fall as a percent of GDP; a steadily declining ratio of debt to GDP as debt levels are stabilized and GDP continues to grow at rates higher than those forecast by the government due to the expansionary policies inherent in the AFB.

Presentation of this medium-term framework is important for demonstrating the sustainability of positions taken in the budget for the current year. Forecasts are always based on estimates made available by both the federal government and private forecasters. As a final check on the consistency of proposals in the AFB, the whole budget is tested by Informetrica, a private forecasting company, in their macro model of the Canadian economy. Their assessments, which were published in the 1997 and 1998 Alternative Federal Budget Papers (CCPA and Cho!ces 1997b, 1998b), have confirmed that successive AFBs have been consistent and coherent in their targets and assumptions. Moreover, each year, well over one hundred economists and political economists in Canada publicly endorse the AFB, giving it a good deal of professional credibility. The AFB and Poverty Eradication of poverty has always been a major objective of the budget exercise, an exercise in which anti-poverty groups have always played a major role. The approach taken has been multifaceted and holistic, one that recognizes the complex origins and forms of poverty in Canada. Anti-poverty measures include: • • • •



increasing employment and access to jobs; promoting regional development initiatives; restoring unemployment insurance benefits to levels at which workers can truly consider themselves “insured” against unemployment; raising federal transfers to provinces for enhanced social assistance payments to those not working who are not covered by unemployment insurance; introduction of a national drug plan, initially for low-income earners;

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• • • • • •

increased funding for child care to enable caregivers the opportunity to work outside the home; increased retirement benefits for low-income elderly; funding for youth employment creation; enhanced services to Aboriginal people and people with disabilities; restoration of funding for social housing; and significant reductions in taxes for low-income families.

In the 1999 AFB the combination of the above tax cuts and expenditure increases were estimated to cost about $20 billion. Together with employment growth, they would reduce poverty in Canada from 20 percent to 14 percent over four years and would cut child poverty by more than 50 percent. The AFB and Gender Concerns The 1998 Alternative Federal Budget Papers contains an excellent review by Isabella Bakker and Diane Elson (1998) of what engendering8 government budgets might entail in analytical and practical terms. They argue that government budgets, which are presented as “gender neutral” or “gender blind,” hide the often profound differential impact on women as opposed to men. The contribution of women to the economy is mis-specified and understated both in published statistics and in macro models of the economy, and it is not even recognized in budget strategies. Budgets should allow for the unique position of women in the labour market—especially in the care economy and the public sector— and they should offer appropriate recommendations for recognizing, rewarding and improving that position. Tax and expenditure proposals should be closely examined for their impact on women’s unpaid labour, their status in the market labour economy and their income from social programs. Although Bakker and Elson’s review would be invaluable to making the budget processes gender-sensitive, it fails to assess what the AFB has tried, accomplished and failed to do from a gender perspective. Most participants would acknowledge weaknesses in this regard, even though considerable efforts have been made over the years to engender the AFB. From the outset the steering committee decided not to devote a separate section of the AFB to gender issues or women’s issues but to charge each policy group with building these concerns into its analysis and proposals. The AFB budget has been reasonably strong on gender issues in its analysis of poverty and the steps needed to eradicate it—job

The Alternative Federal Budget in Canada / 93

creation, unemployment insurance, pensions, advocacy and child care. Some elements of the tax package have always been gender-sensitive, such as the various child tax credit proposals aimed particularly at lowincome care providers. The AFB has been a strong and consistent advocate of employment equity and has made explicit provision for meeting large pay equity obligations (over $3 billion), which the government is resisting. Persistent efforts have been made to secure representation from the National Action Committee on the Status of Women (NACSW) on the steering committee and to increase the representation of women generally in the steering committee and in the policy groups. National and most local releases of the AFB involve women activists. A conscious effort has been made to have budget schools led by women, and some schools have consisted entirely of female participants. Gender-Sensitive Budgets Elsewhere: Alternative Approaches to the AFB There have been a number of important international initiatives designed to promote more gender-sensitive budgeting, and each has taken a different approach from that of the AFB (see Reeves and Wach 1999). Perhaps the earliest ones were in Australia, where women’s impact statements of budgets were prepared in the early 1980s (Sharp and Broomhill 1999). Since 1985 Australian feminists have been successful in implementing women’s budget exercises in budgets at the federal, state and territorial levels. These have been integrated into government budgeting and have had the support of the women’s movement. Their main focus has been on expenditure audits, with participating government agencies/departments identifying the impact of their spending on women and girls, even where that spending appears to be gender-neutral. In South Australia, the exercise revealed that less than 1 percent of spending was directed to women and girls, helping put into context the limited scope of special programs and highlighting the need for a detailed, gendered review of “general” spending. The strength of these exercises was that feminist policymakers were able to advance the economic concerns of women by having a direct impact on the budget process, compelling governments also to spell out precisely how they felt their budgets were affecting women. The weaknesses include a relative neglect of the revenue side of the budget, the domination of the exercise by those whom Sharp and Broomhill describe as “femocrats” (leading to the bureaucratization of the process) and, accordingly, a lack of popular participation. The exercises also were initiated at a time of economic

94 / Alternative Budgets

expansion and social democratic reform. When economic and political circumstances changed, interest in and resourcing of gender-sensitive budgeting was curtailed. Nonetheless, thanks largely to the efforts of Rhonda Sharp, the Australian exercise has had an international impact on peoples’ thinking on the issue and on the design of international initiatives by both the Commonwealth Secretariat (see Jayamaha 1999) and the United Nations Development Program (UNDP) (see Ça˘gatay et al. 2000). In Canada, the Ottawa branch of the Women’s International League for Peace and Freedom (WILPF) produced The Canadian Women’s Budget (1993). This one-time exercise analyzed the expenditure side of the federal budget, concentrating on social programs but also looking at the defence budget and government spending priorities generally. It called for a budget that was more responsive to women’s needs and to those of society generally. It also called for a new international economic order based on social needs rather than on profit and privilege. The South African Women’s Budget Initiative (WBI) is unique in being a joint exercise between non-governmental organizations and the post-apartheid government. It examines the needs of women, girls, men and boys in each major spending sector; sees whether government policy is addressing the problems identified; assesses the adequacy of resources devoted to gender-sensitive budgeting in each sector; and then assesses the effectiveness of spending in achieving declared goals by finding appropriate output and outcome indicators (Budlender 1999). For the first three years of the exercise, the Women’s Budget was published as a book. The WBI has reached down to lower levels of government but not as systematically as it has at the federal level because of resource constraints. Nevertheless it has put women’s issues on the budget agenda and has taken some important steps in broadening the scope for popular participation in budgeting by preparing a book, Money Matters: Women and the Government Budget (Hurt and Budlender 1998). Given the low education levels in South Africa, this book would not be accessible to most people, but it might reach a third of the population. Debbie Budlender has taken the message to neighbouring African countries through seminars, presentations and direct involvement. As a result, several African countries are now undertaking similar exercises. In the United Kingdom, the Women’s Budget Group (WBG) has been attempting to shape public policy since the early 1990s (Himmelweit 1999). The WBG consists of academics, policy analysts, representatives from trade unions and women’s groups and others. It has commented on the gender implications of spending in U.K. budgets and, more recently,

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on taxation and macroeconomic policy. With the election of the Labour government it has been consulted directly by the treasury and with some impact. A distinguishing feature of the work of the WBG is its emphasis on the care economy and the importance of budgetary measures for women in that most important, but undervalued, part of the economy (Himmelweit 1998). Much of the analytical work for engendering budgets, and macroeconomic policy generally, has been developed by Diane Elson (1995, 1996, 1999). The AFB and the Environment The AFB from its very beginning has attempted to address environmental concerns, and most observers would agree that its success in doing so has improved over the years. In its more recent forms, the AFB contains measures explicitly designed to improve the environment: green taxation, more stringent regulation and higher levels of spending in the area. The 1998 Alternative Federal Budget Papers contains a technical paper by the Environmental Working Group (1998) entitled “Towards a Green Alternative Budget,” which is the most comprehensive statement ever prepared on this topic in the AFB exercise. It discusses in detail the various approaches to “greening” the budget and the fiscal and employment implications of tackling such key issues as greenhouse gas emissions, resource depletion, pollution and waste. AFB recommendations for 1998/99 are drawn from this paper.9 In terms of green taxation, the AFB recommends that a carbon tax on atmospheric emissions would be introduced and that the favourable tax treatment of oil and gas industries be discontinued. These would reduce the bias in the tax system in favour of non-renewable energy production. Proceeds of these taxes would be devoted to a new $1 billion Atmospheric Fund, which would be used to encourage energy conservation and “green” jobs and to provide adjustment support for workers displaced from traditional fossil-fuel or chemical industries. Also on the spending side, the AFB’s job creation program has a major emphasis on reducing energy use, recycling and water conservation and generally promoting green jobs. Research and conservation provisions are built into the agriculture, natural resources, forestry and fisheries components. The emphasis is on encouraging sustainable farming through family farms and rural resettlement and discouraging large, chemically based corporate farm systems. Sustainable forestry and sustainable fisheries are also goals of the AFB, and monies are provided to

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encourage them. A pilot chemical taxation scheme has been designed to help reduce the use of and pollution from a variety of toxic industrial chemicals. The AFB also strengthens the regulatory role of the federal government on environmental matters. The AFB has always been critical of the use of GDP as a measure of well-being and has promoted, instead, the adoption of the Genuine Progress Indicator (GPI) as a much more useful measurement of the environmental, gender and income distributional implications of economic “growth.” Unlike the GDP, the GPI measures household work, parenting and volunteering as positive contributions to our well-being. It deducts the cost of involuntary under-employment or unemployment as well as the cost of crime, commuting and automobile accidents and the loss of leisure time as work commitments expand. On the environmental side, it deducts the cost of all forms of pollution, including ozone depletion, loss of old-growth forests and farmland and the depletion of non-renewable energy resources, as each of these represents a societal cost not captured in GDP. The GPI responds to changes in income distribution (on which GDP is silent), rising as the income share of the poor rises and falling as that share falls.10 The AFB as Participatory Budgeting The AFB was conceived as a participatory budgeting exercise in which social movements and trade unions could have input at different points. The steering committee is itself a representative national body that covers a wide range of community interests and concerns. Its members were drawn from the CCPA, Cho!ces and the main sponsoring groups. In the early days, discussion papers listing various questions about major policy issues were circulated across the country. When appropriate, written responses were incorporated into subsequent budget documents. More recently, groups across the country have been invited to evaluate the previous year’s AFB in light of analysis of actual revenue and spending by government compared to the government’s own budget, and send suggestions and criticisms to Cho!ces or CCPA at the start of the new budget process. Attempts have been made to produce draft budgets for circulation across the country before the end of the calendar year so that any feedback can be incorporated before the final document is released, usually in February. Recently, budget schools have been used to secure popular input as well as to expose a growing circle of ordinary Canadians to the mysteries of federal budgeting. In 1999, over twenty budget schools were held

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across the country. As mentioned earlier, schools are tailored to the needs of specific communities. Some focus on technique, others on dissemination and politicization of the AFB. A manual was prepared by activists in Cho!ces and, after refinement, this was published as a book and circulated widely (Cho!ces and CCPA 1998). In addition, a simpler fifteen-page manual has been tested with encouraging results in a number of high schools (Cho!ces and the Global Change Game 1999). Both manuals encourage workshop participants to set federal budget priorities and allocate money among them. The AFB gives the production of popular materials high priority. Progressive, professional journalists assist in this, often on a voluntary basis. Cho!ces nationally circulates around 25,000 copies of the tabloid version of the AFB, and other groups, such as trade unions and, in the past, the Action Canada Network, produce and circulate their own materials. Cho!ces has also prepared videos on the budget process and on the main political issues, and these have received wide circulation. Local launches are considered an essential component of participatory budgeting as they build the activist constituency and encourage wider input into the budget preparation process itself. Importantly in Canada, the AFB and all popular materials are translated into French. Critiques and Weaknesses of the AFB Predictably, the Liberal critique of the AFB is that cuts to programs were and are necessary; that tax fairness is not as big an issue as the AFB claims and that it can be handled by a few tax breaks aimed at the low and middle classes; and that corporate taxes are at a reasonable level and had fallen in importance prior to 1996 only because profits had fallen. In the past year, as fiscal surpluses have materialized, the government has argued that modest across-the-board tax reductions are needed. Cuts to high-income earners are justified on the grounds of “productivity” and to counteract the “brain drain” (Martin 1999). The Liberals see little role for government in employment creation and refuse to adopt targets for employment creation and reductions in the unemployment rate. While they express concern about poverty, their cuts to the CHST have done much to aggravate it, and they refuse to commit themselves to targets for poverty reduction. The Fraser Institute and other conservative commentators have argued that the AFB, which they term “organized labour’s vision of Canada” “would cause interest rates to increase dramatically, thereby reducing investment, swelling the deficit, and likely leading to higher

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unemployment—the exact issue, jobs, that the Alternative Budget claims to solve” (Fraser Institute 1997: 1). In other words, they focus on the monetary policy side of the AFB. Ironically, they do not acknowledge the damage caused by high interest rate policies and seem to assume that expanding the money supply would cause a flight of capital from Canada. As stated earlier, fallen interest rates have made monetary policy less important and no longer controversial in recent AFBs. In the early days, however, even some AFB participants were sceptical of its monetary policy recommendations. Armine Yalnizyan, a highly respected economist and social activist, argued that the monetary policy side was too academic and that a demand for lower interest rates was the wrong message, since rates did fall in 1996 and “did not produce the predicted expansion” (quoted in Gonick and Scarth 1996: 17). Instead, Yalnizyan argued, people want emphasis on a specific issue that “responds to their immediate needs, like what’s happening to their health care” (quoted in Gonick and Scarth 1996: 17). She preferred focusing on a single issue, which might vary from year to year, with specific proposals to raise money to protect and expand services in that area, such as a health levy. Yalnizyan’s critique, while useful, underestimates the ability of ordinary Canadians to understand the impact of interest rates and the need to keep them low, and it fails to foresee the eventual enormous impact of lower rates on the economy and the fiscal balance. Canadians do seem to be able to relate to more than one need or theme in a budget. Many recognize that recent federal budgets constitute a multiple threat to the social safety net that Canadians have come to rely upon. This is not to say that AFBs should not highlight specific priorities, such as health care, and indeed they have done just that in recent years. But the AFB has not been a fan of earmarking specific sources of revenue for specific social programs. Indeed, most participants consider this a simplistic and dangerous practice that instills rigidity in budgets. Above all, building a broad political coalition around budget issues necessitates attention, within a comprehensive budget framework, to the many areas of programming under attack by the Liberals. Leo Panitch’s assessment of the AFB is that “there is insufficient attention paid to the need for capital controls to allow for socially and environmentally sane economic planning” (quoted in Gonick and Scarth 1996: 17). This most certainly is an area requiring further consideration. The AFB already contains a number of measures that are, at root, capital controls. Such items have been mentioned earlier: Bank of Canada

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funding of government debt; reserve requirements on commercial banks; increased taxes on overseas investments; support for the Tobin Tax; and so on. The massive speculative attacks on Asian countries, Russia and Brazil in 1998, like the one against Sweden in 1992, could not have been avoided by such measures alone, however. In those cases, businesses exported huge amounts of foreign currency, thereby undermining the value of the domestic currency. This caused chaos in these economies and led governments to increase interest rates to very high levels in a bid to stem the outflow. More far-reaching capital controls may be necessary to avoid situations like those, and they might have been a desirable component of the AFB, but the international climate for this is not favourable, despite the Asian crisis. How to reduce capital volatility was the theme of the 1999 AFB-sponsored Economists’ Roundtable, but no easy answers emerged from this symposium (MacLean 1999). The AFB hopes to minimize the need for controls by setting taxation of the rich and of corporations at levels comparable to those in other OECD countries and, in the case of the wealth tax and corporate minimum tax, at levels comparable to those in the U.S. The main issue is whether or not the totality of recommendations in the AFB would lead to a capital strike. Most participants feel it would not, especially since in most AFBs total pre-tax corporate profits actually increase on account of the rate of economic growth being higher than it otherwise would be. Raising growth rates, either through expansionary monetary policy, fiscal policy or a combination of the two, is vital to raising revenue growth and reducing the debt-to-GDP ratio in the AFB. From the very beginning, environmentalists have considered this a controversial approach, however. They believe growth, consumption and the use of through-puts (materials used in producing goods) in the economy should be reduced. The AFB has attempted to reconcile these apparent contradictory positions by making provision to improve the quality of economic growth from an environmental point of view, an approach that has been refined and elaborated upon with each successive AFB. The comprehensive approach to the environment outlined earlier would mean that, in the short term, additional economic growth would be accompanied by a greatly improved environment. In the medium term, the AFB would look at replacing GDP with the GPI as a measure of growth and would seek to directly reduce consumption and the use of natural resources. The desirability and sustainability of growth remain highly contentious issues in Canada and are the subject of ongoing public debate (Stainsby and Jackson 1998).

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The AFB has also been criticized for not being progressive enough with respect to taxes. Neil Brooks, who worked closely with Cho!ces on Project Loophole, critiques the AFB on the grounds that “there is scarcely a recommendation relating to financing government that the Liberals could not foreseeably adopt” and that the tax recommendations of the AFB “amount to no more than a slight change in emphasis in Canadian tax policy” (Brooks 1996: 1). He concludes that “perhaps as well as an alternative budget, which establishes an agenda for Liberals, we need a counter-budget which establishes an agenda for progressives” (1996: 5). Brooks argues that: • •



• •

instead of adding new tax brackets for the rich, the AFB should have imposed a maximum wage set at, say, ten times the minimum wage; instead of promising middle-income taxpayers no increase in income tax, it should try to persuade them of “the value of the collective provision of goods and services essential for human development and social cohesion” (1996: 3); instead of fiddling with various tax expenditures, the AFB should abolish or redirect almost all of them for both individuals and corporations, thereby obviating the need for the minimum corporate tax; instead of a wealth transfer tax, the AFB should advocate a steeply progressive annual tax on people’s wealth; and instead of an excess profits tax on banks, such a tax should be levied on all sectors of the economy.

Brooks also opposes tax breaks on books and magazines as being less supportive of Canadian culture than the business deduction for entertainment expenses. He would abolish the latter and go further by limiting travel and other expenses for tax purposes. He would go well beyond the AFB in increasing taxation of overseas earnings of Canadian businesses and in not allowing farmers or small businesses favourable RRSP treatment in partial compensation for loss of capital gains exemptions. He even questions the wisdom of supporting poor families through tax credits. There is much food for thought here and many ideas worthy of pursuit. In fact, some of the detailed proposals have found reflection in more recent budgets. There are, however, four general problems with Brooks’ analysis. First, it is disingenuous of him to argue that with a bit

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of political pressure there is nothing to stop the Liberal government from implementing the AFB Solidarity Tax Package. The Liberals have gone to great lengths to explain, publicly, why they shouldn’t and won’t implement it. Even Brooks (1996: 13) acknowledges that “the proposals in the [AFB] are more far-reaching than the Liberal’s [earlier] tax measures and would raise more money.” Far from raising taxes, the Liberal government now seems to be acceding to pressure from the political right to reduce them. To describe the AFB package as a Liberal package seems a little out of touch with current political realities. Second, the AFB tax proposals have to be judged as a whole. Indeed, as a package, it is a very progressive one, which would significantly raise taxes on the rich and on corporations. Even Brooks admits, “Obviously, I agree with most of the tax reforms suggested in the alternative budget. Indeed, most are tax reform ideas that I and many others, including the authors of the alternative budget, have been urging for years” (1996: 13). The sum of the individual proposals is very ambitious, so much so that many on the left feel it is pushing the limits. The fact that the package appears non-radical to Brooks can actually be construed as one of its political strengths. It does appear to be reasonable and its great appeal is precisely because most of it can be justified by reference to past practice, U.S. practice or other OECD practice, even though it presses the limits of what may be acceptable in Canada at this time. Third, while it is true that monies might be raised in a less distorting, more consistent and progressive way, as Brooks suggests, and while future AFBs should go further down some of these paths, the AFB would not need all of the monies that would be raised if Brooks’ alternatives were to be implemented as he has outlined them. Tax expenditures alone are estimated to have exceeded $90 billion in 1999 (Department of Finance 1997b). Eliminating most of these, as Brooks proposes, would generate vastly more tax dollars than the AFB requires, even though by 1999 the AFB was already proposing spending some $20 billion more than the Liberals on government programs. At the time it was thought that going beyond these spending levels would undermine the budget’s credibility, even though many social needs remained unmet. Brooks’ proposals would still be useful, however, if the AFB were ever to propose a root-and-branch reform of the whole tax system, which is something worth considering. Finally, the AFB is a political project that seeks to build alliances across a wide spectrum of groups, many members of which are middle-income earners. It is highly unlikely that the project would have taken off at all if

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Brooks’ package had been adopted as he lays it out, as he appears to underestimate the tax alienation of the middle-income earners.11 Nonetheless, Brooks’ critique, coming as it does from a great champion of progressive tax reform who is held in very high regard by left social activists, was a sober reminder of the need for the AFB to remain open to criticism from the left and to renew itself with fresh ideas as time goes by. Two other points of weakness have been identified in the AFB. The first is the need to do more to “engender” the budget and the budget process. Some areas where the AFB could enhance its gender content in future would be tracking the changing role of women in the macroeconomy, data on women’s access to UI/EI and social assistance, postsecondary education, housing and retirement benefits, women and disability, the status and needs of First Nations’ women, women in the fisheries and women in the justice and defence systems. On the tax side, several important issues concerning women have never been addressed adequately even when they have been discussed in the Steering Committee. The AFB, for instance, has not taken a public position on the taxation of spousal and child support payments, nor on child expense deductions for parents who stay at home. While steps have been taken to increase the representation of women on the Steering Committee and Policy Working Groups, more needs to be done. In the 1998 exercise, only 13 of the 38 members of the Steering Committee were women, compared with 11 of 38 in 1997, and 15 of the Policy Working Groups had women as Chairs or Co-Chairs in 1998 compared with 11 of 19 in the previous year. In terms of participation in the Steering Committee, care has been taken to involve the National Action Committee on the Status of Women (NACSW). But even when their individual representative has made a marked contribution, NACSW has never participated in a strongly institutional way, for instance, by publicly adopting the AFB or building it into their national meetings. This is probably explained by the fact that NACSW has been experiencing funding and other institutional problems, in recent years and not because it wouldn’t share the AFB’s policy perspectives. With the paper by Bakker and Elson (1998) as a template, future AFBs ought to be better equipped to deal more systematically with gender issues than in the past. 12 Finally, there is general agreement that the AFB needs to be disseminated more widely and more effectively. Although great progress has been made in this area—including preparation of popular and easily accessible materials, the increase in local releases and the successful

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building of a popular, grassroots movement to support of alternative economic and social policies—sustaining this support and converting it into a broad political movement was beyond the resource capacity of the exercise. Given the shortage of funding for the AFB, there has always been discussion about how best to publicize the budget. Should it be through national or local releases. The consensus is that we need both. National publicity has brought a measure of credibility and acceptability to the AFB in national policy debates. Local releases are seen as being essential for building popular participation and local “ownership” of the exercise, but that is where the resource constraint was most binding. Accomplishments of the AFB Exercise The AFB exercise has been successful in building and in holding together for over five years a national coalition of social groups and trade unions. The typical record of such alliances in Canada is not a good one. Few would have expected the AFB even to get off the ground, let alone survive for so many years, while refining and strengthening both its policy positions and its political support. This has been due in part to the extreme fiscal positions taken by the Liberal government and the threat they posed and continue to pose to working people across the country. The representative organs of workers have found common cause with a wide variety of social movements13 because they face common threats from budget slashing. Students, health activists, anti-poverty groups, environmentalists, women’s groups, Third-World support groups, churches and child care and social housing advocates have taken time from their own pressing problems and overburdened agendas to sit down with national representatives of equally stressed trade unions to hammer out a compromise economic, social and political agenda, which is reflected in the general philosophy, the broad priorities and the specific details of the AFB. They have been joined by thousands of workers and social activists across the country, who contribute to the exercise in different ways, both large and small: from debating the AFB in budget schools or local meetings, to offering suggestions to policy groups based on their own lived experiences with federal programs or lack thereof; from participating in regional press conferences to making presentations to local churches, trade union locals and other bodies. Support for the exercise at the grass roots has grown steadily as it gained legitimacy with the media. It is hard to think of a similar initiative that has been so broadly based and that has survived and grown in this way.

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Much of the credit for this must go to the leadership of the Canadian Labour Congress (CLC), especially Bob White, Dick Martin, Nancy Riche and Jean-Claude Parrot, and to its affiliates who took the initial risk in sponsoring the project. The risks of failure were large as several of the building blocks of the AFB were highly controversial among sections of both the labour and the social movements. The low interest rate policy, in particular, was much debated in the first year, as were the targets for deficit-to-GDP and debt-to-GDP reduction. Several participants initially were highly sceptical that the Bank of Canada could reduce interest rates without provoking a capital strike. Several had to be persuaded to abandon a long-held belief that deficits and debt were not really problems. Many participants went along with these proposals in the spirit of compromise in the first year, only to return the next year firmly convinced of their soundness and feasibility. In the first year there was a lively debate about whether anti-poverty programs should be targeted or universal in design. A degree of targeting was accepted reluctantly by some participants only because the monies involved were so significant that universal programs would have meant massive expenditures accompanied by massive tax-backs, which in turn would have been both administratively difficult and silly in the eyes of the public. Targeting was accepted once safeguards against stigmatizing the poor were put in place, and only labour activists volunteered that enrichment of programs for workers (especially Employment Insurance benefits) should not exceed additional monies directed at poor families. Some labour representatives also dropped their opposition to the restriction of taxation benefits of Registered Retirement Savings Plans for those earning in excess of $60,000 per year, even though they knew this would not be popular with a segment of their membership. The issue that almost scuttled the first AFB only days before its release was the depth of proposed cuts in the defence budget. A union representing many civilian workers in the military raised objections that severe cutbacks, while being popular in the steering committee, made no allowance for the severe dislocation and unemployment that would result. Had that union refused to sign on, the CLC and other affiliates inevitably would have withdrawn from the exercise too. The issue was a serious one and it had not been handled appropriately to that point. In the end, a number of measures were included to allow for labour force adjustment to cutbacks, both in defence-related industries and for civilians laid off by the military. Cuts were concentrated in the purchasing of hardware and in Canadian military operations overseas. The exercise was

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salvaged, and the budget ended up with a more responsible position on defence cuts.14 Genuine political compromises were involved in drawing up the AFB, but it was the willingness to compromise by both the labour movement and social movements that allowed the exercise to root and flourish Notes 1.

There was an earlier attempt at an Alternative Federal Budget, released by CCPA and the labour movement in 1991, but this contained only policy statements and no budget as such. 2. These programs are supplementary to the Canada Pension Plan, which is operated as a separate program outside the federal budget. 3. See Table 5.3 for details on cuts to other program spending. 4. The AFB assumes that paying down the debt in absolute terms would be addressed only when the spending deficit had been addressed. In all years, however, the AFB reduced the debt-to-GDP ratio, sometimes faster than the government program (see CCPA and Cho!ces 1997a: 7). 5. Cho!ces fought for five years to have the trust of a prominent Canadian family returned to Canada so that $2 billion allowed by Revenue Canada to leave the country untaxed could, indeed, be subject to tax. “Project Loophole,” as it was called, was strongly opposed by the government. In 2002, the Federal Court of Canada ruled in favour of the government but recognized the importance of Cho!ces’ challenge by awarding it costs (see Smith 2002). 6. The credit is taxed back at a rate of 5 percent of net family income in excess of $25,921. 7. This was about double the amount proposed in earlier budgets, reflecting partly the improved fiscal situation but mainly a growing anger within the groups supporting the AFB about the refusal of the government to tackle the problem seriously. 8. Engendering does not consist simply of incorporating specifically women’s issues. In the first year of the exercise, the female Chair of the National Antipoverty Organization cautioned the steering committee against overgeneralizing the feminization of poverty (a major concern not only in Canada) by stressing that the most rapidly growing portion of the poor was actually young single males. Engendering budgets often requires, therefore, some subtlety in both analysis and prescription. 9. In 1999 a coalition of fourteen groups produced a Green Budget, which outlines in detail a series of proposals for protecting Canada’s environment (see Canadian Nature Federation 1999). This was not so much a budget as a series of specific budget proposals, some of which are to be found in the 1998/99 AFB (e.g., removal of environmentally perverse subsidies; sustainable agriculture; retrofitting) while others (e.g., shifting taxes from income taxes to consumption taxes) go beyond AFB recommendations. 10. Further information on the GPI can be found in Cosby 1997, a paper that was

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commissioned by the AFB and circulated widely among the left in Canada. 11. Even then, Brooks is incorrect in asserting that the AFB does not increase taxes on middle-income earners. The Registered Retirement Savings Plan (RRSP) recommendations do exactly that for people earning in excess of $60,000 per annum. 12. The 1999 exercise abolished policy working groups except in a couple of priority areas. This move was opposed by Cho!ces precisely because of fears that it would reduce the prospect of future budgets being different from those in the past. 13. While many unionized workers often participate in these social movements, formal relations between the two at an official level are often either slight or strained. This was especially the case after the defeat of the NDP government in Ontario. It is interesting to note that the AFB united groups, including unions, which had and possibly still have profound disagreements over NDP policies and strategies in Ontario. 14. This yielded less net revenue but the position is still worth undertaking for policy reasons, shifting workers from unproductive to more productive activities. The common complaint in these early 2000s is that defence spending is too low to meet Canada’s international commitments. This argument needs close examination as some of those “commitments,” such as our participation with the U.S. in the Gulf War and the attacks on Afghanistan, are highly contested and lie outside the definition of peacekeeping, for which there is widespread support in Canada.

6. ALTERNATIVE PROVINCIAL BUDGETS Context Since the early 1990s coalitions of social justice movements and trade unions in Canada have produced alternative provincial budgets. Cho!ces undertook the first such exercise, the 1991 Budget of Cho!ce for Manitoba, which continued annually throughout the 1990s. In 1997 the Saskatchewan Coalition for Social Justice produced its Saskatchewan Alternative Budget of Choice; an Ontario coalition published The Ontario Alternative Budget Papers (Ontario Federation of Labour 1997a) and the New Brunswick Common Front for Social Justice (1999) released its Choices: New Directions for New Brunswick: The Alternative Budget for 1998–99. In 1998 the Prince Edward Island Action Canada Network coalition issued its Alternative Provincial Budget. There are, therefore, five ongoing budget exercises at the provincial level. In addition, since 2000, both the Nova Scotia and British Columbia branches of the CCPA have produced analyses of the fiscal problems of those provinces together with alternative proposals for dealing with them. Alternative budgets have been developed at the provincial level in response to the coming to power since the late 1980s of a number of neo-conservative governments. The fiscal agendas of such governments advocate reducing the size of the public sector, cutting social programs, reducing debts and deficits and cutting taxes. Indeed, some of these governments adopted balanced budget legislation, which restricted their ability and that of future governments to run deficits and/or raise taxes. This put further pressure on the spending side of the budget and, necessarily, on social programs since they account for the bulk of provincial spending. The poor state of the Canadian economy in the early 1990s, caused in part by excessively high interest rates, provided fertile ground for the emergence of this type of fiscal conservatism. Both Conservative and 107

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Table 6.1. Aggregate Revenue and Expenditures (Millions of Dollars), Provinces and Territories, 1980–2001

Year

Own Federal Total Total Debt Total Deficit Total source cash revenues program charges expen- Other (-) or Financial Net revenues transfers expenditures ditures surplus balance debt

1980-81 1981-82 1982-83 1983-84 1984-85

41,822 49,871 53,732 57,623 62,040

12,703 14,473 15,644 18,822 19,968

54,525 64,344 69,376 76,445 82,008

55,281 63,527 73,483 78,115 82,492

3,125 4,101 5,035 6,231 7,522

58,405 67,628 78,518 84,346 90,014

84 91 -196 115 247

-3,796 -5,044 -3,193 -6,655 -9,338 -10,909 -7,786 -8,768 -7,760 -7,287

1985-86 1986-87 1987-88 1988-89 1989-90

67,226 68,942 79,287 87,615 95,596

20,534 87,760 88,974 20,868 89,810 93,887 22,118 101,404 98,932 23,767 111,382 105,572 24,718 120,314 112,806

8,584 9,508 10,529 11,182 11,974

97,558 103,394 109,462 116,754 124,780

198 -9,600 -10,467 63,847 628 -12,956 -14,957 78,651 227 -7,830 -7,949 88,159 112 -5,259 -7,369 93,786 171 -4,295 -6,142 100,575

1990-91 1991-92 1992-93 1993-94 1994-95

100,711 99,703 100,991 108,622 114,235

26,319 26,445 29,643 28,194 29,465

127,030 126,149 130,633 136,816 143,699

124,634 135,446 140,481 138,702 139,706

12,693 13,521 15,414 18,461 20,066

137,327 148,967 155,895 157,163 159,772

317 313 471 149 357

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01

119,543 125,732 135,003 140,549 153,787 166,562

29,783 24,592 23,726 25,888 26,801 29,266

149,325 150,324 158,729 166,437 180,588 195,828

140,662 137,472 140,439 146,396 155,710 159,932

20,690 20,182 21,559 21,937 22,096 22,570

161,351 139 -11,888 -13,589 221,861 157,654 -563 -7,893 -14,491 229,042 161,999 -556 -3,826 -11,858 247,915 168,333 -440 -2,336 -15,710 250,275 177,807 -1 2,781 -13,352 248,440 182,501 -1,919 11,407 n/a 237,811

-9,980 -22,505 -24,790 -20,198 -15,716

-11,071 -21,650 -29,705 -22,441 -17,324

18,776 21,527 30,803 39,480 49,360

108,553 132,464 160,994 191,040 208,124

Source: Department of Finance 2001.

Liberal federal governments were complicit in promoting recessionary policies. Compounding their errors, they sought to ease some of the fiscal pressures that resulted by offloading them onto the provinces through reductions in cash transfers.1 Thus, as can be seen in Tables 6.1 and 6.2, the recession in the early 1990s drove up provincial spending, both in absolute terms and as a percent of GDP, from 19 percent in 1989– 90 to a record 22.2 percent in 1992–93. The sum total of deficits for all provinces and territories rose to almost $25 billion (the equivalent of 3.5 percent of GDP); this figure, another record, was almost 50 percent higher than the share of the deficit in GDP in the previous recession of the early 1980s. At the provincial level these fiscal problems had their origins in the distorted approach to macroeconomic management being pursued by the federal government and the Bank of Canada, which led to huge federal deficits and the accumulation of federal debt. Low rates of GDP growth, rising debt-servicing costs, high rates of unemployment

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and ballooning welfare rolls put enormous pressures on the provinces. Free trade agreements added a new dimension to the economic problems of provinces highly dependent on manufacturing exports, with Ontario in particular being badly affected in the first half of the 1990s. In addition, throughout the 1990s and especially after 1994 the federal government made huge cuts in social transfers, reducing the fiscal flexibility of the provinces. Table 6.1 shows that federal cash transfers fell by almost $6 billion (i.e., 20 percent) between 1992–93 and 1997–98 or by the equivalent of 4.5 percent of total revenue in 1992–93. There were, therefore, genuine pressures on the provinces on both the revenue and the expenditure sides of their budgets as a result of the general state of the economy and of federal government economic and fiscal policies. This did not necessitate the adoption of neo-conservative fiscal policies at the provincial level, however, and alternative budgets were designed to demonstrate this and to provide more progressive ways of dealing with the very real fiscal constraints. The Manitoba experience will be drawn upon to demonstrate both the fiscal constraints being faced and possible ways of dealing with them. The Manitoba Case In 1988, the Conservative Party replaced the NDP in government in Manitoba. Having inherited a budget surplus of about $50 million, the Tories first created a deficit by cutting personal income tax and the payroll tax by the equivalent of $85 million a year in 1989. With the deficit as a rationale, in 1990 the Conservatives began to slash government programs for child care, people with disabilities, foster parents, victims of family violence, advocacy groups and community health care.2 Underfunding led to layoffs for staff in universities, community colleges and programs aimed at Aboriginal peoples, the needy and the disadvantaged, such as access programs and the Alcoholism Foundation. At the same time, funding for private schools was increased by 11 percent and business support programs were almost tripled. In 1992 the government announced that growth in total spending would be fixed at 1.5 percent and, in future, would not exceed 2 percent a year, even though in that year monetary GDP was expected to grow at 6.2 percent a year and inflation at over 5 percent a year (Manitoba Government 1992: A4). Ultimately, inflation fell, and with it local tax revenues and federal transfers. The deficit rose from a budgeted $330 million to over $560 million (Table 6.3). The government reacted by making draconian cuts to social services and the public sector in its 1993 budget. It raised sales

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Table 6.2. Aggregate Revenue and Expenditures (Percent of Provinces and Territories, 1980/81–2000/01

Year

Own Federal Total prog. Total source cash Total expenDebt expenrevenues transfers revenues ditures charges ditures Other

GDP),

Deficit Total (-) or Financial Net surplus balance debt

1980-81 1981-82 1982-83 1983-84 1984-85

13.3 13.8 14.1 14.0 13.8

4.0 4.0 4.1 4.6 4.4

17.3 17.8 18.2 18.5 18.2

17.5 17.6 19.3 18.9 18.3

1.0 1.1 1.3 1.5 1.7

18.5 18.7 20.6 20.5 20.0

0.03 0.03 -0.05 0.03 0.05

-1.2 -0.9 -2.5 -1.9 -1.7

-2.9 -2.1 -1.6

6.0 6.0 8.1 9.6 11.0

1985-86 1986-87 1987-88 1988-89 1989-90

13.8 13.4 14.1 14.3 14.5

4.2 4.1 3.9 3.9 3.7

18.0 17.5 18.1 18.1 18.2

18.3 18.3 17.7 17.2 17.1

1.8 1.9 1.9 1.8 1.8

20.6 20.1 19.5 19.0 18.9

0.04 0.12 0.04 0.02 0.03

-2.0 -2.5 -1.4 -0.9 -0.7

-2.2 -2.9 -1.4 -1.2 -0.9

13.1 15.3 15.7 15.3 15.3

1990-91 1991-92 1992-93 1993-94 1994-95

14.8 14.5 14.4 14.9 14.8

3.9 3.8 4.2 3.9 3.8

18.6 18.4 18.6 18.8 18.6

18.3 19.7 20.0 19.0 18.1

1.9 2.0 2.2 2.5 2.6

20.1 21.7 22.2 21.5 20.7

0.05 0.05 0.07 0.02 0.05

-1.5 -3.3 -3.5 -2.8 -2.0

-1.6 -3.2 -4.2 -3.1 -2.2

15.9 19.3 22.9 26.2 26.9

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01

14.7 15.0 15.3 15.3 15.8 15.8

3.7 2.9 2.7 2.8 2.7 2.8

18.4 17.9 17.9 18.2 18.5 18.5

17.3 16.4 15.9 16.0 16.0 15.1

2.5 2.4 2.4 2.4 2.3 2.1

19.9 18.8 18.3 18.4 18.2 17.3

0.02 -0.07 -0.08 -0.05 0.00 -0.18

-1.5 -0.9 -0.4 -0.3 0.3 1.1

-1.7 -1.7 -1.3 -1.7 -1.4 n/a

27.3 27.3 28.0 27.3 25.5 22.5

Source: Department of Finance 2001

tax on a wide range of items affecting low-income earners, such as snack foods, non-prescription drugs, school supplies and personal hygiene items, and cut property tax credits to low-income earners and seniors. These cuts set the tone for governments elsewhere. “Filmon Fridays”—i.e., days off without pay for all public sector employees— equalled a 3.8 percent cut in pay and became the forerunner of “Rae Days” in Ontario. Administration expenses were slashed by 5 percent across the board, and the civil service, which had already been reduced by over 6 percent since 1990, was further reduced by 2000 employees, or 11.8 percent, in 1993–94, (Phillips and Stecher 2001: 104). By 1995–96 the Filmon government had raised the daily rate for subsidized daycare, cut social assistance rates in Winnipeg, closed nearly 400 hospital beds, eliminated 1200 health care jobs and raised pharmacare

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Table 6.3. Aggregate Revenue and Expenditures (Millions of Dollars), Manitoba, 1980/81–2000/01

Year

Own Federal source cash revenues transfers

Total Total Debt Total revprogram charges expenenues expenditures ditures

Deficit Total (-) or Financial Net Other surplus balance debt

1980-81 1981-82 1982-83 1983-84 1984-85

1,134 834 1,968 1,343 838 2,181 1,490 919 2,409 1,759 1,038 2,797 1,827 1,098 2,925

1,979 2,318 2,682 2,986 3,159

79 114 162 240 248

2,058 2,432 2,844 3,226 3,407

– – – – –

-90 -288 1,064 -251 -736 1,436 -435 -939 1,857 -429 -1,266 2,512 -483 -638 3,144

1985-86 1986-87 1987-88 1988-89 1989-90

2,010 2,226 2,726 2,975 2,949

1,107 1,161 1,313 1,568 1,657

3,117 3,387 4,039 4,543 4,606

3,332 3,535 3,848 4,045 4,261

313 411 490 439 487

3,645 – 3,946 – 4,338 – 4,484 -200 4,748 0

-528 -559 -300 -141 -142

-1,119 -1,248 -1,777 -1,275 -1,028

3,861 4,621 5,162 5,249 4,856

1990-91 1991-92 1992-93 1993-94 1994-95

2,983 3,146 2,882 3,247 3,310

1,695 1,821 1,816 1,629 1,895

4,678 4,967 4,698 4,876 5,205

4,536 4,779 4,905 4,752 4,804

501 492 559 585 597

5,037 5,271 5,684 5,337 5,401

67 -30 200 30 0

-292 -334 -566 -431 -196

-2,168 -1,990 -2,352 -2,063 -1,700

5,248 5,295 6,180 6,834 7,364

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01

3,789 4,047 3,858 4,323 4,264 4,650

1,873 1,716 1,884 1,559 2,073 2,115

5,662 5,763 5,742 5,882 6,337 6,765

4,913 4,869 5,171 5,372 5,971 6,123

592 539 520 515 465 520

5,505 0 5,408 -264 5,691 25 5,887 36 6,436 110 6,643 -96

157 91 76 31 11 26

-986 -1,566 -1,964 -2,033 -2,354 -2,363

6,814 6,808 6,773 6,774 6,718 7,017

Source: Department of Finance 2001.

charges by 100 percent (50 percent for seniors). All of this happened before the impact of the 1995 cuts in federal transfers had been felt in Manitoba. Five years into the Tory administration the incidence of poverty in Manitoba rose to around 20 percent, and child poverty reached 22.4 percent, one of the highest rates in Canada (National Council of Welfare 1996). The poverty rate for single-parent women was a staggering 64 percent—well above national levels, which were themselves obscene. About 49,000 people relied upon social assistance but, since rates were set far below the poverty line, over 15,000 families counted on food banks to compensate for lost family income (Cho!ces 1995a). In a remarkably frank statement, the minister of finance admitted in 1992 that the policies of his government had actually made poverty worse

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(Winnipeg Sun, 14 May, 1992), but that this was necessary to increase Manitoba’s competitiveness and pave the way to improved growth in the following two years. This did not happen; instead, both unemployment and poverty increased. The government’s response was to introduce workfare, which penalized those reluctant or unable to participate, and a welfare “snitch line” to report welfare “abuses.” The 1995 reductions in federal transfers cost Manitoba over $100 million in 1996– 97 and close to $240 million in 1998–99, providing the provincial Tory government with more ammunition for its attack on public services, the public sector and the poor. The Budgets of Cho!ce were designed to oppose these and five other features of the Tory government’s approach to fiscal policy over the decade. First. its deliberate policy to shrink the public sector, not just through layoffs and cuts to program spending but also through privatization of public sector entities; second its use of dubious approaches to bookkeeping, including the creation of a Fiscal Stabilization Fund (rainy day fund); third, government legislation that required a balanced budget and compulsory and accelerated repayments of the provincial debt; fourth the budgets’ heavy dependence on revenues from gambling; and fifth, the Tories’ fixation with across-the-board reductions in taxation. Shrinking the Public Sector

Program spending fell from 20.9 percent of GDP in 1992–93 to a budgeted 17.5 percent in 1998–99. The civil service continued to be cut back, by a further eight hundred and thirty-seven jobs between 1994 and 1997 (by 5.5 percent). In addition, in 1996–97 the government privatized the Manitoba Telephone System (MTS), selling it off for a net sum of $410 million; $110 million of this was used for reducing the debts of health-care facilities, and the balance went into the rainy day fund. The sale of MTS made huge profits for private buyers, many of whom sold their shares to Bell Canada, and for underwriters—all at the expense of the general public and, more specifically, low-income and rural phone users who have been saddled with steadily increasing costs for local phone services. This was the largest privatization initiative, but there were many smaller ones. Private wine sales were permitted, and the general insurance business of the Manitoba Public Insurance Corporation (which provides Manitobans with among the cheapest auto insurance in Canada), was closed down. Private business was encouraged to move into the health-care sector to consult on reorganization, manage data and provide home-care and lab testing facilities and frozen food to

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hospitals and care homes. Most of these initiatives, though hailed as a savings, ended up costing tax payers heavily (see Silver 1998; Cyrenne 1998; Cyr and Schirle 1999; Davies 2000). The big fear was that the remaining operations of the Manitoba Public Insurance Corporation, the Manitoba Liquor Control Commission (which provides some $150 million a year in public revenue) and the massive Manitoba Hydro (with assets in excess of $7 billion) would be next on the list. Dubious Bookkeeping

The Fiscal Stabilization Fund (FSF) became an important feature of Tory fiscal management. It was created through a fiction when, in 1988–89, the government ran a deficit of $141 million after depositing $200 million into the FSF. Essentially the government borrowed money in order to set up the fund, converting a budget surplus of $59 million (left by the previous NDP government) into a deficit. The FSF was drawn upon in several years, but large drawings in 1998 and 1999 budget years allowed the government to claim budget surpluses when, in effect, it was running deficits. The sales proceeds from the MTS and the “funny money” borrowing in 1988 were essentially what made the “surpluses” possible. Other dubious approaches to bookkeeping include failing to provide for public employee and teacher pension liabilities, even when claiming to have balanced the budget; not allowing Manitoba Hydro, by law, to contribute its surpluses to the budget; setting up a fund whose assets were government buildings and then borrowing money from the public against these assets; and not making adequate provision for bad debts to private companies aided by government in the run up to the 1999 election. The Fiscal Straightjacket of Balanced Budget Legislation

Manitoba’s balanced budget legislation is among the most restrictive in Canada (see Appendix: Balanced Budget Legislation or Bad Budget Legislation). It requires that both current and capital spending be financed out of current revenues; that outstanding debt be reduced each year by a set amount, regardless of economic circumstances; and that a referendum be held before the rates of the four major sources of provincial tax revenue can be increased. This legislation severely reduces fiscal flexibility, especially in mild recessions, and it virtually rules out the possibility of ever increasing major tax rates. It also binds future governments, as the very suggestion of changing the legislation will quickly be interpreted by the press as threatening fiscal profligacy or irresponsible spending.

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Increasing Dependence on Gambling Revenues

Revenues from video lottery terminals and other forms of gambling have become very important in the Manitoba budget, rising from $60 million, or 2.2 percent of own-source revenues, in 1992–1993 to $225 million, or 5.3 percent of own-source revenues, in 1999–2000. This means that more than one in every eight dollars of increased revenue over the period came from gambling. Many regard this as a tax on lowincome earners, a morally objectionable source of public funding and a cause of serious social problems through the addiction it generates. Cutting Taxes

The Filmon government was erratic in its taxation policies. In its earlier years it reversed increases in personal income tax (which had been introduced by the previous NDP government) but reduced low-income property tax credits and raised sales taxes, again essentially on lowincome earners. To placate its business supporters, it reduced the corporation income tax and successively reduced the payroll tax, raising the exemption from $100,000 in payroll in 1988 to $1 million in 1997. It also cut mining taxes and small business taxes. Towards the end of its mandate, it vigorously pursued cutting personal income taxes and appointed a Lower Tax Commission to advise on how best to do it. The Budgets of Cho!ce, 1991–2000 A number of themes have been common to all Budgets of Cho!ce in Manitoba. Restoration and strengthening of social programs to improve public health, education and the environment and to reduce poverty have been the backbone of the expenditure side. Fair taxation, in terms of reduced taxes on the poor and enhanced taxes on the rich, has characterized the revenue side. Most alternative budgets have advocated an employment creation program to improve the province’s housing and infrastructure while providing training and employment opportunities for youth, women, older people and members of discriminated groups, such as Aboriginal people and people with disabilities. The budgets were comprehensive in including an economic forecast, a broad expenditure breakdown, and a listing of revenue changes plus a one-year and a three-or-more-year fiscal forecast, showing budget balance, impact on debt, debt servicing and so on. The Expenditure Side

The policies underlying the health recommendations in the alternative budget for Manitoba were radically different from those of the Tory

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government. The Budget of Cho!ce consistently promoted the expansion of community-care facilities and home care to reduce the pressure on hospitals; the preservation of public sector jobs and facilities; the strengthening of the pharmacare program; the refunding of a children’s dental program in rural and northern Manitoba; and the extension of democratic decision-taking in health authorities. It stressed public and preventative health, health education and the link between poverty and ill health. It advocated banning doctors from owning labs, sought to replace the fee-for-service remuneration system for doctors—either with salaries or with a capitation system by which doctors bill according to the number of patients registered specifically with them—and promoted lifting the ban on the use of midwives. Improvements were called for in occupational health and safety. The budget supported the introduction of referenced-based (i.e., using the least expensive of equally expensive drugs as the “reference” drug) pricing of drugs and tighter control over health administration and information costs. In education, the emphasis was on investing in early childhood education and strengthening the public school system through the reversal of financial cuts, the promotion of greater parental and community involvement, better provision for children with special needs and cuts to public funding for elite private schools. A proposed “Postsecondary Education Act” would commit the government to public institutions, public funding, accessibility and transferability of credits between institutions. Tuition fees would be constrained or frozen and grant financing of students enhanced. Funding of post-secondary institutions would be improved, and early retirement schemes would be encouraged for faculty renewal and cost control. In family services, the third largest area of government spending, the Budget of Cho!ce recommended significant increases in social assistance allowances to bring rates up to the Statistics Canada low-income cutoff levels (a common measure of poverty) over five years. It argued both for a single-tier delivery mechanism for social assistance and for the restoration of assistance for students returning to school. It restored the monies clawed back from social assistance on account of increased federal child supplements. It provided additional incentive for social assistance recipients to re-enter the labour market or to establish micro-enterprises; and it restored funding to advocacy groups for people with disabilities, Aboriginal peoples, foster parents, child care, the poor and so on. Monies were set aside for increasing the daily subsidy for child care, for increasing salaries for child care workers and for strengthening commu-

116 / Alternative Budgets

Table 6.4 Budget of Cho!ce Program Spending 1999–2000 $ Million Department Agriculture Education Family Services Health Housing (Net) Justice Other Sub-Total Job Creation Program (Net) Debt Servicing Total Spending

1998–99 Est. 99.0 1,130.5 664.6 1,925.6 43.5 181.6 1,137.2 5,182.0 0.0 5,182.0 535.0 5,717.0

1999–2000 Budget of Cho!ce 139.0 1,203.0 723.6 1,991.6 53.4 181.6 1,177.8 5,470.0 75.0 5,545.0 515.0 6,060.0

+/-% 40.0 6.4 8.8 3.4 22.0 0.0 1.8 5.6 7.0 -3.7 6.0

Source: CCPA–Manitoba and Cho!ces 1999–2002: 9, with minor amendments.

nity supports for families and youth at risk. Workfare and the welfare “snitch line” would be abolished. Because health, education and family services account for over 75 percent of provincial spending they were usually given priority in the alternative budget. But the Budget of Cho!ce contained policy recommendations for other sectors of the budget, such as agriculture, labour, housing and the arts. Importance was attached to the budgets for Aboriginal peoples, urban affairs and the environment. Sections on Aboriginal peoples acknowledged the culpability of the Canadian state and the Canadian people in creating and perpetuating the unconscionably high levels of poverty among Aboriginal peoples and offered restitution by: • • • •

• •

speeding up the process of treaty land entitlement and the land claims of the Métis; providing for greater participation of Aboriginal peoples in government through new institutions if necessary; allowing Aboriginal peoples to share in resource rents; promoting Aboriginal economic development through tax and other incentive systems, access programs, more effective employment equity and capital spending; restoring funding to Aboriginal advocacy organizations; improving Aboriginal health;

Alternative Provincial Budgets / 117

• •

implementing the recommendations of the Aboriginal Justice Inquiry (AJI);3 and providing supports to deal with family violence.

In other words, the alternative budget took a holistic approach to dealing with Aboriginal poverty. Urban issues are extremely important in Manitoba. Over 70 percent of the population is urban, and over 60 percent live in Winnipeg. Recommendations for this sector tended to build on and reinforce proposals in the Winnipeg Municipal Budget prepared by Cho!ces. In Winnipeg, urban sprawl is encouraged by a civic policy driven by property developers. It leads, on the one hand, to costly duplication of infrastructure funded at public expense and, on the other, to inner-city decay and its attendant social problems. The Budget of Cho!ce provided for: • • •



more effective planning for urban areas and the bedroom communities surrounding them; the protection and redevelopment of older neighbourhoods and restrictions on suburban sprawl; the improvement of city services by allowing the municipal government access to a new set of revenue-raising measures, such as taxation of hotels, parking and gasoline; and the full recovery of infrastructure costs from developers.

The Budget of Cho!ce has always contained a job creation program. This was particularly urgent in the early 1990s when the Manitoba unemployment rate was around 9 percent each year. A $200 million job creation program was recommended to take people, especially unemployed youth, single parent mothers and Aboriginal people, off social assistance and unemployment insurance. This would also create lasting, socially worthwhile infrastructure. Money would be available for hospitals, municipalities and post-secondary institutions to improve their buildings. A housing support fund would be provided as would a fund targeted to create jobs for the poor in inner-city, rural and northern economic development projects. Provision was also made for promoting Aboriginal businesses, for retrofitting buildings and for improving the environment. Early retirement was encouraged to create jobs for youth and for those over age fifty seeking employment. It was estimated that between 8000 and 10,000 jobs would be created, bringing the unemployment rate down, directly, by 1 percentage point or more. The job

118 / Alternative Budgets

creation fund would be partially self-financed (as it would reduce social assistance and unemployment insurance payments while increasing taxes and unemployment insurance premiums) and partially loan-financed. The balance would come from Manitoba Hydro (which would pay for the conservation component), and the remainder would come from the capital budget, off-budget financing (through environmental bonds) and cost-sharing with other levels of government, who would be major beneficiaries (e.g., all unemployment insurance savings would be federal). Manitoba’s unemployment rates fell throughout the 1990s to 6 percent or less in 2000. Consequently, the size of the job creation fund was reduced to $100 million (CCPA–Manitoba and Cho!ces 1999: 11) and its purpose targeted to job creation and infrastructure improvement. The Revenue Side

Although revenue proposals in Manitoba’s Budget of Cho!ce varied from year to year, there were always common components: •

• •

a modest, $20 million tax increase on the rich, levied as a “Poverty Alleviation” charge and transferred entirely into a tax reduction for the poor; greater reliance on Manitoba Hydro water rentals as a relatively painless way of raising a significant amount of revenue; and a greater emphasis on “green taxation,” such as environment levies on containers, higher stumpage fees on forestry products, higher gasoline taxes and a tax on junk mail and sales of pesticides and fertilizers.

The 1997–98 budget recommended that the government abolish video lottery terminal gambling machines and replace the $125 million in lost revenue from other tax sources. Later budgets recommended successively reducing the pay-out on these machines by 10 percent each year, thus raising revenue from this source (as a kind of “sin” tax) but ultimately phasing it out. Budgets of Cho!ce have steadfastly refused to jump on the bandwagon for across-the-board tax reductions. Cho!ces was prominent in opposing the Lower Tax Commission and in attacking the Tory 50-50 platform in the 1999 election, demonstrating that on the basis of information available at that time, Tory promises of a $500 million tax cut and an additional spending of $500 million seemed not only to be crudely cynical but also overly optimistic (Loxley 1999b).

Alternative Provincial Budgets / 119

Budgets of Cho!ce did agree with the Tory government on one revenue side issue, however—the negative and costly impact of federal cuts in social transfers on the provision of services in Manitoba. The budgets calculated the cost of these cuts and also stressed how much better off Manitoba would be if the recommendations of the Alternative Federal Budget were implemented (Cho!ces 1995a: 26–28). The Fiscal Framework

The Budget of Cho!ce usually presented a detailed one-year budget and a three-year fiscal framework to indicate future direction and budget viability. Initially, budgets were not balanced, which meant that outstanding debt increased, but the framework always provided for reducing the debt-to-GDP ratio and the ratios of debt servicing to both expenditure and GDP. Later budgets provided for fiscal balance but only after drawing on the Fiscal Stabilization Fund. No debt repayment was ever allowed for as it was argued that the debt was not a problem and that, in any case, it was falling as a percent of GDP while the social debt— poverty, poor health, crime and social disruption, which were the legacy of years of inadequate government spending—remained huge. The fiscal framework usually provided for an initial increase, followed by a steady fall in the ratio of program spending to GDP, though it was assumed the ratio would stabilize at some point. Revenue-to-GDP ratios were allowed to find their own level after meeting the above targets. While the pro-poor dimensions of the alternative provincial budgets were always paramount, it is worth emphasizing the environmental and gender dimensions. Environmental considerations were important in the Budget of Cho!ce on both the revenue and the expenditure sides. The budget encouraged the province to: • • • • • • •

raise stumpage fees on forestry products; create a single, integrated government department for the environment, natural resources, energy and mining; restore funding to the Manitoba Environment Council (which had been cut by the Tories); introduce a province-wide water demand-side management program; abolish subsidies to the oil industry; reduce mining concessions; rationalize tipping fees for garbage;

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Table 6.5 Fiscal Framework: 1999–2000, Budget of Cho!ce $ Million 1997–98 Actual Expenditure Less Flood

5,727 5,509

1998/99 Est. Actual 5,791 5,717

1999/2000 %+/- Cho¡ces %+/1.1 3.8

6,060

Transfers 1,920 1,532 -20.2 Less Flood 1,549 1,490 -3.8 1,593 Taxes and Fees 3,858 4,218 9.3 4,388 From Fiscal Stab. Fund 100 218 79 Total Revenue 5,878 5,969 1.5 Less Flood 5,507 5,926 7.6 6,060 To Debt Reduction Fund 75 150 0 Surplus 76 27 0 Fiscal Stabilization Fund Balance (incl. interest) 565 390 324 __________________________________________________________ GDP Nominal $m 28,656 29,458 30,401 GDP Growth % p.a. 3.0 2.8 3.2 Surplus as % GDP 0.27 0.09 0.00 Taxes and Fees 13.46 14.32 14.43 as % GDP Expenditure (Less Flood) as % DGP 19.22 19.41 19.93 Stat. Debt Servicing 535 515 515 1.87 1.75 1.69 as % GDP Debt Servicing as % GDP 9.34 8.89 8.50 Total General Purpose Debt $m 6,739 6,664 6,664 as % GDP 23.52 22.62 21.92

6.0 6.9 4.0

2.3

Source: CCPA–Manitoba and Cho!ces 1999–2002: 31.

• • • • •

sell environmental bonds for infrastructure improvement; introduce a retrofitting program for energy conservation; set up an environmental innovation and improvement fund; raise hydro water rental (the tax on electricity generation) and gasoline taxation; and impose taxes on junk mail.

Gender issues were always mainstreamed throughout the Budget of Cho!ce. Most budgets contained a strong opening statement on poverty in which the gender dimension of poverty was always stressed. Of the

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province’s 44,680 families living on social assistance in 1996, 12,390, or 28 percent, were single parents, essentially women. The poverty rate for women was 1.3 times that of men. Forty-five percent of single women under 65, 54 percent of single-parent mothers and a staggering 64 percent of the children of single-parent mothers were poor (Cho!ces 1996: 3). Policy recommendations also had a strong gender component. Recommendations on subsidized daycare and improved wages for workers in daycares, most of whom are women, would have had immediate tangible benefits for women. Many of the health recommendations had a strong gender component, such as those for legalizing midwifery, improving women’s health, strengthening homecare supports and improving terms of employment and retraining provisions for nurses, most of whom are again women. Women’s concerns were also prominent in the job creation fund, both in terms of access to jobs created and in terms of facilities and services on which job creation funds were to be spent. Thus, Cho!ces supported special efforts “to create economic opportunities for women and especially single-parent mothers” (Cho!ces 1993a: 14). Some of these funds were to be used to build safe houses and shelters, second-stage housing for women escaping abusive relationships, play centres, childcare and recreation facilities. Funds were also allocated for training for the treatment and counselling of victims of incest abuse and violence. Alternative Budget Exercises in Other Provinces: A Synopsis New Brunswick

Cho!ces: New Directions for New Brunswick is an excellent example of the initiatives in that province to develop alternative budgets. The exercise was organized by the New Brunswick Common Front for Social Justice (1999), representing twenty-two social and union groups. The budget stands out for its thorough grounding in thirty province-wide community consultations; its demand for more democratic government; and its calculation of the financial resources devoted to political control, e.g., police, justice, prisons, media “spinning,” which equalled over $100 million a year. It compares this to the amounts spent on democratic representation, i.e., legislature, cabinet, the premier’s office and local government, which totalled $15 million; and democratic participation, i.e., funding community groups to take part in the political process, which totalled a mere $4 million (New Brunswick Common Front for Social Justice 1999: 12). In keeping with this last concern, the alternative

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budget is well written, brief, accessible and published in both English and French. The main policies of New Directions call for improved and more costefficient health care. They emphasize “wellness” rather than disease, universality rather than a two-tiered system, salaried doctors, community-based programs, affordable drugs, primary health care and greater provision for participation, coordination and democratization of the system. Job creation and poverty reduction are also heavily stressed, the latter through a blend of tax credits and direct spending, for example, on child-care subsidies. Education policies demand a return to locallybased, elected school boards and decreased centralization of school boards; increased teaching resources; a more balanced curriculum with less centralized testing; a freeze on post-secondary tuition fees; increased funding for grants; and the expansion of community colleges. The budget’s environmental proposals strengthen long-term planning and the monitoring and enforcement of regulations. With respect to taxation, the New Brunswick alternative budget provides for tax cuts for low-income earners, a corporate value-added tax to offset losses in revenue when provincial and federal sales taxes were integrated, and a slight increase in the high-income surtax. The budget outlines details of both revenues and expenditures for one year and is a balanced budget. Saskatchewan

The Saskatchewan Coalition for Social Justice has produced the Saskatchewan Alternative Budget of Choice (ABC) since 1997. What distinguishes this exercise is its careful historical analysis of resource revenues, its heavy emphasis on agriculture and rural development and its attention to detail in its myriad proposals for a more just budget. The context is all-important here, as the government in power to whom the alternative is addressed is a New Democratic Party government, and one might expect it to be receptive to progressive ideas. Like its counterparts in Manitoba and New Brunswick, the ABC stresses job creation, anti-poverty measures, improved health and education, more efforts to protect the environment and a more progressive tax system. In many of these areas, however, it has its own unique proposals. A major food-security program for children is provided for, and job creation is centred on cooperative or community-owned businesses. Money is also made available for legal advocates for the poor; pay equity; the abolition of a variety of school fees for children; and the creation of

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a workers’ health centre, a pilot Aboriginal health centre and a schoolbased dental program. The ABC also contains a carefully thought-out section on issues pertaining to housing and northern equity. The agriculture and rural development proposals are a major distinguishing feature of the ABC. They recommend support for family and cooperative farms and for low-input, alternative farming, and they provide for a land conservancy trust and closer environmental control over industrial farms. The importance of transportation systems to farming and rural life is recognized and provision made for rural transport authorities, funding of short railway line operations and closer regulation of trucking. The ABC examines the progressiveness of each revenue source and then recommends lowering the sales tax, introducing new income tax brackets and rates for high-income earners, reducing corporate tax expenditures, reducing reliance on gambling revenues and significantly raising resource taxation. The Saskatchewan Coalition for Social Justice is deeply concerned that the government has, in recent years, adopted a taxation policy that will cut corporate taxes and income taxes and increase the sales tax. Ontario

In Ontario, alternative budgets have been a useful weapon in a major struggle: social organizations and unions versus a government virulently opposed to their interests. The so-called “Common Sense Revolution” of the Harris government constituted an all-out attack on the public sector, social services and public sector workers. While it was justified in terms of deficit reduction, in fact “savings” from slashing programs were used entirely to cut taxes. Between 1994–95 and 1997–98, program cuts and restructuring costs equalled $3.2 billion and over $3 billion respectively, while tax cuts equalled $3.4 billion (Ontario Federation of Labour 1997a: 210). The government continued to run deficits until strong revenue growth in 1999–2000 erased them completely. The Ontario Alternative Budget (OAB) (Ontario Federation of Labour 1997b, 1998, 1999, 2000, 2001, 2002) began its opposition to the Harris fiscal policy in 1997. It traces the impact of cuts on service deterioration, unemployment, increased user fees and offloading to other levels of government, and it presents a comprehensive set of fiscal alternatives driven by a progressive social agenda. Through the OAB and under the aegis of the Ontario Federation of Labour, a wide range of unions and community action groups has

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examined the distribution of benefits from tax cuts and compared it with the distribution of the costs of those cuts, costs such as increased drugplan user fees, property taxes, tuition fees, sewer and water charges and transit fares and additional interest paid on debt incurred to pay for the tax cut. On average, in the first round of tax cuts to 1998, the tax cut amounted to $738 for the median household in Ontario; the total cost offsetting the tax cut was $766. In other words, the average household is worse off after the tax cuts. But not all households are created equal: low-income households lost the most and high-income households gained most. A family of three earning $29,000 lost $229 while households earning over $150,000 gained more than $500 (Ontario Federation of Labour 1999b: 8ff). Each year a book-length set of alternative budget papers is made available through the Ontario Federation of Labour.4 This usually includes a variety of alternative spending and taxation scenarios, designed to emphasize the range of feasible fiscal choice available to the government without regressive taxation, service cuts and staff layoffs. A menu of possible revenue-raising measures is presented with approximate dollar values, though some scenarios require no new revenue. On the spending side, the 1997 version has four scenarios: i

freeze spending at 1995–96 levels i.e., the levels in effect before the cuts; ii maintain constant per capita spending at 1995–96 levels; iii increase public spending until it reaches 1989–90 share of GDP (13.75 percent) and then maintain it; and iv implement the Alternative Federal Budget and allow Ontario to adjust spending without tax increases (Ontario Federation of Labour 1997b). Each of these scenarios presents a much more benign economic, social and fiscal result than the Harris policies. The OAB papers include detailed chapters on job creation, health, education, post-secondary education, housing, the environment, child care, social policy, etc., presenting a wealth of analysis and prescription. Expenditures are outlined in detail and the aggregate budget is projected forward for a couple of years. The OAB was not successful in swaying the Ontario government to abandon its tax cut philosophy. The 1999 budget announced a second round of cuts to be phased in over a number of years, and the new government of Premier Ernie Eves, sworn in on April 15, 2002, has

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promised to implement them, albeit with a one-year delay (Ontario Department of Finance 2002). Nevertheless, the OAB has focused the opposition and demonstrated the feasibility of coherent alternative policies. Prince Edward Island

The alternative provincial budget for Prince Edward Island is produced in tabloid form by a coalition of sixteen unions and community-action groups under the auspices of the Prince Edward Island Action Canada Network. The main problems it seeks to address are specified in the 1998–99 budget: the widespread exclusion of people from the political process; poverty and marginalization, especially of children and seniors; the unequal distribution of income and wealth; significant unemployment; inequality of opportunity; undereducation; and functional illiteracy. The Prince Edward Island alternative provincial budgets are remarkable for their detailed analysis of what is happening on the island and for their wealth of sensible alternatives for the ordering of society and the spending of money. One innovative recommendation is the establishment of community full-employment councils. These would expand local democracy, using decentralized popular planning to fulfil locally defined employment needs consistent with available skills and opportunities. A public investment bank would provide funding. In the process, reliance on the market, with all its inadequacies, would be reduced. As in all alternative provincial budgets, strengthening the health care system is a high priority. The Prince Edward Island alternative lays out detailed recommendations to restore staff and bed cuts, improve health promotion, abolish user fees and preserve the public nature of the system. It also contains a clear statement against the use of public-private partnerships in health, stressing the extra costs that normally accompany them (see Loxley 2000). Land use, the environment and tourism are major issues for Prince Edward Island, and they are addressed at length in the alternative budgets. Of particular concern is the ability of the island to absorb the increased level of tourism resulting from the construction of the new Confederation Bridge, which provides an immediate link for vehicular traffic from the mainland to the island. Maximizing jobs and local industrial and service linkages to tourism are also given priority, but ultimately the goal is to diversify away from dependence on tourism and the car economy on which this is based.

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The Prince Edward Island alternative contains detailed proposals to reduce poverty and strengthen education, making it more accessible. It advocates a balanced budget and provides for the abolition of gambling revenues on the grounds of their contribution to poverty and addiction. The above examples are not exhaustive of community initiated efforts to produce budgetary alternatives at the provincial level. British Columbia branches of the Canadian Centre for Policy Alternatives and its fledgling sister organization in Nova Scotia have both produced highquality critiques of fiscal policy and carefully constructed alternative ways of proceeding. Social justice groups in the Northwest Territories and Alberta have also made public interventions in budgetary matters. While this brief overview cannot judge the impact of these budget projects on actual fiscal policy, it can be argued with some confidence that provincial governments can no longer assume that they alone are the repository of fiscal wisdom. Knowing that their policies and practices will be subject to popular scrutiny at the very least will put pressure on governments to limit rhetoric and propaganda. The presence of credible alternatives also limits the damage governments can do to people through their budgets and points the way to the constructive use of budgets. Local groups involved will have to judge their impact, but the fact that the number of such exercises continues to grow, while existing ones improve from year to year, suggests that their authors see some practical political merit in what, after all, are time-consuming and difficult exercises for people who essentially are volunteers. Notes 1.

2. 3.

“Offloading” of fiscal problems from one level of government to another is possible where expenditures of one level are revenues for another, as is the case with transfers. Cuts in transfers translate into revenue cuts for the recipient level of government. Offloading can also take the form of failing to provide services previously provided, e.g., the federal government by and large refuses to provide services to First Nations’ members once they have moved offreserve, putting additional pressures on provincial or civic budgets. See Cho!ces 1991 for a complete list of these cuts. The Public Inquiry into the Administration of Justice and Aboriginal People (AJI) was established in 1988 by the Manitoba government following public outrage over police response to the killings of Helen Betty Osborne in 1971 and J.J. Harper in 1988, both of whom were Aboriginal. Helen Betty Osborne’s killers were not brought to trial until 1987 even though their identity was widely known in The Pas where the murder took place. There was widespread discontent in the Aboriginal community over the police investigation into the shooting death of J.J. Harper, executive director of the Island Lake Tribal

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4.

Council, at the hands of a Winnipeg policeman. The AJI reported in 1991 but an action plan to implement its findings was not produced until the NDP government appointed an Aboriginal Justice Implementation Commission, which reported its findings in July 2001 (see the government’s website ). Access these papers at the Ontario Federation of Labour website .

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Appendix to Chapter Six: Balanced Budget Legislation or Bad Budget Legislation? Six provinces—Alberta, Saskatchewan, Manitoba, New Brunswick, Ontario and British Columbia—now have legislation requiring the government to balance its budget. Will balanced budget legislation (BBL) make governments more responsible? Will it restrain waste and bureaucracy? Or will it undermine the government’s ability to manage the economy properly and threaten public services and social programs? Does it put governments into a fiscal straightjacket, or is it only smoke and mirrors to comfort the electorate without really limiting government’s fiscal freedom of manoeuvre? The answer to these questions depends upon the legislation in question and how one interprets it. BBL in Alberta, Manitoba and Ontario seems to be designed to reduce government spending, government services and public sector employment and to prevent spending or deficits from being financed through increases in major taxes. Legislation in Saskatchewan and New Brunswick, on the other hand, provides a loose framework within which governments must budget but allows them great latitude to budget creatively and progressively, should they wish to do so. There are, nevertheless, serious problems even in this legislation. In Alberta, the Deficit Elimination Act limited fiscal deficits over a four-year period starting in 1993–94. It was followed by the Balanced Budget and Debt Retirement Act, which outlawed deficits in any one year by requiring that expenditures not exceed revenues. Outstanding government debt must be drawn down by 20 percent every five years and by at least $100 million annually, meaning that budget surpluses of at least this magnitude must be provided for each year. The Taxpayer Protection Act prevents the government from introducing a sales tax (Alberta still does not have a sales tax) without first obtaining voter approval through a referendum. In 1999, a Fiscal Responsibility Act was brought in to amend previous legislation, recasting the debt-retirement timetable again in five-year targets, requiring a revenue cushion of 3 percent and allowing for the use of unexpected surpluses for tax cuts or expenditure increases.

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Manitoba’s Balanced Budget, Debt Repayment and Taxpayer Protection Act is similar in content to Alberta’s BBL but goes much further in some respects. Annual budgets must not only be in balance but they must generate a surplus so that debt can be retired. Payments are made annually into a debt-retirement fund at a rate of $75 million annually or 1 percent of net debt outstanding whichever is higher. The Tory government that passed the Act, suggested that the whole debt might be retired in about thirty years and saw this as the only way “to simultaneously preserve vital programs and avoid tax increases which stunt the economy” (Manitoba Government 1995: Budget Paper A1). Provision is made in the law for exceptional circumstances in which the budget may record a deficit: natural disasters, war or a 5-percent or more drop in revenues due to unforeseen circumstances. The deficit must be made up in the following year, however. Falls in revenue of up to 5 percent are financed by drawing from a fiscal stabilization fund, which should be built up from annual revenues until it reaches 5 percent of annual expenditure or about $300 million. Increases in the rates of four major taxes (personal income tax, corporate income tax, sales tax and the employment levy) require majority support in a public referendum. The Act provides ministerial penalties for not balancing the budget in normal circumstances; cabinet ministers will take cuts in salary of 20 percent in the first year and 40 percent the following year. Both the Alberta and the Manitoba measures are driven by narrow ideological prejudice. Neither province has a debt problem. While accumulated debt stands at $12.5 billion in Alberta, net government debt is minuscule on account of the Heritage Fund. Indeed, annual interest on net debt became negative (i.e., Alberta was paying more interest than it was earning) in 1994–95. Accumulated debt will be zero by 2024–25 or much earlier if energy prices remain strong. In Manitoba, net debt is about $7 billion and net-debt charges are between $450–$520 million, or less than 8 percent of total spending. These are manageable levels and can be sustained both in terms of budget management and of placating bond houses. There is, therefore, no debt or deficit crisis in either province. Ontario’s Taxpayer Protection and Balanced Budget Act was enacted in 1999. Its requirements for budget balance are modelled on those of Manitoba, which the Ontario government describes as “a benchmark for balanced budget legislation in Canada” (Ontario Department of Finance 1999). Ontario’s Act goes further, however. It provides for tougher salary sanctions for non-compliance (25 percent in the first year and 50

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percent thereafter); it prevents a wider range of taxes from being increased (e.g., fuel taxes); and it prevents new taxes from being introduced without prior public approval through a referendum. Interestingly, it makes no provision for debt reduction. Deficits must be offset in the following year. When the next, inevitable recession/depression comes along, Alberta, Manitoba and Ontario will not be able to use the budget effectively to cushion the downturn. Alberta has absolutely no ability to respond, even if the government wanted to, short of introducing an “emergency” or “disaster” clause. Manitoba could draw on its fiscal stabilization fund for drops of up to 5 percent in revenue one time only before the fund is exhausted. Beyond that, it has no provision for responding to increases in unemployment or to the large increases in the demand for welfare they would cause (see Black 1995a and 1995b). Running a deficit for the two to three years that a recession is likely to last perhaps would be sensible economic policy, but the Act forbids this. To allow fully for the fiscal effects of a recession, the Manitoba fiscal stabilization fund would need to be built up to much more than 5 percent of total expenditure, but fiscal pressures do not permit this. What is needed, ideally, is a smoothing out of fiscal fortunes over an economic cycle of four to eight years, with operating surpluses in good years offsetting operating deficits in bad ones. None of these three Acts allows governments to borrow to pay for capital spending, even though this makes eminent sense. In Manitoba this would not prevent school boards and hospitals borrowing because they do this on their account with the province servicing the annual debenture charges; this amounts to only $60–$70 million out of a total capital budget of over $300 million. Governments are prohibited from borrowing for bridges, roads, community college buildings and so on. The legislation in Alberta, Manitoba and Ontario also fails to recognize the social obligations of governments in the budgetary process. There is no mention of the need to address problems of unemployment, income inequality and poverty. There is no requirement to provide satisfactory levels of schooling, health care, social assistance and other social services. It would be surprising, indeed, if there were; when the legislation was introduced, all three governments were vigorously pursuing deficit-cutting strategies that were often targeted specifically at the poor and the disadvantaged. Balanced budget legislation simply built a legal framework for fiscal attacks on the poor. The requirement to hold referendums for raising taxes was designed

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to ensure that budget surpluses are achieved by limiting or cutting back spending even further. Legislation now effectively guarantees that Alberta will continue to be the only province without a sales tax. The Manitoba legislation rules out raising the rates on the big four taxes, but it would not prevent government from raising tax revenue by altering the base of taxation. In the recent past the Tory government did exactly this by introducing sales tax on previously exempted items of importance to the poor, such as meals under $6, school supplies and baby expenses, and by reducing tax credits available to the poor. There is no legislative restriction on reducing taxes or on revenue neutral initiatives. In terms of revenue raising, the Ontario legislation is even more restrictive than that of Alberta or Manitoba. Indeed, the whole issue of referendums for tax increases is problematic. In Canada, referendums at the provincial level have traditionally been restricted to issues concerning the sale of liquor, daylight-saving time and constitutional matters (Camille Loxley 1995). Budget matters have not been dealt with in this way, and there are good reasons for this. Governments are elected on political platforms, including fiscal platforms. When government subjects one narrow aspect of fiscal policy to referendum it abrogates responsibility for its fiscal mandate and treats taxes in isolation from the broader policy and fiscal perspective. As Premier Gary Filmon of Manitoba put it when arguing against the use of a referendum in the Winnipeg Jets/Arena fiasco, “In our parliamentary democratic system … people … elect people to make judgements on their behalf, judgments that are ultimately in the best interests of the province and its future. We are in office with a mandate to exercise our judgement” (quoted in J. Loxley 1995). This speaks eloquently to the case against using referendums for tax purposes too. The Tory government was even mildly rebuked by Standard and Poor’s bond-rating agency for this aspect of the bill which it felt could reduce revenue flexibility (Winnipeg Free Press, September 27, 1995). The Winnipeg Free Press, not known for its enlightened stances on fiscal policy, called for the bill to be withdrawn because it would reduce flexibility and creativity and is “a silly idea … fraught with danger,” both for the Tories and subsequent governments (Winnipeg Free Press, September 23, 1995). Balanced budget legislation in Saskatchewan and New Brunswick is not nearly as constraining. In Saskatchewan, governments must present plans to balance the budget over a four-year cycle. This is a little tight but ought to be manageable for most governments. The Saskatchewan legislation provides for the requirement to be waived in the event that a

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“major, unanticipated event or set of circumstances” has a major impact on either revenues or expenditures. A four-year debt management plan must also be presented at the start of each new government, and surpluses in the general revenue fund must be applied to debt reduction. In New Brunswick, government is even less constrained. Balancing ordinary revenues and expenditures (not capital) over a four-year period is the objective but it is not mandatory. Allowance is made for fluctuations in federal transfers and for unanticipated changes in federal-provincial tax collection agreements. There is no provision for debt reduction and no requirement for consistency in accounting practices. Both Saskatchewan and New Brunswick do make substantial provision, therefore, for the use of budgets as a counter-cyclical tool. In New Brunswick, government can also borrow for capital investment. Neither province requires a referendum for tax increases. For these reasons, the Acts are considered deficient by the political right. For their efforts, the Canada West Foundation gave Saskatchewan a “C” grade and New Brunswick an “F,” while Alberta rates a “B” and Manitoba an “A+.” From the political left’s point of view this ordering would probably be reversed. Not one of these efforts lays out the economic, social and distributional responsibilities of responsible budgeting, however, and many observers have real problems with recent Saskatchewan and New Brunswick budgets on these grounds. British Columbia’s Balanced Budget Act of July 2000 was a belated attempt by the NDP government to assure voters of its seriousness in tackling the deficit. It provides for a gradual reduction of deficits to 2004–05 and established salary penalties for ministers if targets are not reached. To the government’s credit the Act is based on more realistic views of budget balance than previous electoral promises in that it recognized that budget balance was not a practical proposition in the short-term, but in the end the government did not hold much sway with the electorate. Progressive budgets need not mean irresponsible budgets in terms of excessive borrowing or debt servicing. By the same token, responsible budgeting does not require balanced budget legislation, which, all too often, is a tool for entrenching policies that attack public sector services and employment as well as the poor.

7. ALTERNATIVE CIVIC BUDGETS Context Municipal government takes a variety of forms, from cities to villages, and it is governed by elected representatives whose functions vary greatly from one part of the country to another.1 The main functions of municipal governments and their councillors include police and fire safety, garbage collection, recycling, regulation by bylaw and the management of water, sewer, roads, public transit, libraries, parks and recreation facilities and, sometimes, public health and social assistance. Municipalities are empowered to collect taxes for their own use and in some jurisdictions, such as Manitoba, to collect tax revenues on behalf of school boards and the province. Municipal funding and school financing are, therefore, inextricably linked in Manitoba and like jurisdictions.2 Municipal government in Canada spent $43 billion in 1999. About 54 percent of this was financed out of property tax revenues, 19 percent out of transfers from other levels of government (mainly from the provinces) and 20 percent out of the sale of goods and services, i.e., through collecting charges for services such as water, public transit and electricity. The money was spent on transportation and communications (20 percent), the protection of persons and property (16 percent), the environment (16 percent), social services (12 percent), recreation and culture (11 percent), general administration (10 percent) and debt servicing (6 percent). Municipalities are generally required to balance their budgets. In 1999, in Canada as a whole, they had a surplus of just under $400 million (Treff and Perry 2001: A12). Municipal government spending is only about 23 percent of total provincial spending and 37 percent of federal spending. Despite this, it often has a higher public profile than spending by these other levels of government because it delivers services that are immediately visible to citizens and that can have an enormous impact on everyday life. Municipal government is often seen to determine the quality of life of Canadi133

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ans in terms of the spatial aspects of our existence: where we live; how our neighbourhood looks; how quickly and cheaply one can move around in both winter and summer; how safely we live in terms of crime, pollution, fire risk, insect control, quality of drinking water and waste disposal; and the cultural and recreational facilities to which we have access. Some of this perception is misplaced. Municipalities operate within legislation enacted by other levels of government and their funding is often linked to policies set at those other levels. Nonetheless, councillors can be said to be at the front line of citizen awareness because of the types of services they handle. Only health care and education carry comparable or greater weight in the eyes of the public. Because of their responsibility for delivery of front-line services, municipalities and school boards are important sources of employment. In 1999, municipalities employed 849,000 people, compared to 330,000 for the federal government and 1,300,000 for provincial and territorial governments (Treff and Perry 2001: 1.3, 1.5, 1.7).3 Staff generally are unionized and annual budgets often stir up conflict not only between labour and management but also between labour and business interests. This is especially true of the real estate, property development and small business sectors, which are often heavily represented on local councils. Since local budgets rely heavily on property taxes and payment for services, which are less sensitive to income fluctuations than are income tax and sales taxes, they have some independence from the fiscal pressures felt by other levels of government. Thus, between 1989 and 1999, municipalities in aggregate across Canada actually increased employment by 5.7 percent, while federal government employment fell by 15.6 percent and provincial government employment fell by 2.2 percent. Nonetheless, transfers from senior levels of government do play an important role in funding at this level. Restraint and cutbacks in transfers since 1995, as well as the shifting ideological climate against taxes and government spending, have had a direct impact on local government budgets. Since 1996, therefore, municipalities have seen reductions in staff of 1.5 percent, which is greater than provincial employment cuts since that time (1.0 percent) but still less than those of the federal government (7.3 percent) (Treff and Perry 2001: 2–4). The Winnipeg Case Throughout the 1990s there were important struggles around local government budgets in Winnipeg and elsewhere. Key issues were the levels, types and quality of services to be delivered, the number of and

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terms of service for civic workers, the level and structure of taxes and payments for services and, perhaps most importantly, the future direction of development in the city as influenced by the capital budget. The context for all of these is a civic revenue structure that is inequitable, politically fragile and relatively insensitive to the growth of personal and business income in the community. City of Winnipeg Revenue Issues

The three main sources of civic revenue are transfers from the government, property and business taxation, and user charges for civic services. Government transfers are both unconditional (for the purposes of general administration) and conditional (for purposes such as capital works, transit, Dutch elm disease control and, most importantly until the service was transferred to the province in 1999, social assistance payments). Part of the unconditional transfer takes the form of a unique sharing of personal and corporate income tax revenues under a provincial/ municipal tax-sharing agreement (PMTS). This revenue is very sensitive to income changes. In the 1991 recession it fell sharply from $28.5 million to $24.7 million. In the latter half of the decade, however, PMTS has been the most rapidly growing source of revenue, increasing by over half to exceed $44 million in 2000. But the balance of the unconditional grant, the non-PMTS portion, was frozen at $20.5 million from 1990 to 1993. In 1994 it was reduced to just under $20 million, where it has remained ever since. On the conditional side, the transit grant rose steadily until 1992, when it reached $17.5 million; then it was cut to $16.3 million by 1996, where it remained until the end of the decade. The social assistance grant is more difficult to generalize about because it was driven by unemployment. Social assistance grants increased from just over $52 million in 1990 to a peak of $97 million in 1996. When this service was transferred to the province, welfare rates were unified across the province, cutting payments to those previously receiving city welfare. In the early 1990s, therefore, transfers from other levels of government acted as a brake on civic spending; they fell in importance in the city budget, from around 18 percent in 1990 to only 15 percent in the early years of recession. This reflected revenue pressures on higher levels of government. Accompanying this was a desire by the provincial government to impose more conditionality on grants to the city. Unconditional funding as a share of the total transferred from the province declined throughout the 1990s from 55.3 percent to 52.8 percent. It fell to as low as 45.6 percent in 1998

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Spending Minus Social Assistance and Utilities

297.1 852.4 259.2 308.0 899.0 273.8 315.4 924.4 289.8 314.9 942.4 294.5 331.7 932.9 301.9 363.8 1004.9 309.0 366.5 1016.3 360.1 381.1 979.4 314.5 392.9 993.0 309.7 403.0 974.5 335.8 409.5 946.9 320.3

Social Assistance

Utilities

Total Spending

47.9 46.5 50.7 49.1 52.1 52.8 56.6 55.7 56.0

105.9 133.3 136.2 142.4 146.5 153.3 149.3 148.1 140.8 98.9 92.5

User Charges

358.1 381.1 358.1 364.0 378.6 381.6 377.1 386.3 383.7 388.8 388.9

Government Transfers

397.2 423.1 449.4 447.9 466.9 469.0 465.3 477.0 479.7 485.8 488.3

Business Tax**

872.3 917.9 928.5 937.0 974.4 1,020.0 1,020.3 1,039.7 1,050.9 1,042.9 1,076.8

Property Tax*

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Taxation

Total Revenue

Table 7.1. City of Winnipeg Revenues and Expenditures, 1990–2000

36.8 51.3 72.0 79.5 78.1 74.3 72.7 63.6 58.6 11.1 0.7

556.4 574.2 562.6 568.4 552.9 621.6 583.5 601.3 624.7 627.6 625.9

*1990 and 1991 combines business tax with property tax. ** Includes municipal social assistance transfers, which were phased out in 1999. Source: City of Winnipeg Annual Reports 1990–2000.

but since then has been increasing due to growth in the value of the income tax transfer (PMTS). Property taxes are the backbone of civic finances. As Table 7.1 shows, they accounted for $389 million in 2000, which equalled 36 percent of total revenues or 58 percent of revenues minus sales of services. As a source of revenue they are also very slow-growing and are not very sensitive to income growth. Between 1992 and 2000 total revenue from this source grew by only 8.7 percent; in contrast, provincial own-source revenues grew by 47.5 percent over roughly the same period. A major problem facing Winnipeg is the low rate of natural population growth combined with negative intra-Canada migration (i.e., people leaving Winnipeg for other parts of Canada), offset to some degree by positive external migration (i.e., people from outside Canada moving to Winnipeg). The result is that Winnipeg’s population grew very slowly between 1991 and 1999 from 625,200 to 628,100. At the same time more and more people are moving to dormitory towns just outside Winnipeg, which has raised their population from 46,000 to 49,500 over the same period. Between 1995 and 1999, Winnipeg’s population actually fell. Businesses and household and personal properties reflect these trends. Their numbers grow slowly by only 3.5 percent and 1.1 percent respectively between 1995 and 1999, which otherwise

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was a period of strong economic growth. The assessment base of Winnipeg for property tax purposes was absolutely stagnant at around $23 billion between 1993 and 2000. The assessed value of inner-city homes declined markedly, while those of the suburbs rose. Property taxes also are not a very equitable form of taxation. Property values are only loosely correlated with income levels, and delays in re-assessment mean that poorer areas, which suffer from declining property values, pay higher taxes than they should. The other major source of taxation for the city is the business tax. This is based on 9.75 percent of the assessed rental value of property and is only slightly more sensitive to income growth; it increased by a mere 17 percent from 1992 to 2000. The business tax accounted for about $56 million in 2000, which is less than 8.5 percent of revenues minus sales of services. In the early 1990s, the provincial government introduced a single rate of business tax, effectively reducing taxes on large businesses. The slow growth of tax revenues exerts continuous pressure on civic services, civic workers and the province to give the city more revenue. The election of Susan Thompson as mayor in 1992 aggravated these pressures. Her platform of reducing property taxes while maintaining the level of services could not be implemented, but the misguided attempt to do so put people and services under stress and prompted the creation of alternative budgets.4 There are three reasons why cutting property taxes was and remains such a popular political goal. First, relative to four other prairie cities, Winnipeg’s municipal property taxes on a representative home are high: $1456, relative to $1202 in Regina, $837 in Saskatoon, $753 in Calgary and $870 in Edmonton (City of Edmonton 2000). Second, since the city collects school taxes, it mistakenly is held responsible for school tax increases and for elevated school taxes generally. The city raises money for both the school boards and the province, forwarding some $370 million to them in addition to the $388 million it raises for itself. The arrangement contributes to the confusion over who, exactly, is raising these taxes. Winnipeg’s school taxes are about the same as those in Regina but are significantly higher than those in the other three cities. After adding municipal and school taxes together and deducting property tax credits, the net property tax for Winnipeg, at $2481, is lower than for Regina ($2679) but higher than for Saskatoon ($2124) and significantly higher than for Calgary ($1643) and Edmonton ($1605). Third, property taxes are billed, and usually paid, as a lump sum. They

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are, therefore, a much more visible tax than either income taxes or sales taxes and tend to breed more resentment. Local property taxes are not entirely under municipal control. The province influences their level and incidence (who pays what) in at least five different ways. First, the amount of tax payable is arrived at by assessing the value of property subject to taxation, establishing the portion of the value subject to tax and then applying the mill rate to the assessed portion. Thus a property assessed at a value of $100,000, portioned at 45 percent, with a mill rate of 33.3, gives a tax bill of ($100,000 x 0.45 = $45,000 x 0.0333 =) $1499. The province determines which properties are eligible and which are exempt, e.g., some government institutions, educational institutions, hospitals, private schools, churches and railways. Second, the province sets the portioning rate. The Tory provincial government significantly reduced the portioning applied to apartments, from 68 percent in 1992 to 49 percent in 1999, to benefit the landlord class; slightly reduced the rate applied to residential housing, from 47 percent to 45 percent; significantly increased the rate applied to condominiums, from 33 percent in 1992 to 45 percent by 2001; and left the rate for commercial and industrial unchanged. Third, the province offers property tax credits to reduce net property tax payments, but the reduction is considered an income tax credit. When, in the 1990s, the Tory government reduced property tax credits for lowincome earners and seniors, it effectively raised their taxes. Since the election of the NDP in 1999, property tax credits have been increased, easing the burden of these taxes on the lower-income groups. Fourth, the province affects property tax rates through the grants it advances to the city. Increases in grants since the election of the NDP provincially in 1999 have enabled the current mayor to deliver on a promise to cut property tax rates by 2 percent in each of three years. Fifth, the range of alternative revenue-raising powers allowed the city by provincial legislation directly affects the city’s dependence on property tax revenues. Provincial governments have kept the city on a tight leash in that regard, fearing that they will be held responsible by the voting public for any resulting tax increases. The province must also take some responsibility for property tax assessments being wildly different between adjacent municipalities, a growing problem for Winnipeg. Winnipeg raises a total of over $400 million from the fees it charges for its services, including transit, water, sewer, electricity (in conjunction with Manitoba Hydro) and garbage disposal. Since utility rates are regulated, the main considerations for most of these revenue items are

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cost recovery and income sensitivity. Many fees, such as water, sewage, landfill and ambulance fees, are slow to change, and hence their revenue lags behind income growth and inflation. For others, however, there are important environmental considerations. Transit fares were increased steadily in the 1990s, and ridership fell as the attractiveness of bus travel fell. Free parking in suburban malls and the promotion of urban sprawl encouraged this trend, putting further pressure on an already strained public transit system. These practices ignored the environmental and social benefits of a strong public transit system. Furthermore, from a social perspective, garbage and solid waste disposal has always been underpriced in Winnipeg, and recent attempts to introduce even a modest user fee to promote recycling, composting and moderation in consumption met with defeat. These seemingly innocent revenue sources raise some important and thorny public policy issues. City of Winnipeg Expenditure Issues

While city tax revenues did not fall with the recession in early 1990 (the flip side of their not being very sensitive to income growth), they did stagnate in 1993. Pressures to cut services started early in the decade and continued throughout. Excluding utilities and social services, city spending increased by only 12.4 percent during the 1990s—low even by the standards of provincial spending, which increased by 29 percent. From 1990 to 2000, absolute spending actually fell in four of those eleven years.5 Clearly, the fiscal pressures were real. To persuade the public that the budgetary situation was dire, the mayor and her right-wing council began the practice of floating “trial balloons” in terms of expenditure cuts. After generating a public outcry, they would back off and find the money by cutting less sensitive programs. One was never sure, therefore, what the real fiscal agenda of Council was. Without public protest, and the efforts of a small group of progressive councillors cooperating under the banner of Winnipeg in the Nineties (WIN), sensitive services most surely would have been cut and real cuts elsewhere would have been deeper. Over the 1990s, 2061 civic jobs were eliminated, largely through attrition. This equalled almost 19 percent of the workforce. The services targeted for reduction varied from budget to budget but included police and fire; libraries; swimming pools; social allowances for children to cover food, clothing and so on; transit route reduction and the elimination of Sunday bus service; and support for the arts community. The city contracted out a variety of services for management by the private

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sector, including some golf courses and arenas, and it threatened to introduce a host of new or enhanced fees for services such as the zoo, swimming pools, arenas and libraries (calculated from City of Winnipeg annual reports). Expenditure Pressures and City Planning in Winnipeg

From the outset, Cho!ces maintained that the pressures on the civic budget owed their origins, in large part, to urban sprawl. Local developers and construction, influential members of a business class that effectively has controlled city council for years, have been allowed crudely to advance their own interests against those of the majority of the citizens of Winnipeg through the development of suburban tracts of land. By providing the needed infrastructure for this, the council has systematically undermined the older, core areas of the city. This was done at the expense of taxpayers throughout the city, home-owners in the older parts of town, civic employees and those dependent on public transport. The beneficiaries of this urban sprawl have been land speculators, property developers, contractors, building suppliers, real estate agents, lawyers, auto retailers, furniture stores and a range of both large and small business owners—in short, the local business elites. The capital budget of the city is a road map of future spatial development in the city and a guide to the direction of future urban sprawl. But it tells only a part of the story. Because urban sprawl raises the costs of providing services across the city, it pushes up property taxes in both absolute terms and relative to those in neighbouring municipalities. This in turn promotes the growth of dormitory towns, whose residents rely heavily on Winnipeg for services and jobs but flee outside city limits in order to pay lower property taxes. As urban sprawl raises the cost of providing city-wide services, it increases the debt of the city and the debt-servicing pressures on the operating budget. This stimulates councillors to look at “creative” financial alternatives, such as the building and financing of capital works through public-private sector partnerships (PPPs). Such an arrangement governs Winnipeg’s Charleswood Bridge, a $12 million project designed, built, owned and maintained by the private sector. The city leases the bridge and may assume ownership of it after twenty-five years. It is generally conceded that the direct cost of the bridge was lower and that the bridge was built much quicker than might have been the case had a conventional tendering and construction approach been taken.6 Winnipeg is notorious for large over-runs on civic projects. Instead, the

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savings in time and money from the private sector designing and building the bridge could have been enjoyed by the city had it taken Charleswood on as a public project and employed a design-build approach itself.7 In the end, it would have owned the bridge. The cost of borrowing money implied in the city’s lease payments to the private owners is well in excess of the city’s own cost of borrowing, effectively adding an extra $1.4 million to the capital cost of the project (De Luca 1997). Moreover, the city’s professional groups, architects and engineers feel that when the private sector used the design-build approach it imposed huge up-front costs on both bidders and the city, costs amounting to some $1.63 million (Charleswood Bridge Project 1999)—13.5 percent of the project’s cost. They also feel that these indirect costs were not fully understood or built into the decision. Furthermore, while the original intention was to shift the debt costs of the bridge off the city’s books, this was not allowed as the lease was declared a “capital lease” and according to public accounting rules, it must be treated as normal debt. Throughout Canada, public-sector capital projects leased from the private sector invariably have cost taxpayers more than they would have had the public sector financed them directly (Loxley 2000). Nevertheless, in 2002 the City of Winnipeg was considering building a new water treatment plant through a PPP approach. Alternative Budgets for the City of Winnipeg

Three different but closely related approaches to alternative civic budgeting were adopted by Cho!ces during the 1990s. The first was the single-issue budget, which attempted to prevent cuts to a specific service by identifying several, seemingly trivial, alternatives that were designed to embarrass city council into reversing its plans. For example, in the early 1990s the council threatened to close three inner-city libraries, saving about $200,000 a year. Local schools and community organizations mobilized against the move. Cho!ces prepared a single-page handout entitled “Four Easy Alternatives to Closing Our Libraries.” The following alternatives, any one of which would have raised the money needed, were costed out from the City budget: i ii

raising the provincial grant to the city by a mere 0.14 percent; reducing the costs of administering the Mayor’s Office, the council and the board of commissioners by a mere 0.6 percent,

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iii cutting the budget for Winnipeg 2000 (a city booster organization, which Cho!ces considered quite ineffective) by 28 percent; and iv raising the tipping fees at garbage dumps from $25 per tonne to $26. This flyer was distributed to the media during a community protest, which Cho!ces helped organize and which involved school children encircling their local library (to the accompaniment of live and lively music) to “protect” it from closure. The libraries were not closed. A second campaign a few years later identified five ways to avoid closing community health clinics and the Native Family Health program, services and facilities, which cost the city $324,000: i

modestly increasing the business tax in line with property tax increases (the increase on two identified buildings would have been enough to cover the amount needed); ii raising the cost of a round of golf on city golf courses by $1.50; iii reducing administration costs in some of the city divisions to average levels; iv reducing the budget for “Image Route Enhancement” (i.e., prettifying main streets); and v reducing spending on services, materials, parts and supplies by a mere 0.3 percent. A third single-issue budget campaign, which was highly effective in catching the attention of the media and in raising public awareness, was “A Simple Multiple Cho!ces Quiz” on the business tax (see Figure 7.1). This was distributed outside Winnipeg’s downtown branch of the Canadian Imperial Bank of Commerce (CIBC). It clearly contrasted the large increases in property taxes paid by individuals over the previous decade with the zero increase in business tax paid by the CIBC, in spite of huge increases in its net income. Ordinary members of the public expressed genuine, spontaneous outrage over these numbers while a bewildered bank manager floundered for an explanation of why the burden of the business tax on the bank had fallen so dramatically. This well-publicized “hit” helped generate scepticism about claims by the city council that cuts in essential services were unavoidable due to revenue constraints.

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Figure 7.1. Cho!ces Civic Quiz CHO!CES a coalition for social justice PRESENTS A Simple Multiple Cho!ces Quiz 1.

2.

3.

How much did your homeowner’s property tax increase between 1980 and 1989? a. 0 percent b. between 40 percent and 99 percent c. 100 percent d. more than 100 percent How much did the Canadian Imperial Bank of Commerce’s (CIBC) net income (before tax) increase between 1980 and 1989? a. 0 percent b. 100 percent c. 200 percent d. 320 percent How much did CIBC’s business tax increase between 1980 and 1989? a. 0 percent b. 50 percent c. 100 percent d. 200 percent e. 320 percent

ANSWERS 1.

The correct answer is either b, c or d. Homeowners’ property taxes increased anywhere from 40 percent to more than 100 percent during the ’80s. Answer “a” is correct only if someone made a big mistake.

2.

The correct answer is d. The CIBC saw its net income before taxes increase from $167 million in 1980 to $702 million in 1989.

3.

The correct answer is a. In 1980 the CIBC paid $77,760 in business tax for 1 Lombard Place and in 1989 it paid $77,760, a net increase of 0 percent.

This is taking place as your city council is discussing cuts to essential services. Your taxes went up while the city ignores the CIBC as a source of increased municipal revenues. FINAL QUESTION Is this fair? a. Yes b. No For more information contact Cho!ces: a coalition for social justice at 957-7010.

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Table 7.2. City of Winnipeg Budget of Cho!ce Revenue Reality Tax1 Grants in Lieu Business Tax2 Local Improvements Amusement Tax Electric & Gas Tax Total Tax Manitoba Grants, excluding Social Assistance Social Assistance Federal Grants Development Cost Offset3 Regulation Fees4 Goods/Services Sales5 Interest & Debt Transfers VLT Revenue Other Revenue Total Other Revenue Total Revenue

1997 358,344,491 35,145,570 55,650,000 4,217,000 1,900,000 12,653,600 467,910,661

2002 405,433,900 38,048,271 67,624,244 3,805,000 1,900,000 13,906,937 530,718,353

69,029,671 42,664,132 146,872 3,000,000 15,806,412 29,495,024 14,604,898 35,950,510 6,500,000 500,176 217,697,695 685,608,356

71,093,522 40,865,511 124,872 6,000,000 17,523,046 28,411,095 14,962,199 34,741,510 6,500,000 430,083 220,651,838 751,370,191

Total Expenditure

685,608,356

751,370,191

Expenditure Mayor’s Office Council Commissioners City Clerks Audit Corporate Services Finance General Gov’t-Corp Total General Gov’t

449,159 1,650,446 1,952,622 4,773,588 830,014 17,491,993 9,222,806 2,282,604 38,653,232

465,266 1,777,879 2,125,596 5,296,313 920,904 18,680,069 9,954,888 2,373,752 41,594,665

Assessment Land Development Refuse Collection Streets/Transportation Street Lighting Civic Buildings Water & Waste Fire Police Health/Community Services Social Services6 Parks & Recreation

10,793,788 11,919,716 14,189,580 54,118,274 9,099,663 21,803,948 3,259,416 67,348,629 96,161,035 12,624,630 60,977,138 69,641,949

10,428,808 13,224,968 16,306,088 53,825,355 10,096,109 24,191,559 3,616,334 74,723,545 104,611,316 14,007,072 59,524,765 77,267,992

Alternative Civic Budgets / 145 Libraries7 Museums Housing & Environment8 Underutilization Consultant Adjustments9 Sub Total Total Departmental

15,021,588 451,589 1,401,658 3,774,198 2,300,000 450,286,799 488,940,031

16,666,506 501,040 1,975,717 3,026,398 3,912,060 480,081,512 521,676,177

Debt & Finance Taxes Insurance Cultural Grants10 Other Grants Employee Benefits Contrib/Appropriations Transit11 Ambulance Other Authorities12 Other Pan Am Games Tax Refunds Prior Year Commitments Prior Year Deficit Sundry Adjustments Sub Total Total Expenditure

121,532,995 7,919,259 1,547,900 1,974,552 2,894,335 5,746,797 2,350,000 27,397,308 2,136,213 4,418,914 374,594 1,775,000 7,600,000 368,120 7,948,338 684,000 196,668,325 685,608,356

159,900,000 8,879,849 1,732,499 3,479,835 1,490,800 4,521,735 2,330,000 30,997,540 1,970,258 4,714,784 374,594 5,600,000 518,120 3,184,000 229,694,014 751,370,191

General Note: This budget projection has been developed within the powers the City of Winnipeg currently has. Specific Notes: 1. Realty taxes would rise by 2.5% each year. 2. Business tax would increase over the period to 11% of market rental value. 3. Through more efficient negotiations by the City which take into account the costs of providing community centres, fire, ambulance, bus and police services the developers of new lots would be charged, on average, an additional $5000 per lot. 4. There would be an additional $1 million from parking lot permit fees. 5. The sale of land has been reduced by $648,000 in 1997 and eliminated in subsequent years. 6. Social assistance rates for ALL children are reinstated. 7. There is a 5% increase in funding for libraries in 1997. 8. Funds earmarked for retrofitting, cooperative housing and environmental initiatives. Details are provided elsewhere. 9. These savings are the result of the elimination of contracts paid out to consultants when the work could be done by City staff. 10. Cultural grants are increased to roughly 0.5% of the total expenditure over the 6-year period. 11. Transit costs increase more rapidly than other costs due to enhancements required in the system. 12. Support for Winnipeg 2000 and Tourism Winnipeg is eliminated. Instead $200,000 is provided in the form of a grant to SEED Winnipeg to promote inner-city community economic development.

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These exercises were quick, easy and highly effective. They were important elements of more broadly based community opposition but also were integral to the campaigns because the media and the public wanted to know concretely how cutbacks could be avoided. The aim was not necessarily to persuade the city council to adopt any of the alternative budget measures mentioned. Rather, it was to emphasize to them that the threatened services were considered important by the community and that the money needed could easily be found in any number of ways. In this they were successful, but only in conjunction with broader community action. The second approach to alternative civic budgeting adopted by Cho!ces was the preparation of entire budgets. Since 1993, entire alternative city budgets were prepared, usually for one year at a time, although the 1997 budget also contained a five-year projection. The budgets were based upon the following principles: 1. the effective and efficient delivery of basic civic services; 2. basic civic services are best delivered by the public sector; 3. the public sector labour force should be adequately compensated in secure jobs and be representative of the community; 4. recognition that Winnipeg is a slow growth city, not in need of urban sprawl, costly infrastructure or megaprojects; 5. the need for environmentally responsible development; 6. the need for a healthy, safe, anti-racist and equal opportunity community; and 7. the need to reduce over-reliance on the inequitable property tax, diversify revenue and receive adequate funding from senior levels of government. (Cho!ces 1998b: 89) To prepare alternative budgets it is necessary to review not only the city’s operating budget but also its balance sheet, its capital budget and the budgets and financial statements of important public utilities operated by the city (e.g., water, electricity and transit). Unlike budgeting for other levels of government, the problem typically is not lack of data but what to do with the mountain of data available at the civic level (Harris 1998). The alternative civic budgets usually presented revenue in two schedules. The first scenario assumed no change in funding by the province and no changes in the powers of the city to raise revenues; the

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second argued for enhanced provincial support and greater revenueraising powers. Under the terms of the first scenario, modest increases in the property tax were unavoidable in achieving a balanced budget since this source accounts for some 60 percent of non-sales revenue. For this reason, scenario one usually called for increases in property tax through the elimination of exemptions for private (for-profit) schools and colleges. It also made the property tax more equitable by rebating increases to seniors and the poor and by shifting the burden of taxes more quickly from older to new neighbourhoods, which addressed the problem of assessments lagging behind market value changes. Alternative civic budgets also increased the business tax in line with property tax increases, but argued for differential rates so that small businesses paid less than large. They called for the indexing of a myriad of small civic fees, such as zoning fees and construction permits, the value of which had lagged seriously behind inflation. Cho!ces also sought legal advice on the ability of the city to raise two new forms of revenue, within its existing powers. The first was from fees on parking lots, both to discourage the suburbanization of shopping malls and to encourage the use of buses. The second was to charge development fees to reimburse the city for the full cost of providing services to new subdivisions. In both cases the legal advisors suggested that these would fall within the city’s existing mandate. The City of Winnipeg has built up quite significant reserve funds over the years, both within the operations of the city itself—e.g., the Equipment Replacement Reserve ($24 million), the Mill Rate Stabilization Reserve Fund ($5.2 million) and the Fiscal Stabilization Reserve Fund ($13.6 million)—and in the civic-owned utilities. In 1999, total reserves stood at $287 million (City of Winnipeg 1999: 21). Some of these are well in excess of what is likely to be needed in the foreseeable future, and alternative budgets frequently recommended drawing them down to avoid cutting important services. Indeed, in recent years pension fund surpluses have been used in this way. Cho!ces consistently argued that some revenues should be reduced. Bus fares were the main target of this recommendation. Cho!ces believed this was the only way to reverse the fall in ridership and help reduce the use of cars and their adverse impact on both the environment and on the physical layout of the city. Fees for street and neighbourhood parties were also slated for abolition. Cho!ces resisted proposals to raise revenues by imposing or increasing fees for library cards, recreation for seniors, admission to the zoo and frontage levies, all of which it considered inequitable.

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A longstanding position of Cho!ces, reflected in the second revenue scenario of the civic alternative budget, has been that the province should broaden the city’s tax-raising powers. The city should be able to impose a gas tax to assist it in maintaining roads and in building an efficient public transit option to the car. The city should also be able to impose a hotel tax to offset expenditures on tourism and the convention centre. Finally, Cho!ces recommended the adoption of a photo radar system that inevitably would generate increased revenue from fines. The budget’s second revenue scenario, which generally avoided property tax increases, advocated enhanced provincial funding for the city. Transferring more tax points to the city would be a more progressive way of funding than the property tax system and would be more responsive to income growth. In addition, a case was made for increasing conditional funding in specific areas, particularly provincial funding for transit, the library system and the public health system, which, in proportional terms, had declined significantly. Had this advice been followed, it inevitably would have reduced dependence on the property tax system. With respect to expenditures, Cho!ces maintains that, contrary to claims made by previous mayors and councils, the financial problems facing the city are not the result of excessive spending on basic services or of excessive numbers of overpaid civic workers. Drawing on the work of Jeffrey Patterson (1996), Cho!ces argued that “compared with other Canadian cities of similar size, Winnipeg spends relatively little per capita on basic services; these services are delivered by our civic workers at relatively low cost” (Cho!ces 1997b: 3). For the most part, the alternative civic budgets have been defensive, attempting to preserve jobs,8 salaries and services in the face of threatened cuts. The budgets have also contained some extension of existing services and frequently some new proposals. From year to year specific expenditure proposals were more varied than revenue proposals as the targets for cuts by the council shifted. Protection of libraries, swimming pools, building inspectors, community health workers and community clinics, and funding for the arts community building maintenance, police, fire and bus services were ongoing struggles. Throughout the 1990s the attacks on civic workers and on civic services were unrelenting. The main task of alternative civic budgets was to demonstrate the essentially ideological nature of what was presented as an unambiguous budget-balancing problem. During the years of high unemployment, however, Cho!ces used the civic budget to create new jobs and to

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enhance public services, building on an established job creation track record by the city. The budgets of the early to mid-1990s recommended restoration of funding to parks and recreation facilities, where most earlier job losses had taken place, and they linked this to the need to improve safety for children and youth. Job creation had other dimensions too. There was a very strong environmental component, consisting of riverbank cleanup, Dutch elm disease prevention and the clean-up of old industrial estates. A strong emphasis was placed on housing inspection, renovation and retrofitting. Indeed, due to the ongoing nature of the city’s housing and environmental problems, and the need for the authorities to provide targeted assistance to increase employment among Aboriginal youth and young single mothers, the housing and environmental components retained their significance even when the unemployment rate fell. Finally, the budget recommended the recruitment and training of community health outreach workers (see Cho!ces 1995c). Cho!ces argued that some funding should be reallocated from boosterish, publicly-funded agencies such as Winnipeg 2000, Tourism Winnipeg and the Forks Renewal Corporation to agencies such as SEED Winnipeg, an inner-city agency that promotes financing and development of micro businesses and community ventures. It recommended cuts in overtime and in expenditures on outside consultants, non-salary expenses and corporate fringe benefits as ways of protecting vital services. After initially opposing the use of Autobins9 in garbage collection, it later promoted the idea as a way of reducing collection costs. It vigorously and consistently opposed contracting out, privatization and the unilateral opening up of collective agreements. The third approach to budgeting by Cho!ces addressed what might be called the structural characteristics of the civic budget. Elements of this approach were central to the preparation of whole civic budgets in that Cho!ces always commented upon the capital budget, which reflects Council’s vision for the future. Cho!ces routinely opposed capital spending on the building both of new subdivisions and of the bridges; roads; sewer, water and hydro lines; schools; fire and police stations; community centres; and libraries that these new subdivisions require. This sort of development raised debt-service charges as well as the costs of urban government and it increased pressures to reduce services in older, established parts of the city. In 1997, Cho!ces went further. It organized a conference called “Dynamic Communities: Fighting for Our Future” to study Canada’s “rich and often innovative community-building ini-

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tiatives” in which “human and local rather than distant and corporate needs take precedence” (Cho!ces 1998b: 1). This conference examined: • • • • • • • •

strategies for building healthy cities; the causes of urban sprawl and what might be done about it; urban Aboriginal government; community economic development; urban housing issues; urban ecology; the importance of public services; and the contribution that alternative budgets can make to the above structural issues of urban existence.

The conference provided a rich policy context for activists and a political and educational foundation for those involved in alternative budgeting. It helped build alliances between activist groups and the city involved in their own specific struggles around urban issues. Educational work of this kind is vital if activists are to have a solid analytical foundation for their budget activism. It has continued in recent years, with the emphasis on preventing and reversing urban sprawl. Studies are published through the Canadian Centre for Policy Alternatives—Manitoba Branch (see Leo and Brown 1998; Harris and Scarth 1999; Lennon 2001; Lennon and Leo 2001). The other major civic budget issue of a structural nature in which Cho!ces took the lead concerned efforts to keep the Winnipeg Jets hockey team in the city. Doing so meant providing it with huge public subsidies for both its operating costs and the costs of a new hockey arena. While this issue involved budgets at all three levels of government, it was played out mainly at the civic level. Activists in Cho!ces, led by Jim Silver and Carl Ridd, eventually formed a more broadly-based organization, Thin Ice, to handle what became the number one public policy question in the city, if not the province, between 1991 and 1995. Attempting to save the Jets raised complicated political and business issues, the intricacies of which have been skillfully elucidated by Jim Silver (1996), whose book remains the unchallenged last word on this topic. For Thin Ice, a major dimension of the public policy debate involved budget priorities. At a time of recession and harsh public cutbacks at all levels of government, when citizens were being told they could no longer afford the levels of public service to which they had become

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accustomed, did it make sense to pour millions of dollars into subsidizing the owners of an NHL team and their millionaire players? Thin Ice and Cho!ces said no. They argued that there was no business case for the Jets, even with massive subsidies. Convincing the public of that was no easy challenge but, after years of solid analysis and debate, a clear majority of the population began to share Thin Ice’s position. Important segments of the local business elite, the conservative element of city council, the Tory provincial government, the media and high-profile sports personalities supported public subsidization of the arena, however. Early in the debate they mobilized an unprecedented outpouring of public support for the Jets, even though the amount of public money needed to keep them in the city, which was never specified, was clearly out of reach for the city and the province. In the end, failure of the private sector to produce a credible financial package led to the departure of the Jets (their owners presumably making huge capital gains in the process). Thin Ice had been correct about the impossible business case for retaining the Jets, as well as about the absence of a convincing social case for spending public money on this venture. As it was, a conservative estimate of the cost to the public of trying to save the Jets is about $55 million, excluding any tax breaks the owners received (Silver 1996: 166). The bill would have been much higher had the proposal for a new arena gone forward. Opposition to subsidizing the Jets was built into the alternative budgets of Cho!ces at both the civic and the provincial level. The purpose of doing this was twofold: first, to educate people about how much money was being spent in this way; and, second, to show how the money could be better spent elsewhere. One of the beauties of alternative budgeting is this ability to use the budget not just for negative opposition to poor spending but to indicate concretely what the positive alternative spending could be. The arena and Jets subsidization is best considered a structural item because it would have been a drain on the civic budget indefinitely and possibly would have drained the budgets of other levels of government too. But the issues were not only budget-related. Thin Ice developed a critique of the social cost-benefit analysis of spending money in the way proposed. It brought in specialists in sports economics, who showed that the problems facing the Jets were not unique and would not be solved easily or cheaply. The experience elsewhere of using arenas and sports franchises to promote downtown economic development was carefully examined and found to be dismal (Silver 1996: Chapter 4). Thin Ice

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organized conferences on these themes and aired them on public-access television. It criticized the behind-closed-doors approach to decision making at both the civic and provincial level, exposed the pressure on politicians to make decisions based on insufficient information or on no information at all and promoted more open democracy. The issue of building a downtown arena again has surfaced under the NDP government of Gary Doer. This was not part of the NDP’s election platform and has met once again with public opposition, albeit on a much lower level than the earlier proposal. It is a joint privatesector/tripartite-government proposal with around $40 million in upfront government money for capital and with ongoing subsidies hidden in sales tax and property tax breaks for the new arena and in the ceding of on-site gambling machines to the private owners. It is supported politically by all three levels of government as a way of reinvigorating the downtown, but local experts have again questioned whether or not these promised spinoffs will be realized (Hudson 2000). Much of the opposition to the latest proposal revolved around demolishing the old Eaton’s building, an important consideration but one not likely to mobilize large numbers of people. It is not listed as a heritage building and no commercial alternatives have come forward for the deserted building. Had the arena been located elsewhere, as originally proposed, the opposition would have been even more muted. The reduced opposition to the proposal is explained by a number of factors: the reduced scale of the new arena; the belief that a new facility is indeed needed; exhaustion on the part of activists involved in the first arena battle; and the perception of many that the new deal is a “done deal,” pushed through with little public consultation. The Alternative Budget for the Ottawa Region, 1997 Canada boasts at least one other alternative civic budget initiative—the Ottawa budget of 1996 (Opt!ons 1996). It was organized and produced by Opt!ons, a group consisting of the Social Planning Council of Ottawa-Carleton and a coalition of Ottawa-Carleton resource centres, tenants associations, trade unions and churches. It was inspired by the threat of deep cuts by city Council to deliver a budget with no tax increases. Cuts would have affected recreation programs for children, services for newcomers, people on low incomes, seniors and women. Street lighting and snow removal would have been cut back and tree planting and pruning eliminated. Bus fares would have been increased. The Alternative Regional Budget (Opt!ons 1996) provided alternative ways

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of finding the required cash: save children’s programs by cutting back on councillors’ parking privileges and the chairperson’s chauffeur-driven car; reduce net spending by making infrastructure fees fully cover civic costs; redesign water charges to discourage large-scale use. The alternative budget recommended more job creation, freezing bus fares, reducing business-oriented spending, increasing training and maintaining community health services. It provided for a slight tax increase and backed this up with evidence that citizens were prepared to pay to protect services. The alternative budget listed the phone numbers and contact addresses of all city councillors. It supported its arguments for preserving spending on children’s sports facilities and avoiding user fees with a petition, which was prepared by the Ottawa-Carleton Girls and Women in Sports Committee and which called for city council to adopt a policy of equitable access to public recreation facilities. One of the objects of this policy was to reduce the number of children at risk. Participatory Democracy in Porto Alegre Brazil As an example of democratic budgeting at the civic level, the Porto Alegre budgeting process may contain useful lessons for Canada. Porto Alegre is a city of 1.3 million, located in the state of Rio Grande do Sul in southern Brazil. The model of participatory budgeting developed by the municipality is receiving increasing attention as a radical way of involving citizens in allocating scarce budget resources in a principled and systematic manner. The process was initiated in 1989 by the newly elected Workers’ Party (the PT) and has been hailed as “the most successful example of participatory democracy yet seen in the hemisphere” (Jacobs and Bassett 1999: 19). The budgetary process is unique, first, because it represents the people at several different levels; second, because it utilizes a series of weights and grading criteria to assign priorities in the allocation of funds; and, third, because it provides for the education of the citizenry in participatory budgeting. Representative Structures

In an effort to break with past approaches to budgeting, which were technocratic, authoritarian, paternalistic and frequently fraudulent, the current approach advocates democracy, openness and honesty. For purposes of the budget, the city is divided into sixteen regions, the smallest covering about 20,000 people and the largest about 275,000 (De Sousa Santos 1997: 18). Five thematic plenaries are convened to cover

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the following sectors: transportation; education, leisure and culture; health and social security; economic development and taxation; and city organization and urban development. Each region and thematic area organizes assemblies, which are open to all citizens and representatives of civic bodies. They meet twice a year (March/April and June/July) to discuss and evaluate previous years’ budgets and investment plans; policy governing the upcoming budget; and demands from organized community groups such as neighbourhood associations, unions, mothers’ clubs and sports and cultural centres. The formal meetings of the assemblies (RODADA) also determine sectoral and thematic priorities for each region. These assemblies elect representatives to the Forums of Delegates and the Council of Participatory Budget (COP). The COP, which is the main participatory body for finalizing the budget, meets weekly from July/August to December. It sets resource allocation criteria and mediates between different regions and themes, and between popular organizations and the municipal government (which is still formally responsible for the budget). The COP submits the budget to the government by September 30 and then works on the investment plan until December. The Forums of Delegates act as monitors, as intermediaries between COP and the regions and thematic areas and as mobilizers of the citizenry in the budget process (De Sousa Santos 1998: 472–73). Weights and Rankings

Regional and thematic gatherings prioritize up to four sectors, assigning a grade of 4 to the most important and 1 to the least. Budget requests to regional or thematic meetings are also prioritized. They are then combined for every sector and forwarded to the city executive. Allocations are debated upon within COP and the executive structures. A similar exercise is undertaken for the capital budget. Weights are assigned to lack of service or infrastructure, population in need, total population and priority of the region. For each service, grades are totalled by region and each region receives the same percent increase in service as it receives percent of total grades. Thus, if a region receives 20 percent of total grades assigned in calculating the need for street paving, it will receive 20 percent of the funds available for street paving. This methodology is both subjective (i.e., political) in the determination of priorities and rankings, and objective once the rankings have been assigned. It allows the COP to allocate investment resources by region, locality, theme and sector.

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Education and Mobilization

This participatory budget is an ongoing educational and political mobilization exercise. Priorities, rankings and budget allocations are all arrived at through discussion and negotiation in a transparent process and the results are made widely available in the community (see Porto Alegre 2001a, 2001b). In the words of the municipal government, the exercise is becoming “a practical school of democracy” (Porto Alegre 2001c). Formal provision is made in the budget cycle for courses on public budgeting for members of the COP, who are elected annually, and for seminars on public budgeting in each of the regions (De Sousa Santos 1997, 1998). Popular education and mobilization are, therefore, intrinsic to the process, and their success is evident in the growing number of participants, from about 500 in the first regional assemblies to more than 100,000 today (Jacobs and Bassett 1999: 20). Accomplishments, Challenges and Replicability

In 1988 when the PT came to power the city was bankrupt and initial attempts at democratizing the budget were frustrated by a lack of resources. Sound debt-management policies and efforts to raise revenues from new sources and improved tax collection soon bore fruit. The broad-based participation in budgeting led to changes in fiscal priorities and a very equitable approach to the delivery of public services based heavily on need and peoples’ expressed priorities. In the early years, for instance, the city bureaucrats’ emphasis on transportation was replaced by the people’s on child care (Jacobs and Bassett 1999). Porto Alegre now boasts some of the best indicators for living standards and access to public services in the whole of Brazil (De Sousa Santos 1998: 463–64). Nevertheless, the budget process does have its problems. The participation of women, Black and illiterate citizens, which is quite high in the neighbourhood structures, could be improved in the central structures (Jacobs and Bassett 1999: 21). Popular organizations would like more time to discuss issues than the executive feels it can afford. Funds available at the municipal level are heavily dependent on transfers from senior levels of government and are susceptible to cutbacks due to structural adjustments and other macroeconomic and regional economic disturbances (Ǣaatay 2000: 24–26). Porto Alegre is a heavily industrialized, relatively wealthy city. Poorer municipalities might be more constrained in what they can accomplish at the civic level through participatory budgeting. Still, the budget process has not been a static one, and as problems arise structure, institutions and process have been adjusted.

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This ability to deal with difficulties has been an essential element in the success of the exercise. The Porto Alegre experiment is a remarkable exercise in fiscal democracy and is being emulated in other cities of Brazil. When considering it as a model, for use in North America or Europe, however, one must realize that the city has a long tradition of democracy and struggle against authoritarianism (De Sousa Santos 1998: 466). It may be difficult to emulate this model in cities without such a strong democratic tradition. Notes 1.

2.

3. 4.

5.

6.

7.

8. 9.

It also covers a variety of other agencies such as boards and commissions. These will not be dealt with here but their activities may be included in some of the data used. Cho!ces prepared a budget submission to the Winnipeg No.1 School Board in 1996 (Cho!ces 1996b), suggesting alternative ways of avoiding service cuts. It was also involved in preparations for the 1997-98 budget, but shortage of resources prevented any sustained work in this area. School boards employed 543,000 people in that year. In Mayor Thompson’s first two years of office the mill rate rose from 32.919 to 36.257, an increase of over 10 percent. In 1994 it fell by 13 percent to 31.538 and has not since exceeded 33.479. The large fall in 1994 was accompanied by an increase in property assessment of 18 percent, however, so average taxes actually increased (City of Winnipeg, Annual Reports, various years). City of Winnipeg expenditure figures include provisions for property tax appeals, which are really negative revenue items. These fluctuate greatly from year to year, being $16 million in 1992, $34 million in 1993, $11 million in 1994 and $51 million in 1995. Great care must be exercised, therefore, in interpreting spending data. In conventional approaches, contractors bid for a pre-designed project and are accountable to independent professional architects and engineers for meeting design specifications. Cost over-runs are common. In a design-build approach, contractors bid on a project and employ professionals to design the project as it is built, saving themselves time and, possibly, money. Professionals generally are less enthusiastic about this approach than are successfully bidding contractors as they lose much of their independence. See De Luca 1997 for an elaboration of these points. Between 1993 and 1995, the City of Winnipeg cut 900 civic jobs (Cho!ces 1995b). Autobins are very large garbage containers, one or two of which are supplied for the whole street. Residents deposit their garbage, which is collected by large, automated trucks. The city does not collect from individual households’ garbage bins.

8. ACCOMPLISHMENTS AND POTENTIALS Alternative budgeting is fast becoming an established form of political activity, not just in Canada but throughout the world. It represents a relatively new and important form of resistance to attacks on working men and women, on caregivers, on the poor and on the environment by governments following neo-conservative fiscal policies. At one and the same time, alternative budgets embody a critique of those policies and another vision of policy, which is people-centred, pro-women, propoor and pro-environment. They also embody a more democratic vision of how policy should be developed and of who should be involved in policy formulation. They put governments on notice that their policies are being followed closely and their impact measured. Alternative budgets enhance economic literacy. As people gain access to new information and new insights, levels of public awareness and public debate are lifted, putting limits on state activity and moderating its potentially adverse effects. As the great German fiscal sociologist Rudolph Goldscheid argued in 1925, “one must do violence to the facts in order to do violence to the people” (1958: 206). Just as alternative budgets in Canada can be seen as a constructive response to the violence of fiscal neo-conservatism, recent interest in people-centred budgets in developing countries owes much to the daily fiscal violence visited on people by neo-conservative structural adjustment programs imposed by the International Monetary Fund and the World Bank (Loxley 1998). The preparation of alternative budgets has two closely related objectives: to demonstrate that there are, indeed, alternative approaches to economic and social policy; and as a form of political mobilization. In creating these budgets, activists learned about the possibilities and the limits of reform and gained greater credibility and confidence in agitating for social change and in opposing regressive government policies. This process of submitting policy ideas to a disciplined analysis in an open and socially inclusive forum represents a unique accomplishment. 157

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People also became involved in creating alternative budgets because they recognized that their communities were under attack. Whether it be at the federal, provincial or municipal level, valued public services were being eliminated, reduced or turned over to private operators. Alternative budgets are meant to be weapons in a war of resistance. Alternative budgeting ought then to be assessed both in terms of its contribution to political mobilization and its impact on government policies. But such assessments are not easy to make. For one thing, the nature of Canada’s parliamentary system makes decision making highly centralized, particularly at the federal and provincial level. Even if individual legislators were to become convinced of the merit of the proposals in an alternative budget, they have little immediate input into the drafting of a federal or provincial budget. Certainly, throughout most of the 1990s, those who steered the financial tillers across Canada were committed to a very different set of values and goals. Some of the more striking successes have come at the municipal level, where lack of a defined party structure has produced a budget process that is more fluid and open to change. As discussed earlier, Cho!ces budgets and critiques of proposed budgets played a role in saving threatened services in Winnipeg. These victories were achieved in concert with other activists (e.g., supporters of public libraries, schools and seniors) and a small group of progressive city councillors. The municipal budgets have raised awareness of the need for alternative revenue sources for the city. They have highlighted duplication, overlap and redundancy in the city’s “booster” organizations, and these have now been rationalized. They simplified the voluminous budget material published by the city and made it accessible to Winnipeggers, using tabloids, pamphlets and budget summaries. This allowed the non-specialist to engage city council. It also made it more difficult for city politicians to “snow” the electorate on the extent of budget pressures and on the real nature of their priorities. The alternative budgets have drawn attention to the many contingency and other funds held by the city, which were well in excess of prudent needs; they have argued for their use and have used them to achieve more realistic budgeting in future years. Above all, they have been a successful tool for highlighting the problems of the inner-city and its need for improved housing and other facilities, especially for the growing Aboriginal population. They have also clarified the link between inner-city decay and the push to develop the suburbs. However, the lack of a clearly defined party system at the civic level has been a long-term obstacle to the city council’s

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development and adoption of a coherent budget that is based on the goals and approaches advocated in the alternative budgets.1 A review of the Alternative Federal Budgets and the Manitoba Budgets of Cho!ce offer a better appreciation of the potential of alternative budgets. These particular budget projects are not necessarily the most successful of their kind, but they now have lengthy track records (the first Budget of Cho!ce was released in 1991), and the insight they offer to both the federal and provincial budgeting process is invaluable. They above all, have been successful, with others, in highlighting the problems of the inner city. The Impact of the AFB on Government Policy It is difficult to determine what direct impact, if any, the Alternative Federal Budget has had on federal government policy. Opposition to cutbacks has been successful in some areas, and some tax and program spending initiatives have been consistent with AFB proposals. In most cases, however, these outcomes are products of broader political campaigns of which the AFB was but a part. The most notable is the government’s recent abandonment of its proposed Seniors’ Benefit, which successive AFBs attacked but which was defeated mainly due to opposition from seniors’ organizations across the country. A number of other government spending initiatives probably owe at least something to the AFB. In 1999 the federal government eventually granted over $3.5 billion in pay equity settlements to civil servants, which the AFB had championed and shown to be affordable. The government also backed away from some of its more egregious attacks on seasonal workers and doubled the duration of maternity and parental leave under the unemployment insurance scheme. It cut business subsidies in the 1995 budget; established the 1996 Health Services Research Fund, which is remarkably similar to an AFB proposal on funding for alternative delivery models; expanded infrastructure and job creation spending, especially on youth, after 1995; strengthened research funding and introduced scholarships for students in need in the 1998 budget; expanded Aboriginal funding; reinstated some cultural spending; and heightened Revenue Canada’s ability to collect taxes. The 1999 AFB devoted considerable effort to demonstrating that dramatic increases in health care spending were feasible. The government decided to raise health transfers to the provinces by $2 billion in 1999/2000 and to maintain them at the new level in the following year, but the AFB was only one of many voices calling for reinstatement of cuts

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in transfers. Although this welcomed increase illustrates the power of national protest and organization, it is insufficient to offset real cuts in health transfers or to meet the rising demand for health care. Moreover, it does nothing for health care restructuring or pharmacare. With respect to revenues, the AFB’s greatest impact perhaps has been to pressure the government to defend its failure to adopt the AFB’s Fair Taxation package. This the government did at great length in its 1997 Budget Plan (Department of Finance 1997a; Annex 5) in a document entitled “Tax Fairness.” It explains why the government will not adopt a wealth transfer tax, why it will not tax high-income Canadians further, why they believe that corporations are not undertaxed, and how tax collections have been improved. Explanations are directed specifically at the AFB and mirror points made by Paul Martin in a letter to CCPA and Cho!ces in May 1995. The people who worked on the AFB rejected most of these arguments because they failed to address the government budget’s underlying assumptions or because they were based on faulty reasoning. Detailed rebuttals of the government’s arguments were made by Hugh Mackenzie in the discussion papers accompanying the 1998 AFB (CCPA and Cho!ces 1998b: 335–58). Since 1995 the government also has introduced a number of tax measures that are consistent with AFB proposals. The biggest, at a cost of about $1 billion a year, is the restoration of full indexing of the income tax system to reduce automatic revenue increases as a result of inflation. Eliminating the 3 percent federal surtax on those earning less than $50,000 a year; limiting RRSP deductions for higher-income groups; cutting back on Scientific Research and Experimental Development Tax Incentives; tightening of some family-trust loopholes; temporarily increasing taxation of banks; increasing taxes on tobacco and gasoline; completely rebating the Goods and Service Tax on books for libraries and other institutions; and enhancing the Canada Child Tax Benefit (CCTB) are all, in varying degrees, compatible with AFB proposals. The way in which the federal government has carried out its reform of these issues, however, falls far short of what the AFB has recommended. For example, the Canada Child Tax Benefit can be claimed by families earning quite high net incomes. At the lower end of the income spectrum, it tends to be focused on the working poor. Indeed, in most provinces, it is clawed back from others by reductions in social assistance payments, reinforcing age-old stereotypes of the deserving and undeserving poor (Wiggins 1997).2 Family trusts still enable the wealthy to avoid taxes; the tax on banks has been minimal; the abolition of the

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surtax was extended, unnecessarily, in 1999 to all those earning in excess of $50,000 a year; increases in gas and tobacco tax fall well short of what is needed; and the GST is still applied to book and magazine purchases for direct public use. Nonetheless, it is not unreasonable to suggest that the AFB may have influenced these measures. Perhaps the most significant change in public policy since 1995 has been the acknowledgement of the importance of lowering interest rates and keeping them low. The minister of finance, in his letter of response to the AFB’s Fair Taxation package, argued that “any attempt to force down short-term rates would be risky,” yet the Bank of Canada appears to have done exactly that since 1996. The government would argue that rates have fallen simply because deficits have been reduced or abolished and the outlook for Canada’s debt burden has improved, thereby reducing the risk premium in Canada’s interest rate structure. There is, however, little empirical evidence to support this notion. A close examination of the data shows that it “is more than three times as likely … that high interest rates caused Canada’s high debt and deficits, than the reverse” (Stanford 1997: 54). “In retrospect, it seems that [the fall in interest rates] was not a long-run financial reward for swallowing tough medicine. It was, instead, pro-active counter-cyclical behaviour by the Bank of Canada, attempting to offset the negative, macroeconomic effects of the deep cutbacks” (Stanford 1998: 230). The commitment to lower rates, nonetheless, has increased significantly since the first AFB, and this portion of the alternative budget is no longer controversial. As rates have fallen, monetary policy has played a much less important role in the exercise than it did initially. While the monetary side of earlier AFBs is now generally accepted, the fiscal side remains essentially unimplemented, as the growing gaps between the federal and alternative budgets indicates (see tables 5.4 and 5.5). The AFB continues to issue a direct, comprehensive critique of government policy and steadily to gain ground and credibility both in the national media and at the grassroots level. Indeed, the AFB received enormous national publicity in 1997, an election year, as the only coherent critique of Liberal fiscal policy. This included a twenty-minute segment on The National, the CBC’s main television news program. The AFB’s national coverage has continued to be strong since then and, as evidenced by the increase in the number of local releases, it has steadily gained the endorsement of local activists across the country. Importantly, also in 1997, the federal New Democratic Party adopted most of the AFB’s specific recommendations as part of its election platform

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(1997). This included the AFB approach to monetary policy; debt financing; social programming in important areas such as health; the use of the Genuine Progress Indicator, rather than GDP, as a measure of progress; and detailed tax proposals. Unfortunately, NDP support for the AFB is erratic and superficial. Some prominent members of caucus have never been keen on the AFB. In September 1998 the caucus announced that it would distribute one third of any fiscal surpluses to debt reduction, one third to tax cuts and one third to strengthening social programs. This, of course, directly contradicts the AFB position on surpluses and is a more conservative position than the one adopted by the government itself. On occasion, the NDP has sought to combine AFB expenditure and tax proposals with plans to abolish the GST, without explaining what would be the source of the $18–$20 billion needed to do so. These anomalies have been a source of great frustration for those involved in the AFB exercise, including many rank-and-file members of the NDP. Assessing the Manitoba Budgets of Cho!ce Activists in Manitoba have been preparing alternative provincial Budgets of Cho!ce for over a decade. This lengthy history affords a substantial commentary on the entire exercise in terms of its process, accuracy, policy and political impact. As an exercise in democracy the Budgets of Cho!ce are very rooted in the community. For example, in the first year, a poverty committee, which consisted mainly of people living in poverty, overruled the recommendations of a group of technical experts on the ultimate target for social assistance levels and the speed with which these targets would be reached. The experts had recommended that social assistance levels gradually be raised to those of Ontario, which at that time were the highest in the country. The poverty committee argued that this would leave social assistance recipients at poverty levels permanently, since even the Ontario levels were only about 80 percent of the poverty line as defined by Statistics Canada low-income cut offs. Instead, the poverty committee proposed an immediate increase in benefits to the Ontario level, and this was incorporated into the first Budget of Cho!ce (Cho!ces 1991: 9). In the early days of the budget, almost every group negatively affected by Tory expenditure cuts participated in framing the alternative budget. These groups, about thirty in number, represented a very broad cross-section of community interests in Manitoba. Once their concerns had been integrated into the budget, however, the links to these groups weakened. Many of them had lost their government funding, so it was

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particularly difficult for them to keep up their participation. Because Cho!ces is a volunteer organization, it was hard-pressed to maintain ongoing contact with many of these groups, especially after 1996 when Cho!ces became involved in preparing the Alternative Federal Budget. The Budget of Cho!ce is followed closely and the dissemination of its product supported financially by the trade union movement. Budget recommendations are hotly debated during preparation. All political parties are invited to hear presentations of the budget. The New Democratic Party caucus and, to a lesser extent, the Liberal Party caucus have accepted those invitations. The formal launching of the budget usually takes place at some meaningful centre in the community, such as an inner-city drop-in centre or health clinic, and prominent members of community groups are invited to attend. As technical exercises, the Budgets of Cho!ce have been a mixed bag, but they generally are accurate enough to indicate that new ways of putting together budgets are feasible. The big problem at the provincial level is access to information. The Tory government released very little that was useful and was extremely hostile when approached for further information. There is no provincial equivalent to the federal government’s Economic and Fiscal Update, which appears each November and provides a reasonable framework for the following fiscal year. On items such as future debt-servicing costs, prior-year adjustments in federal transfers and federally collected income tax there are absolutely no published estimates in advance of the provincial budget. Nonetheless, the Budgets of Cho!ce are honest efforts to make the best projections possible on the information available and to incorporate the policies recommended. Indeed, government budgets themselves can be far from technically accurate. In several years, when the Tory strategy appeared to be to underestimate revenues so as to justify further expenditure restraint, the Cho!ces’ estimates were more accurate. And as the 1999 election approached, the government’s projections underestimated the amount that was actually spent. The alternative budgets were the only coherent critiques of Tory policy as exemplified through their budgets and the only effort to develop alternative social and economic policies within a coherent fiscal framework. In terms of policy content, the Budgets of Cho!ce present fairly detailed and comprehensive recommendations in health, education, family services and urban affairs. Over the years, the sections on Aboriginal peoples and culture have been strengthened. Generally, the budgets have a pronounced emphasis on reducing poverty, a plausible position

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on the environment, in terms of both expenditure and revenue initiatives, and a clear gender component with respect to spending side. They have tended not to explore what might have been improved in gender terms on the revenue side of the budget—how changes to the tax system might improve the lot of women in the province. The alternative budget has always contained policy recommendations for both rural and northern Manitoba, but these could be stronger, and despite input from Brandon, Thompson and the rural areas there has been a discernible urban bias in the exercise. This reflects the financial and political limitations of Cho!ces, which essentially is a Winnipeg-based organization. Since 1999 the exercise has been a joint one with CCPA–Manitoba, which does try to adopt a more explicitly province-wide approach to issues of policy. The budgets are produced entirely by volunteers working part-time without technical support, and in spite of the above shortcomings they hold up well as policy documents. The political impact of the Budgets of Cho!ce is more difficult to assess. Cho!ces, the groups supporting it and the alternative budgets they cooperatively produced were quite unsuccessful in preventing acrossthe-board budget cuts, layoffs and Filmon Fridays. They could not stop balanced budget legislation from proceeding or even cause it to be amended. They could not prevent the sale of the Manitoba Telephone System, and they could not halt the movement to cut corporate and personal taxes. On all these major shifts in fiscal policy, the Tory policy prevailed. At the same time, the Budgets of Cho!ce and the social activism around them provided an ongoing critique of these developments and an extra-parliamentary voice in favour of a different approach to social and economic policy. For almost a decade they opposed Tory policies, helped inform the public about their costs and gained sufficient credibility that they were figured prominently by the media as a legitimate source of opposition. They also undoubtedly helped shape positions taken by the NDP and worked with them to try to prevent regressive fiscal policies from becoming law. Perhaps the biggest impact of the Budgets of Cho!ce occurred during the 1999 election when Cho!ces and CCPA–Manitoba challenged the budget numbers being used by the Tories (Loxley 1999a, 1999b, 1999c). The Conservative campaign centred on a promised $0.5 billion tax cut, coupled with a $0.5 billion increase in spending, over a five-year period. First, using the government’s own numbers, Cho!ces demonstrated that the prospect of the province finding an extra $1 billion over the next five years for tax cuts and spending increases was highly unlikely. It appeared

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that the Tories had switched from pessimistic revenue projections to overly optimistic revenue projections in an election year, since the Conservatives’ previous income tax and federal transfer payment projections showed that there would not be sufficient revenue to pay for the promised tax cuts and spending increases. Second, Cho!ces showed that the levels of spending the Tories were providing for were hopelessly inadequate given the level of unmet needs in health, education and social services. The government’s own recent record of overspending the budget was mute testimony to the amount of money that was needed. Third, it illustrated that problems in raising sufficient revenue to meet needs and adhering to the government’s balanced budget legislation would become especially severe one to two years down the line. Fourth, it pointed out that much of the promised spending increase would materialize, if at all, in 2004-2005, which would be outside the mandate of even the new government. The media seized on this critique as, eventually, did the opposition, and the Tory inability to respond to the criticism helped fuel public scepticism. As a result, the credibility of the $1 billion promise became a factor (only one of many, it should be stressed) in the defeat of the Tories. In the end, the Cho!ces and CCPA–Manitoba critique proved only partially correct. In the latter part of the 1999–2000 budget year, with the NDP now in office, revenues from prior years’ adjustments for income tax surged. At the same time, equalization payments soared on account of Ontario’s unexpectedly high growth rates relative to Manitoba’s. Former Conservative Finance Minister Eric Stefanson went on radio to argue that the increase in provincial revenue proved that Cho!ces and CCPA– Manitoba’s scepticism about government revenues had been misplaced; furthermore, he denounced the author of this book for voicing Cho!ces’ criticisms of the Conservative campaign promises (The Afternoon Edition, CBC Radio, Manitoba, May 10, 2000). But the Conservatives had not been vindicated. In the interview Stefanson neglected to mention that the revenue increases were unexpected windfalls that had not been predicted in previous Conservative economic forecasts. He also failed to point out that as a result of an election spending spree, the Tories ended up spending more in their last year of office than they had forecast they would spend five years later at the end of their $1 billion plan. Many Cho!ces activists have viewed their budgetary efforts as being aimed more at the progressive community and the NDP than at the Tories and as an effort to build a base for more enlightened policies in future. The program on which the NDP was elected was quite consistent with

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recommendations in the Budgets of Cho!ce, but it was a very modest one. It focused on improving access to health and to colleges, reducing tuition fees for students and improving the funding of schools. It promised some tax relief for the poor through enhanced property tax credits, funding for inner-city initiatives, improved social assistance payments and spending on child care and other early childhood initiatives. It promised to maintain public ownership of Manitoba Hydro, to establish an Aboriginal justice commission, to spend more on the north and disappointingly, to retain the Balanced Budget, Debt Repayment and Taxpayer Protection Act (Manitoba’s version of balanced budget legislation). Due to the modesty of its election platform, the NDP government could be in the unusual position of delivering more than it actually promised. Still, it decided to make only minor changes to the balanced budget legislation. Under relatively uninformed public pressure, it backed away from using surpluses in the Manitoba Public Insurance Corporation to finance badly needed educational infrastructure; since Crown corporation surpluses are an important potential source of additional revenue, this can only be seen as a political setback. In its first budget, the NDP proceeded with a Tory plan to separate its income tax system from that of the federal government to avoid large, federally induced reductions in provincial tax revenue. It made a virtue out of necessity3 by shifting most of the ensuing tax reduction onto lower- and middleincome earners but ended up with tax cuts of $68 million in 2001 (rising to $102 million in 2002), which were not promised in its election platform. It was still criticized by the business community for not cutting taxes enough, and these pressures continued throughout the year as Saskatchewan, Alberta and Ontario announced deep cuts to personal income tax and corporate taxes. The main thrust of the first Manitoba NDP budget was to restore public services, particularly in health and education. It also increased spending on child care, including improved wages for child-care workers; it abolished the welfare snitch line and workfare; and it improved services in both the north and inner-city Winnipeg. All of this is quite consistent with Budget of Cho!ce recommendations. In its second budget, the NDP government again increased property tax credits as promised, but it went further than the Budget of Cho!ce would have done, reducing income taxes by some $54 million a year and providing for gradual cuts in corporate income taxes (amounting to $48 million by 2003). The main focus again was on strengthening priority social service expenditures, including a significant sum to offset a serious

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infrastructure deficit. Hydro water rentals were increased significantly and a number of “green” taxation measures were introduced. The NDP is faced with large, pent-up demands for service expansion and public wage increases on the one hand, and pressure to cut taxes on the other. The latter pressures are not coming from its electoral constituency4 but rather from the business elite and from tax measures taken in neighbouring, more conservative, provinces. It remains to be seen how it will manage these competing pressures, especially given the slowing down of the North American economy in the early years of the decade. In the spring of 2001, Cho!ces and CCPA–Manitoba released the Budget of Cho!ce for 2001–2002 to counter the pressures coming from the right. They also met with the minister of finance to share their views before the release of the provincial budget. Although the government’s budget did reflect some of the alternative’s recommendations on spending priorities and certain tax initiatives, clear differences remain on debt repayment, the balanced budget legislation and across-the-board tax cuts. The alternative provincial budget now appears to be the main bulwark against the increasingly strident, corporate-driven anti-tax and anti-public sector lobby. In the end, alternative budgets are only one form of political activity. Not all policy issues are best addressed through this medium, even when they have a budgetary dimension. For example, human rights, occupational health and safety, the democratization of school boards and regional health authorities, the production of appropriate energy, the engagement of our troops in the war in Afghanistan and other U.S.driven conflicts, free trade and the right to strike have budgetary dimensions, but they may be better addressed through more direct political action. Even protecting the future of the health care system requires mobilizing people outside the alternative budget framework, although that framework does provide invaluable assistance to the health care campaign by verifying that we can afford medicare. Indeed, one of the most important uses of such budget exercises is to provide fiscal support for other political campaigns; without them, politicians under siege will often fall back on affordability arguments. Even then, there will always be trade-offs when working on alternative budgets and doing other kinds of political work. To argue for the usefulness of alternative budgets is not to argue for their superiority in terms of political action. Canadian experience shows that alternative budgets play an important role and that complete, detailed budgets that add up are useful weapons in the fight against neo-conservative economic policies. Where time and

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resources are limited, more restricted fiscal involvements can be effective. In all instances, alternative budgets have proven invaluable in raising economic literacy and in providing credibility to alternative policy stances. From a narrowly technical perspective, alternative budgets, by and large, have been very successful in Canada. In the long run, alternative budgets need a firm political base and integration with a broader political movement, which means fostering greater cooperation between organized labour, extra-parliamentary political activists and organized progressive party politics. Alternative budget exercises have relied heavily on both the labour movement and a broad range of non-governmental organizations, but they have had an uneasy relationship with political parties, especially the NDP. Current debates about the future of progressive politics in this country hopefully will produce a left-wing organization that is capable of assuming political power in the country. When that happens, alternative budgets are likely to be integral to their platform. Notes 1.

2.

3.

4.

The election of Glen Murray as mayor in 1998 represents a sharp break with the past. He understands the problems of inner-city decay and urban sprawl and is aware of the needs of the urban Aboriginal community. It remains to be seen if he can bolster enough support within city council to do something about them however. By 2002 he had made some headway on anti-smoking and universal recycling. The base component of the CCTB is available to families earning up to $70,000, while the National Child Benefit Supplement—which accounts for about half of the CCTB for low-income one- and two-child families, and less thereafter—is fully phased out at $32,000. The GST tax credit, on which the AFB based its child tax credit in most years, was phased out at just under $28,000 in 2002. The AFB targets its assistance more specifically on the poor, does not discriminate against those on social assistance and provides for much higher levels of assistance to families. The new tax-on-income (TONI) system could not mathematically reproduce the old tax rates for all individuals due to definitional and bracket/rate changes and the need to abolish the old net-income tax and the provincial surtax. To avoid raising taxes on a large number of Manitobans, overall tax revenues had to be reduced. The government skewed the benefits of TONI to some degree towards the less well-off by introducing a new family tax reduction. This took 15,000 low-income Manitobans off the tax rolls and also simplified the tax system by bringing in only three rates (see The 2000 Manitoba Budget, pp.22–23 and appendices). There may be some pressure, however, from a couple of ridings that switched to the NDP in the last election but that in the past would have been either Conservative or NDP. These ridings provide either party with the margin of victory in provincial elections.

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ABOUT THE AUTHOR John Loxley is a professor in, and for thirteen years was head of, the Department of Economics at the University of Manitoba. He specializes in international money and finance, international development and community economic development and has published extensively in these areas. He was the first chairperson of Cho!ces, a Winnipeg-based coalition for social justice, and a coordinator of both the alternative provincial and Alternative Federal Budgets. He maintains a close interest in the federal and provincial budgets and is an economic advisor to Manitoba’s minister of finance. Previous publications include Debt and Disorder: External Finance for Development and Interdependence, Disequilibrium & Growth: Reflections of the Political Economy of North-South Relations at the Turn of the Century.

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