'Alternative budget' would raise taxes, spending

Ottawa can balance the budget and still spend billions on job creation and social programs, a leading left-wing think-tank says in its latest "alternative budget."

The annual document from the Canadian Centre for Policy Alternatives being released Thursday is, at 202 pages, almost as thick as Jim Flaherty's real budget will be in two weeks.

But that's where similarities end.

Prime Minister Stephen Harper and Flaherty have already made clear the March 29 budget will rein in spending, introduce new austerity to save $4 billion to $8 billion annually, cut back on the public service and propose reductions to elderly benefits.

That's the wrong approach to a balanced budget, says the CCPA, and will entrench a lost decade of slow economic growth and high unemployment.

It argues part of the reason for slow growth is that the government sector is playing a smaller role in the economy, reducing spending from 17 per cent in the early 1990s to a projected 13.3 per cent by 2014. Tax revenues have similarly gone down.

The centre wants Ottawa to go back to the past by taking a more active role.

The result, it says, will be to arrive at the same place although it says it will take a year longer to eliminate the deficit but with more Canadians working and less income disparity.

Arguing for higher taxes

"The era of tax cuts is over," said Armine Yalnizyan, a senior economist with the group.

"We need to raise money. We can continue to maintain a very high standard of living for everybody if we just invest in the future."

The think-tank would spend tens of billions to create between 247,000 and 329,000 jobs by investing in infrastructure, day care, low-income housing and poverty reduction, paid for by higher levies on corporations, the rich and a new carbon tax.

The corporate tax rate would be rolled back to where it stood in 2007 at 21 per cent from today's 15 per cent. As well, the group would create a 35 per cent tax bracket for individuals with incomes above $250,000.

At present, Canadians have seen little in terms of job creation from radically reducing corporate taxes. Corporations have mostly hoarded their windfall, she said.

The added revenues, along with greater receipts from more Canadians working, would come close but not quite match the new spending, which is why it will take a year longer to eliminate the deficit.

Yalnizyan said her calculations are not pie in the sky. She said she and fellow economist David Macdonald based them on the Finance Department's own growth projections by using well-established multipliers.

Warnings over austerity

Bank of Montreal economists Douglas Porter, who had not seen the report, said generally most private-sector economists support Ottawa's approach to budgeting, with some reservations.

Porter has gone on record as warning Flaherty against overdoing austerity given the fragile state of the economy, but said budget cuts in the range of $4 billion would not have a major impact.

Surprisingly, he said raising the corporate tax rate to 21 per cent would also not reduce growth.

"But longer term I think it would make Canada a little less favourable jurisdiction to invest in," he said.

Yalnizyan said some Canadians might "flee" from higher taxes, but doubted they would represent a major drain on the economy.

Still, she agreed that the call for government to collect more tax revenues would be the most difficult for any government to implement. Even the NDP would have difficulty implementing the centre's proposals, she said.

"Nobody is going to do it. I think even the NDP are too scared to talk about raising revenues."

She added the value of the report was to show governments can have people-oriented priorities and still be fiscally responsible.

"You can have your cake and eat it too," she said.

"One of the ways to get to a zero deficit is to invest in things today that bring you rates of return down the road for the next 10 or 20 years."