Background –
The urc Report Findings
A child born in Canada today is immediately saddled with an $18,000
debt, his or her share of the accumulated federal government debt,
which stood at $536 billion at the end of the 2001 / 2002 fiscal
year (and is currently at approximately $510 billion.) This hardly
seems fair, that a baby should be in debt before beginning life’s
journey. But that is exactly what we are doing to each new generation
of Canadians … expecting them to pick up the tab for our collective
inability to live within our means in the past. Although the federal
budget has been balanced for the past six years, can we be sure
that the federal government will continue to live within its means,
when governments have so often fallen back into deficit spending?
In addition, we, as a country, are not paying our own way to support
the many programs run on our behalf by government and we are expecting
future generations of Canadians to pay our bills. An example of
these ‘unfunded liabilities’ is illustrated by David
Slater:
David Slater, former general director, Department of Finance,
from Days
of Reckoning
The Canada Pension Plan was always intended
to be a partly funded and mainly pay-as-you-go plan. That is, the
people who are getting the benefits now are being paid for by those
who are younger and making the contributions.
Part of the problem is that the number of older people is increasing
so much more rapidly than the number of people of working age. That
means that outlays are growing much more rapidly than contributions.
As a result, the actual funds in the plan will be exhausted rather
soon. In addition, the amount of contributions people will have to
make will be greatly increased. That’s the problem with a deliberately
unfunded pension plan. Canada’s debt problem
is a relatively recent phenomenon in our country’s history.
The accumulation of Canada’s debt really only occurred in
the last three decades. After World War II, Canada had a higher
per capita debt, but managed to pay it off with sound planning.
Gordon Robertson, Clerk of the Privy Council and secretary
to the Cabinet, 1963-1975, from Days
of Reckoning.
You’ve got to remember that during the
war the country incurred an enormous burden of debt, but it was
incurred for war purposes and we couldn’t fight the war without
borrowing. There was no way we could raise enough money through
taxes. That debt was paid off after the war by budgetary surpluses
that were created specifically to pay off that debt. In order to
pay off debt – and this is not purely and simply economics,
it’s also politics – you have to have a conviction on
the part of the populace that it’s better to have a budgetary
surplus, which means the government has more tax than it needs for
immediate purposes in order to pay off the debt.
Public attitude towards debt changed over the years and Canadians
today embrace personal debt at record levels. Successive federal
governments in the 1970s and 80s borrowed from international money
markets and spent well beyond what they collected in tax revenues.
The following chart brings this trend into stark relief.
A Large National Debt
Canada's Net Federal National Debt
($Millions)
Source: Finance Canada
Unfortunately the federal debt is not the only liability facing
Canadians. There are also various provincial governments carrying
debt loads. The following table illustrates the extent of various
provincial debts, which add up to an astounding $325 billion!
| *Provincial
Debt, 2002 (Millions of Dollars) |
| Newfoundland and Labrador |
$6,896 |
| Prince Edward |
$1,301 |
| New Brunswick |
$12,292 |
| Nova Scotia |
$15,015 |
| Quebec |
$84,524 |
| Ontario |
$119,427 |
| Manitoba |
$20,318 |
| Saskatchewan |
$12,089 |
| Alberta |
$12,147 |
| British Columbia |
$40,759 |
| Total Provincial
Debt |
$324,768 |
Source: Statistics Canada
*Includes: outstanding treasury bills, government bonds
and debentures, savings bonds and other securities |
Annual debt service charges are the federal government’s
second largest expense type, accounting for nearly one quarter (23%)
of all spending. This means that this is money that cannot be spent
on other initiatives (e.g. healthcare, education, defence, etc.).
Remember, there are not federal taxpayers and provincial taxpayers
and municipal taxpayers … there is only one taxpayer –
the citizen. As citizens, we carry the load for all levels of government.
The Fraser Institute has calculated June 28 as Tax Freedom Day
in Canada. That is the day after which the average Canadian begins
earning money for himself or herself. Before that date, the money
we make goes to various levels of government - federal, provincial,
and local.
Personal federal tax rates for 2003 are based on percentages of
levels of taxable income. For example, we pay 16% on the first $32,183
of taxable income, 22% on the next $32,185 and so forth. Provincial
tax rates vary by province or territory and are also on a sliding
scale of taxable income except in Alberta where tax rates are 10%
on all income. The lowest rate is in Nunavut at 4% on the first
$32,183 of taxable income, while the highest is in Saskatchewan
at 11% on the first $35,000.
Source: Canada Customs & Revenue Agency
The following chart highlights the taxes paid by Canadians. Taxes
collected from Canadians now account for 31% of the GDP*. In 1961,
this was just 23%.
*GDP: Gross Domestic Product: The gross
domestic product represents the total value of all goods and services
produced within a country in a year minus net income from investments
in other countries.
| Canada: Total Taxes 2002-03
|
| |
Canada |
| |
Millions of Dollars |
%GDP |
| Income taxes (Personal and corporate) |
$179,631 |
16% |
| Consumption Taxes |
96,845 |
8% |
| Property and Related Taxes |
43,291 |
4% |
| Other taxes |
3,879 |
0% |
| Health and Drug Insurance |
2,971 |
0% |
| Contributions to Social Security |
30,027 |
3% |
| Total Taxation by
All Levels |
$356,644 |
31% |
| Total Government
Spending |
$440,006 |
38% |
| Canadian GDP in
2002 |
$1,154,949 |
|
Total federal government spending has increased exponentially over
the previous four decades, as illustrated in the following table.
Canadian Federal Government Expenditures (1961 –
2001)
Includes Program Spending and Debt Services Charges
$millions
| 1961-62 |
$7,462 |
| 1971-72 |
$18,405 |
| 1981-82 |
$75,981 |
| 1991-92 |
$156,389 |
| 2001-02 |
$164,408 |
Source: Finance Canada
Excerpts
from The urc Report
Charles Adams, tax historian, as quoted in the Days of
Reckoning book
and video:
Government can spend money it doesn’t
have because it can push the debt off on our great-grandchildren
and they can pick up the tab. All we have to do is pay the interest.
We’ve discovered a clever way of borrowing money that we don’t
have to repay. We can just roll it over, and when we die our kids
can pick up the tab.
And of course that’s outrageously immoral.
We should pay for our own goods and services. We have no right to
push this off on somebody else. We should pass on to our kids a
full treasury, not an empty one. We should pass on to them a debt-free
society, not a society burdened with debt.
Charles McMillan, former government advisor, as quoted in the Guardians
on Trial book:
The debt that has been left for the younger
generation is a tragedy. It’s the first generation where there
has been a reverse payoff, in the sense that normally parents pass
on assets, education, home life and all that to their children.
In effect what this generation has done is seize the assets from
the next generation, and it’s called the government debt….This
is part of the political resentment in huge portions of the population.
A lot of people feel cheated. It shows that our political, bureaucratic
and academic elite have let down this generation. There’s
a fundamental issue here of ethics and morals. What possessed these
people to put this kind of burden on the back of this generation?
What are the implications of the exponential growth of government
in Canada over the previous four decades? According to Brian Crowley,
president of the Atlantic Institute for Market Studies, it means
more and more of our economy is directed by governments at various
levels, and that this stifles creativity, innovation and wealth
creation. In the book Taking
or Making Wealth, part of The underground royal
commission Report, he notes that:
The most fundamental force driving the economy
is innovation. It’s change….We have progressively moved
to a system in Canada where innovation is harder and harder to achieve.
One of the reasons for that is that government has begun to take
a larger and larger place in the economy.
In fact, over the last 30 years we have seen
government take control of something like 40 percent of the gross
domestic product. In other words, 40 percent of the value of the
goods and services that we produce in Canada passes through the
hands of government.
....We have created a system (transfers, subsidies,
tariffs, etc.) in which there are huge transfers of money going
from productive people in the economy who are making goods and services
to people who find it’s more profitable to get benefits from
government than to get out and work in the marketplace.
Questions
Raised by the Findings
Stimulate classroom debate by posing any of the following questions
to your students. Encourage light research into the issues by sourcing
current events, the Internet, newspapers, etc.
- Given that close to 40% of the economy is generated
by government spending and that we, on average, work for half
a year to pay taxes to all levels of government in Canada, can
we say we are over governed in this country?
- The number of government programs have increased
over the years and we have come to accept them in our daily lives.
Is Canada a better country now than it was decades ago because
of our government programs?
- The government plays a huge redistributive role
in society by subsidising numerous services through the taxes
we pay. Unemployment insurance, university education and the CBC
are just a few of the services subsidised by government. We all
have a vision of what we want our country to be. Are we a fairer,
kinder, gentler more just society because of the redistributive
role of government?
- By 1994, government spending had catapulted us
to near insolvency. During the peak of the budget debate, the
Wall Street Journal ran a piece saying that Canada was close to
hitting the wall in terms of public spending and compared us to
a third world country. This was the external force needed to give
the prime minister and minister of finance the leverage to curtail
spending and implement budget cuts. Can you think of other ‘external
forces’ that can have a direct impact on the way government
acts?
- Do you agree that passing on huge debts to future
generations is a moral issue?
- Universal social programs, government subsidies,
transfers and loan guarantees come with a price tag. Should government
increase revenues, cut services or raise taxes to maintain them?
Does Canada see an economic benefit due to increased government
spending? Do we pay too much in taxes?
- What do our debt load and tax levels mean for
Canada’s economic future?
Possible
Exercises / Activities for Students
The urc Report represents a good starting
point for consideration of defence and military issues in Canada.
It speaks to what kind of country we wish to be, and what kind of
role we wish to play in the world.
Suggested Activities
Secondary Level
a) Take our Test: Have your students take the
urc Citizenship
Test available through the “Oh
Canada. Where is my country going?” section of this website.
This is a good introduction to and overview of some of the key issues
raised in The underground royal commission Report.
b) Oral presentation: Have students reflect on
their urc test results. They should prepare answers to the following
questions:
• On a scale of 1 to 10, with 10 being
the highest, how would you rate your general knowledge of big-picture
public finance issues?
• What do these issues mean to you?
• How will Canada’s debt and tax burdens affect you
as you begin your entry into the workforce?
c) Debate: Divide your class into groups. Have
each group examine in more detail the answer to a particular question
in the
urc Citizenship Test. Why it is so? What are the implications
for their generation?
d) Survey: Have your students survey adults based
on selected urc
Citizenship Test questions. They could tally the results and
reflect on Canadians’ knowledge of big-picture public finance
issues. Again, have them reflect on why this is so, and what the
implications are for change in these areas.
Post-Secondary Level The
findings of The urc Report present a good prism in which to examine
fundamental issues of political and economic philosophy.
a) Class Discussion: Is the role of government
in the Canadian economy too great? Does this create a drain on resources
and wealth creation? Or is Canada a better country precisely because
approximately 40% of the GDP is generated by public spending, much
of which redistributes wealth to individuals, communities, and causes
in which it is needed?
b) Essay: John Maynard Keynes developed an economic
theory that advocated a country could borrow money to ease the impact
in tough times to keep people employed and stimulate the economy
until it recovered. Debts, however, should be paid back in good
times. Discuss the merits and abuses of economic policy behind this
theory.
c) Debate: Of the $180 billion of dollars spent
this year by the federal government, only about $60 billion receives
annual parliamentary scrutiny and approval. These are called non-statutory
or budgetary programs and include payments to pay for and operate
the various government departments and agencies delivering everything
from veteran’s benefits to regional development subsidies
and national defence.
The remaining expenditures-- statutory expenditures -- are committed
to pay for permanent programs already approved through legislation
by Parliament. More than 60 percent of all government spending each
year is listed in the government Estimates only for information
purposes because members of Parliament do not vote to approve these
expenditures.
Debate the resolution: The role of a member of
Parliament is to be a guardian of the public purse and make government
accountable for its spending of our tax dollars. Parliament is effectively
doing this. “Yes” and “No”
Additional
Information
Statutory Expenditures include major social transfers to Canadians
and the provinces. Examples:
• pensions for seniors
• guaranteed income supplements
• employment insurance benefits
• transfers to provinces under the fiscal equalization program
• transfers to the provinces for health, post-secondary education
• Government's debt management program
FACTS:
In the years between 1962 and 1991, statutory programs grew from
$3.1 billion to $93.0 billion, or from 46 to 66 percent of total
expenditures in less than 30 years.
Resource
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