CANADA Transferring money from poor to rich _ How the budget will hit your pockethoo The classical stereotype of the conservative is of one who robs the poor to subsidize the rich. Sadly, Michael Wilson’s budget makes this image a fact, not a carica- ture. This budget increases taxes on the poor, reduces taxes on the rich, cuts social benefits, reduces job-creat- ing programs. It is as though the Tories had learned nothing from the sad economic events of the past half century. Mulroney and Wilson, of course, put the blame on their predecessors. But there is little evidence that they have learned anything from the experience of the Trudeau regime. Let’s review the facts. Through all the caterwauling of the early nineteen seventies, the government was operating at a surplus. In 1974, for example, the surplus was $1.1-billions. At that point Trudeau yielded to the insistent demands of the economic Calvinists, who believe that the ultimate sin is to allow workers to eat three meals a day, and imposed the restraint program, misnamed the Anti-Inflation Act. The first year of the AIB resulted in a government deficit of $3.8-billions. By the final year, 1978, the re- straint program had cranked up the deficit to $10.6-bil- lions. By that time it had become self-generating, so that by 1982 it passed $20-billions and by 1984 $30-billions. Those results have been no different, in essence, from those of the Nixon and Reagan governments in the USA, _ the Thatcher government in England, or for that matter ’ practically all of the free enterprise. governments of re- cent years. If the Tories were really sincere about curing the economic situation, one would think they would study the past and learn from it. Had they done so, they would have discovered that the unemployment which has been brought about by _ restraint has increased UIC benefit payments from $2.1-billions in 1974 to $10.1-billions in 1984, and during the same period, direct relief payments from $1.2- billions to $4.3-billions. Defence expenditures increased from $2.5-billions to $8.8-billions. These items in them- selves are sufficient to explain most of the deficit, the interest on which rises both by the size of the debt and by the rising interest rates over most of that'period, so that | ~ interest on the public debt went up from $3-billions to $22-billions. So how does Wilson play to avoid Trudeau’s mis- takes? Why he proposes to increase military spending by 7'2 per cent per annum every year, to throw six per cent of federal civil servants onto the UIC and relief rolls and to increase interest on the public debt by $3-billion per annum per year. All this is loudly justified by the need to reduce. the deficit. The Tax Proposals The budget’s tax proposals are a class-conscious ef- fort to transfer money from the poor to the rich. Wilson has tried to justify this policy by stating that Canada has too few rich people to bear this burden. That statement surely deserves an award for the fatuous statement of the year. If the mandarins of the finance department were unable or unwilling to explain to Wilson which direction __ Isup, surely his stenographer or his office boy could have pointed out to him that in all times and in all places a given levy on the top half of income earners will produce at least twice as much revenue as on the bottom half. Indeed the table appearing at page 48 of the budget paper entitled “‘A Minimum Tax for Canada’’ enables us to calculate that a one per cent tax applied to the top third of taxpayers will produce 65 per cent more revenue that the same one per cent applied to the lowest two-thirds. Economics for you Emil Bjarnason Wilson has, instead, increased the taxes on the poor and - cut the taxes of the rich. He has, however, disguised the changes to make it appear the other way around. The changes are as shown in Table 1. Actually, the tax impact is worse than what that table shows. Let’s calculate the effect on the tax changes on people in different income brackets. This can be seen in Table 2. The new tax system discriminates against low income earners in other ways. Thus the general sales tax has been increased from 12 to 13 per cent, and it is now imposed on items which were formerly exempt, such as candy, soft drinks, pet food, health and surgical and dental goods, and insulation materials. Also, the sales taxes are increased by 2 cents a litre on gasoline, by one cent per cigarette and by two per cent on alcohol. “Be confident like me, Cringely ...1'm positive ‘you can support a family on a $20,000 a year income”’ Table 1 - On the Poor Inflation indexing eliminated up to 3 per cent per year Elimination of the federal tax reduction On the Rich Temporary (1985, 1986) surtax on high incomes Capital gains tax exemption Raising pension contribution limits Net saving by rich 8 On the other hand, the taxes levied on oil and gas companies are reduced by $2-billions. If the budget’s tax proposals are bad, the expenditure proposals are no better. The program of this govern- ment, elected on a job-creation platform, starts with the layoff of thousands of civil servants. Under the euphemism ‘‘rationalization of the public service’’, it is proposed to reduce departmental expenditures by $2.2- billions in 1985-86, rising to $3.4-billions in 1990-91. As a further cost-cutting (and job reducing) measure, the government proposes to eliminate existing economic: development programs to the tune of more than $4.5-bil- lions a year. Among other things fisheries programs will be cut by $40-millions and transportation subsidies by up to $400-millions. Apart from some vague promises about job training, there is no indication that this government intends to do anything about unemployment. Social welfare programs are being savaged in a manner worthy of Thatcher or Bennett in B.C. Family allow- ances and tax credits for disabled persons are to be cut three per cent a year in real terms, by the modification of indexing, and tax exemptions for dependent students are to be cut from $1,420 to $1,000. It is in the treatment of pensioners that the government Table 2 Income $10,000 9,901 8,387 $20,000 9,901 8,387 (the above amounts reflect the effect of indexation reduction by 3 per cent to 1990, and the increase in RRSP and pension deductions to the rich to 1990. RRSP contributions allowable for all people earning under $30,000 a year are reduced.) $ 635,000,000 650,000,000 $1,285,000,000 500,000,000 (700,000,000) (280,000,000) really bares its fangs. With grinning sanctimony, the government of Mulroney slashes the pensions of the poor and multiplies those of the rich: 1. Old Age Security pensions have been de-indexed to the extent of the first three per cent per year of in- flation. This means that with any inflation rate exceeding three per cent, the purchasing power of the pension will be reduced by 15 per cent every five years. It has been widely publicized already.that this will cost the average pensioner $1,500 by 1990. 2. The amount a worker earning under $27,500 is permitted to contribute to an RRSP to buy himself a pension is reduced by ten per cent. (From 20 per cent of income to 18 per cent) 3. A worker who is covered by a union or company pension plan has his right to contribute to an RRSP cut from $3,500 to $2,000, regardless of the size of pension. 4. Taxpayers earning over $30,000 will have their permitted RRSP contributions increased. Up to $86,000 a year, the higher the income, the bigger the increase in permissible, tax-deductible, contributions. Where the former maximum was $5,500 it can now rise to $15,500. Thus the provision for the rich is tripled at the same time that the provision for the poor is cut by a minimum of 10 per cent and in most cases by 43 per cent (i.e. from $3,500 to $2,000). The proper way to deal with a deficit is to provide jobs for all who can work. To do so will increase the taxes collected by increasing taxable incomes. It will also re- duce government expenditures by taking people off the unemployment insurance and relief rolls, and by the interest saved by reducing such expenditures. Further savings can be made by cutting military expenditures instead of increasing them. All of this can be done with- out touching the welfare system. If the tax cuts and handouts to the rich (elimination of capital gains tax, and of energy taxes, and the tax effect of increased RRSP and pension concessions) were to be directed instead to civilian job projects, and part of the money wasted on armaments spent instead on civilian production where it produces far more jobs per billion dollars, a five to ten billion dollar job creation program ‘could result. And since such a program, in a time of unemployment, is subject to multiplier effects, it could go a long way to eliminating both the deficit and un- employment. But that will require a government that is not blinded by class prejudice.