Ontario budget should help to close, not widen gap between rich and poor

The gap between rich and poor is growing in Canada and that threatens to make us all poorer, in health and quality of life, where ever you fall on the income scale. Studies have shown that unequal societies are more stressful and that this has a negative impact on the health of all its citizens, rich or poor. Poverty actually kills - the poor in Canada have a shorter life expectancy, by more than 5 years. In fact poverty reduces life expectancy more than the official #1 killer, cancer.

The growing gap is not just the inevitable result of the way the global economy works. Governments can take action to help close the gap and their budgets are one of the most important tools they have to do this. And we don't have to choose between economic competitiveness and greater equality. Many countries with narrower gaps between rich and poor, such as Germany and the Nordic countries, are doing better economically than Canada.

The Ontario Budget introduced by the Liberal Government on March 27 included a small step in the right direction by abandoning the plan to lower corporate tax rates even more than they already have.

The corporate tax cuts policy, pushed by the federal Conservatives, has proven to be ineffective in spurring investment or creating badly needed jobs. Corporations, who are enjoying increased profits even without tax cuts, are just sitting on this extra money, some $800 billion, waiting to see if the consumer demand for their products and services will pick up. In the meantime they are handing out more money in dividends to wealthy shareholders or sending the cash they collect from tax cuts to their parent companies abroad.

But the Ontario Budget also included many measures that will increase the gap between rich and poor. The budget means all but abandoning its poverty reduction strategy by delaying planned increases to the Ontario Child Benefit and freezing social assistance rates, which are still far below the poverty line. As Hugh Mackenzie points out in his analysis of the Ontario budget done for the Canadian Centre for Policy Alternatives, Ontario Works and Ontario Disability Support Plan benefits are lower than they were when the Harris government left office by 5.5% when inflation is taken into account. The budget also cuts funding for social housing and does not include badly needed new   funding for daycare. And many of the proposed cuts to public services will have a more severe impact on the poor.

Sheila Block of the Wellesley Institute observed that, “In his budget speech, Ontario Finance Minister Duncan said that we all have to play our part to return the budget to balance. But in this case, fairness doesn’t mean treating everyone the same way. Doctor and hospital CEO salaries will be frozen, while social assistance rates have also been frozen. But the impact of a salary freeze is very different for a physician or CEO than a rate freeze for someone who is living on $599 a month.”

There is a simple solution to closing the fiscal gap, one that would also help to close the income gap between rich and poor. That is raising taxes on the wealthy. The revenue raised could help to reduce the deficit while enabling the government to raise social assistance rates and continue its child poverty reduction strategy. Closing the gap would also lead to savings such as reduced health care costs as well as lower costs for police and prisons.

The newly launched Doctors for Fair Taxation group has called for increasing taxes on the top 10 per cent of Ontarians, who have more than $100,000 of taxable income by instituting a modest 1% tax rate increase on rate for the top 10%, a 2% increase on the top 1% and a 3% increase for the top 0.1% with taxable incomes of over $640,000, while leaving tax rates unchanged for 90 per cent of taxpayers. They say this would raise approximately $1.7 billion in new revenue for the Ontario government.

Just to put this figure in perspective, the combination of the social assistance rate freeze, the delayed increase in the Ontario Child Benefit, and reduced access to essential benefits will take $180 million out of the pockets of the poorest Ontarians.

Is it too much to ask, in the name of fairness, that the top 10%, who saw their incomes almost double in the past 20 years and who benefited by having their taxes cut by a third over the same period, be asked to pay more?

There would be political support for such a move. A recent Environics poll comissioned by the Broadbent Institute found that 83 per cent of Canadians said they were in favor of increasing income taxes on the wealthiest Canadians.

The Ontario government is a minority government and the governing Liberals will need the support of the NDP to get their budget passed. Canadians for Tax Fairness has launched an online action calling on Premier Dalton McGuinty and NDP Leader Andrea Howath to negotiate a budget deal that would help to close the growing gap between rich and poor in Ontario.  Specifically they should raise taxes on the top 10% and apply some of the revenue to measures to reduce poverty in Ontario.

All Ontarians would benefit from such a budget.