A New Budget Strategy
A New Green Alliance Discussion PaperNote: In 2005 the New Green Alliance Party changed its name to be the Green Party of Saskatchewan
Introduction
Over the last twenty years we have seen a shift from the Keynesian welfare state to the neoliberal regime of the free market and free trade. This has called for privatization of state owned enterprises, deregulation of the economy, drastic cuts in social programs, and a shift in the taxation system away from the principle of progressive taxation based on the ability to pay. Almost everywhere, taxes on corporations have been reduced, taxes rates have been reduced on those in the high income brackets, wealth taxes have been eliminated, and there has been a shift to regressive goods and services taxes.
The results have been predictable. The recent annual reports of the U.N. Development Programme have documented the increase in inequality of income and wealth between the advanced industrialized countries and the less developed countries as well as the growing inequalities within countries.
As an example, the 1997 Survey of Consumer Finances by the U.S. Federal Reserve Bank reported the increase in the concentration of wealth in the United States in the 1990s. In 1995 the top 0.5% of the population controlled 28% of the total net worth of the country, as much as the bottom 90% of the population. The richest 10% of Americans owned 84% of the stocks and 90% of the bonds. Income disparity has also increased. Between 1992 and 1995 the income of the top 0.5% increased by 44% while the incomes of the bottom 90% rose only 0.9%.
There has been no equivalent study done in Canada in the 1990s. But a study done for the Ontario Fair Tax Commission in 1990 revealed that in that province the top 1% of households controlled 23% of household wealth whereas the bottom 80% of households held only 26%.
Saskatchewan is a hinterland economy. While manufacturing activity has certainly increased over the years, we still rely heavily on the extraction of non-renewal resources. While the volume of extraction of oil, natural gas, potash, uranium coal and other minerals has steadily increased over the 1980s and 1990s, the revenues (or rents) that the people of Saskatchewan have received from this economic activity have continued to decline. Unless we are willing to confront this issue, we will continue to have cuts in government services and high personal taxes.
The other key resource is agricultural land. This industry is very important to the Saskatchewan economy, but it is a limited source of revenues. According to the 1999 provincial budget, tax expenditures (exemptions) for farm machinery and repairs, fertilizers, pesticides, feed, livestock and horticultural facilities, and fuel total $261 million. Farmers and individual businesses also benefit from the $500,000 capital gains deduction, which is a loss of $24.5 million to the provincial treasury.
The forestry industry is our most important renewable industry. Sales in 1993 were $489.3 million. But the total dues, fees and royalties paid by the forest companies in that year amounted to a paltry $4.8 million. Forest fire control alone in that year cost the province $26 million. It appears that the taxpayers are actually paying these companies to use up a natural resource that belongs to all the people.
Alternatives.
In examining alternatives to the present budget and expenditures, we should start with the Saskatchewan Alternative Provincial Budget of Choice (ABC), prepared by the Saskatchewan Coalition for Social Justice. A lot of excellent work has gone into this document. It demonstrates that a different direction is quite feasible.
The other major document of note is Tax Fairness for the 1990s, published by the Saskatchewan New Democratic Party Caucus in January 1991 when they were in the opposition. It is a good statement of the case for progressive taxation and a critique of the tax policies of the Tory government under Grant Devine. It stands in direct contrast to what the NDP did when they became the government.
Green parties around the world have also proposed different environmental taxes. The first tax widely supported was the carbon tax. After criticism that this consumer tax would fall most heavily on the poor, many Green Parties have dropped it. One alternative is now advanced by the Australian Green Party. They are advocating a tax on the extraction and use of natural resources. This is to encourage conservation and re-use and recycling. But they have also seen this tax as a progressive tax to help redistribute wealth. Their proposal is that the taxes collected from this environmental tax be distributed annually as an equal direct payment to every household. The New Green Alliance needs to do research in this area.
For purposes of discussion, this paper proposes an alternative direction in tax policy and tax expenditures, following the general lines of direction of the New Green Alliance.
Part I: Revenues
(1) Corporation Capital Tax. The province presently collects $227 million from this tax. But it exempts all corporations with assets under $10 million. The Alternative Budget states that if we were to drop the threshold to the Manitoba level of $2 million, this would raise an additional $120 million.
(2) Corporation Incomes Tax. The tax rate in Saskatchewan is 8% on small companies and 17% on larger corporations. The 1999 budget projects collecting $193 million from this source. However, the provincial tax expenditures in this area amount to $99 million. These could be eliminated. Some of them did not exist before the Romanow government took office.
(3) Corporate Minimum Tax. There are many profitable corporations in Saskatchewan who pay no income taxes. Unpublished date for 1992 revealed that there were 3,648 of these with profits totaling $410 million. If they were taxed at the 17% rate, this would bring in an additional $70 million.
(4) Individual Income Tax. Provinces have now been granted the right to create their own income tax structure. The present flat taxes could be made more progressive by re-introducing more tax brackets, with those with higher incomes paying a higher rate. The Alternate Budget suggests that a very moderate change could raise an additional $14 million.
(5) Sales taxes. The present 6% PST is expected to raise $669.5 million in 1999. This is one of the most regressive taxes in the province. An alternative would be to shift the PST to the Value Added Tax system found in Europe. Luxury goods are taxed at a rate of 20% to 25%. In turn basic necessities are exempted from all sales taxes, as well as the sale of all used goods. This would make this consumption tax more progressive. It could be revenue neutral or designed to raise additional revenues. It has the advantage of encouraging local recycling industries.
(6) Wealth Taxes. All industrialized counties except Canada, Australia and New Zealand have taxes on wealth. Most European countries have an annual 1% or 2% tax on household net worth. Many U.S. states used to have this tax. Saskatchewan could introduce such a tax, but set a threshold level, e.g., required of those who report an income of over $250,000. In 1997 only 7.4% of Saskatchewan families had a reported income over $100,000, and only 8.2% of unattached individuals had reported income of over $50,000. This tax might raise $2 million.
(7) Inheritance and Gift Taxes. All provinces once had such taxes. If we restored the tax we had in 1976, this would bring in an estimated $30 million.
(8) Municipal Taxation. The provincial government has responsibility for establishing the municipal taxation system. The property tax is one of the more regressive taxes, as the NDP pointed out in its 1991 paper. For tax fairness, property assessment must be based on market value. To be more equitable, the province should shift the municipal business tax to a revenue tax. This system is in widespread use in the United States where it normally takes the form of a 2% annual tax. But it should be a progressive tax, kicking in at a threshold level and then have brackets like an income tax. This would have the effect of increasing taxes on the huge retail corporations while effectively exempting local small business.
(9) Royalties and taxes on Non-Renewable Resources. No serious change in the direction of government taxing and spending can be made without confronting the loss of revenues in this area. The drastic reduction of revenues here by the Devine government created almost all of the present provincial debt. After promising while in opposition to increase these revenues, once in office the NDP government actually further reduced some royalties. The facts are as follows:
Royalties and taxes as a percentage of resource revenues:
Blakeney government ( 1979-82) 26.3%
Devine government (1987-91) 10.3%
Romanow government (1992-7) 11.3%Resource revenues as a percentage of total government revenues:
Blakeney government (1979-82) 32.6%
Devine government (1987-91) 16.0%
Romanow government (1992-7) 10.0%
If we look at the NDP budget presented in March 1999, we can get a perspective on the shortfall in provincial government revenues. Eric Cline projects that in 1999 royalties and taxes on non-renewable resources will bring in $551 million. If the royalty and tax rates had remained the same as they were during the Blakeney government (1979-82), royalties and taxes would have brought in $1,439 million. That is a shortfall of $888 million. That figure not only explains why we have the debt of $7.9 billion, but it also explains why taxes on individuals have increased to their present levels.
The New Green Alliance platform has pledged to raise royalties and taxes on non-renewable resources at least to the levels they were under the Blakeney government.This could be phased in over a three year period. It would raise an additional $290 million each year.
Any movement in this direction will bring strong opposition from big business and their supporters. This could bring a capital strike, as the Blakeney government faced during the crisis over potash royalties and petroleum and natural gas royalties. The NGA must also have the will to use the state. Blakeney promised to bring in new taxes on any gas and oil wells which were shut down. And Sask Oil was there to step in. When the potash companies refused to pay the royalties, around 60% of them were nationalized.
The NGA must also be willing to create and use crown corporations. Indeed, one of our original convention resolutions calls for public (social) ownership of non-renewable natural resources. At such a time, the NGA might consider the creation of a Saskatchewan Development Corporation to raise capital from the people of Saskatchewan to help establish new crown corporations or buy controlling interest in some corporations.
Part II: Expenditures.
(1) New Energy Policy. The financing of a new energy policy can be achieved through Sask Power corporation, which has the ability to borrow on money markets and finance the repayment of debt. There is no need for this policy to be paid for out of general revenues. This is the practice of all U.S. energy corporations. This would include energy conservation, demand management, wind and solar power. Sask Power can also enter into joint ventures or contracts with private companies.
(2) Northern Development Strategy. While not in the NGA platform, the NGA should at least promise to restore the Northern food subsidy, perhaps eliminate the subsidy on alcohol, and seriously consider involvement in a housing strategy. The previous food subsidy would only amount to around $3 million. A serious housing policy would involve a significant investment. This could easily be financed through increases in royalties and taxes on non-renewable resources.
(3) Agriculture and Food. There are some very good proposals for new programs in the Saskatchewan Alternative Provincial Budget of Choice. An NGA government would shift present research and subsidies from corporate agriculture to ecological agriculture. The NGA would want to provide start up grants and loans for organic food processing and distribution firms, with emphasis on co-operatives. Loans would be made to help maintain the rural RR and elevator system. We would re-direct the investment orientation of SOCO, Sask Water and the Agricultural Credit Corporation. The present budget for agriculture and economic development is only $48 million. The NGA might want to add $100 million to that total.
(4) Reduce Poverty. Raising social assistance rates to the basic need level would require around $50 million for basic needs. An additional $25 million should be added to the shelter allowance. The present budget for child care services is only $17 million, to cover operating grants, wage enhancement, and subsidies to low income single parents. The NGA would need to triple this budget to around $45 million to bring child care facilities up to the Canadian average.
(5) A serious housing policy would required re-establishing the Saskatchewan Housing Corporation. Its budget in 1990 was $65 million. Such a crown corporation could raise additional funds in the market for investment in social housing, home ownership programs, and co-operative housing. The NGA budget could allocate $100 million from general revenues.
(6) Aboriginal Rights. The only proposed cost here is to increase funding to Aboriginal institutions. This could be covered under grants to post-secondary institutions.
(7) Grants to Municipalities and School Boards. The 1999 provincial budget provides only $407 million. Grant Devine's 1990 budget allocated $518 million. To bring the school grants up to the level of the Blakeney period, an NGA budget would need to add $95 million. In addition, the ABC calls for the spending of $10 million to eliminate school fees, $30 million to abolish university and SIAS tuition fees, and $20 million additional for post-secondary institutions.
(8) Health Budget. Building on the proposals of the ABC, the NGA could add an additional $10 million for Home care, $50 for assistance in establishing Community Health Centres, $15 million to re-establish the School-based Dental Program, and $80 million to restore funding the Pharmacare program.
(9) Gambling. The NGA proposes a province-wide plebiscite on gambling. The 1999 budget projects revenues of $485 million from the Liquor and Gaming Commission, almost as much as the revenues from resource royalties. $311 million comes from liquor, and $187 million from VLTs. If the plebiscite was passed, the NGA budget would have to find an additional $187 million.
Part III: Summary of the Budget.
Additional revenues ($millions):
Corporation Capital Tax $120
Corporation Income Tax 90
Corporation Minimum Tax 70
Individual Income Tax 14
Wealth Tax 2
Inheritance Tax 30Sub total: $326
Royalties and Taxes, Non-renewable
Resources (based on a three
year phase in of total) $290Total Additional Revenues $616
Additional Expenditures ($millions):
Northern Food Subsidy $ 3
Agriculture and Food 100
Social Assistance 75
Child Care 28
Housing 100
Municipalities and Schools 95
Eliminate School Fees 10
Eliminate Post-Secondary Tuition 30
Post Secondary School Grants 20
Home Care 10
Health Care Centres 50
School Dental Program 15
Pharmacare 80Total Additional Expenditures: $616
Prepared by John W. Warnock
April 1999
Source : www.nga.sk.ca
Copyright 1999, 2000 New Green Alliance
