Is the Liberals’ Green Shift an Anti-Poverty Plan?

Rob Rainer of the National Anti-Poverty Organization has audited the federal Liberals’ Green Shift plan for anti-poverty measures and found it lacking a comprehensive approach. I’ve excerpted below the main points in his brief, which is not on the NAPO web site and should not be taken as the voice of NAPO on the matter (the brief also has footnotes and a table that I had to cut for the sake of this space).

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Under Green Shift, revenue raised by the carbon tax would, in part, help support the Liberals’ aim to cut overall poverty in Canada by 30% in five years, and child poverty by 50%.  By year four of the Green Shift plan, an estimated $15.3 billion per year would be raised from the carbon tax and redistributed for poverty reduction as follows:

• $4.2 billion would enable a 10% drop in the tax rate for low-income earners (earning up to $37,178), from 15% at present to 13.5%;
• $1.9 billion would enable a 5% drop in the next lowest income tax bracket ($37,179 to $74,357), from 22% at present to 21%;
• $2.9 billion would enable the introduction of a new, universal child tax benefit worth $350 per child per year, on top of all existing child benefits;
• $0.5 billion would enrich the Working Income Tax Benefit (WITB) by making the benefit available on the first dollar earned (the Conservative government’s WITB begins with the first dollar earned above $3,000 in earned income; the Liberals also propose to reduce the benefit more gradually than the Conservative’s WITB, as earned income rises);
• $0.4 billion would (1) replace the Conservative government’s employment credit with a $1,850 refundable employment credit targeted at Canadians earning less than $50,000 per year; and (2) “make the Disability Tax Credit refundable, ensuring that low-income individuals who are disabled are able to benefit from the Green Shift”;
• $40 million would be available to support a higher and indexed Northern Residents Deduction;
• $0.7 billion would provide an annual Green Rural Credit of $150 to every rural Canadian tax filer;
• $0.4 billion would be available in contingency reserve to help charities and non-profits offset their expense of the carbon tax, and “to address unanticipated and unavoidable costs associated with the new price on carbon for the most vulnerable in society.”

It is assumed here that what the Liberals are referring to by ‘poverty’ is the incidence of poverty as inferred from the Low Income Cut-Off (LICO) measure updated annually by Statistics Canada.  In 2005, nearly 3.4 million Canadians, including 788,000 children and youth, lived below the LICO (after taxation and income redistribution is taken into account). Using these figures from that year as the benchmark, assuming the Liberals regain power in 2009 and assuming that the Liberal 30/50 goal was to be reached five years hence, there would be some 2.3 million Canadians including 394,000 children and youth living in relative poverty by 2014.  In other words, federal action from a Liberal government would relieve some 1.1 million Canadians, including 394,000 children and youth, from relative poverty by 2014.

… [The] Green Shift would not likely anchor this goal.  A single adult with annual income of just $5,000 (e.g., a homeless person on social assistance), would gain only $550 from the plan and thus remain $12,404 below the LICO line for his/her ‘household’ size.  A single working person under 65 and with income of only $15,000 (e.g., toiling for minimum wage), would realize a gain of $480 but remain $2,474 below the LICO line.  A couple with no children and with combined income of $20,000 (e.g., from social assistance and low-paying work), would realize a gain of $1,158 but remain $693 below the LICO line.  Were they to have two children, they would realize the same gain but remain $12,788 below the LICO line.

This indicates that the Liberals must come forth with other significant anti-poverty measures if their 30/50 goals are to be realized.  That is a first major criticism of the plan – it lacks presentation of a comprehensive approach to reducing and, ideally, eliminating poverty (a goal that the National Anti-Poverty Organization {NAPO} envisions achievable by 2020 with political will, corporate social responsibility and community engagement).

… A second major criticism of Green Shift is its inclusion of tax cuts for relatively high income earners and for corporations, at the expense of social equity and government fiscal capacity. These – along with justifiable tax cuts for low- to middle-income earners – have been included to ensure the plan is revenue neutral.  Assuming that revenue neutrality is a worthy objective and because poverty reduction is an aim of the Green Shift, such neutrality should be provided through even greater support for low-income Canadians, for example by reducing the lowest income tax bracket further below the target of 13.5%. As it is, the Liberals are trying to please middle- to high-income earners as well as the business community by offering them all a piece of the revenue neutral pie.

The 4% reduction (26% to 25%) to the second highest marginal tax rate bracket is difficult to justify: individuals earning $74,358 to $120,887 are definitively not in the low- to middle-income category and could absorb their share of the carbon tax without undue ‘pain’.  The existing tax rate for this bracket should be maintained, if not adjusted a bit upward for those earning, say, in the upper half of this bracket.

The plan rightly does not include tax cuts for those in the highest personal income tax bracket (over $120,887, at a marginal tax rate of 29%).  But neither have the Liberals shown the courage to increase the rate or introduce additional rates for this bracket.  NAPO supported the Canadian Labour Congress’s 2007 call for an increase in the top marginal tax rate from 29% to 31.5%. It would be reasonable to apply such a rate to those earning, say, between $120,888 and $199,999 per year, and it would be further reasonable to apply higher rates to those earning $200,000, $500,000, $1 million, $10 million etc.  Earners of what to most Canadians are astronomical levels of income would still yield paydays beyond the imagining of those same Canadians.  And such rates would generate additional and much needed revenue to further extend Canada’s income redistribution from those at the ‘top’ to those at the ‘bottom.’

The Liberals intend for the 1% reduction in the general corporate tax rate to come on top of steady erosion of this rate over five decades: from 41% in 1960 to 36% in 1980, 28% in 1990, and 21% in 2004.  It is currently at 19.5% and is scheduled to drop to 15% by 2012. The Green Shift plan would see it lowered to 14%.

How can this be justified when between 1996 and 2006, corporate profits essentially doubled and in the first quarter of 2008 alone, corporations realized profits of nearly $68 billion, thus on pace for some $270 billion in profits for the year?  That would be more than 10 times what might be necessary to ensure all Canadians have income above the poverty line.

By year four of the plan (~2013), the cut for the second highest marginal tax rate bracket and the corporate tax cut would remove $2.4 billion annually from the federal treasury – about what   the AFB 2008 estimated to be needed in housing and homelessness supports ($2.3 billion) on top of current spending.  And, keep in mind that such cuts would come on the heels of whopping personal income, corporate income and consumption tax cuts brought by the Conservatives in 2006 and 2007 alone, at a cost to the federal treasury estimated at $188 billion over six fiscal years.

… A third and perhaps the greatest criticism of the anti-poverty dimension of Green Shift is its failure to give recognition to income security as a human right. Although the plan says that “Canadians have built a country that…protects its citizens through the Charter of Rights and Freedoms,” the truth is that the Charter does not guarantee protection from poverty.  And Green Shift does not indicate that the Liberals are prepared to do so, either.

Income security should be viewed as a fundamental human right, conceptually part of the notion of “security of the person” under Section 7 of the Charter, and thus to be protected as vigorously as other established rights such as freedom of religion, expression, assembly and electoral participation.  But of course Canada is “not there” yet: most Canadians may yet believe that one is responsible for one’s own security of the person, with help from the state vis-à-vis physical security protection (i.e., police and military) and, to a lesser degree, economic protection (“a hand up, not a hand out”).

Until income security is widely held by Canadians and thus publicly accepted as a human right –  to be upheld by the courts with reference to the Charter – it is probable Canada will always fall short in the dream to “make poverty history.”  Should the right of income security become ingrained in our cultural fabric, however, and supported by public policy and legislation, then our collective response to poverty will be commensurate: it will include, most critically, the delivery of universal, guaranteed and adequate or livable income (i.e., sufficient to meet basic needs) as a right of citizenship⁴ and in advance of a more humane and better society.

Finally, a fourth and lesser concern is the Green Shift proposal to increase the Working Income Tax Benefit (WITB). The idea of a WITB seems sensible to help low-income individuals and families improve their income security and, in the case of some make the transition from income assistance to work (i.e., overcome the so-called “welfare wall”).  For this reason the WITB has gained support from many anti-poverty colleagues: indeed, in its submission to the 2007 federal pre-budget consultation, NAPO voiced its support for the introduction of the WITB and called for its enrichment akin to what is identified in Green Shift.

However, as we have subsequently learned, there is a major philosophical concern best posed as a rhetorical question: rather than use such a benefit in an attempt to address the welfare wall that blocks some low-income citizens from moving into the workforce, due to the negative incentive of low-paying and often uncertain, unstable work, why not ensure that every minimum wage rate in Canada is sufficient to enable anyone working full-time for the minimum wage to earn enough income to be above the LICO (or more robust poverty) lines?  In other words, why not legislate for living wages?

… The Canadian Centre for Policy Alternatives articulates this principle as follows: A single individual working full-time and full-year should have an income above the poverty line. To add to this, Andrew Jackson of the CLC wrote in 2005 that:

In any ‘new social architecture,’ there must be a major emphasis upon securing access to collective bargaining and raising minimum wages and employment standards.  There must also be progressive reform of Unemployment Insurance, and continued emphasis on the importance of social and public services.  If such policies were implemented, there would be a significantly reduced need for earned income supplements to address poverty among the working poor, and transitions from welfare to work would be facilitated.

Within this context, the WITB should at best have a minor role to play in furthering income security.  Its role might be best limited to, as Mr. Jackson has suggested, providing “support for individual workers who are participating actively in the job market, but are unlikely…to find and hold jobs at a sufficient level of hours and earnings to provide an adequate income from wages and UI benefits combined.”  Implementation of the WITB ought not to negate efforts to achieve living wage rates such that anyone working full-time for the minimum wage can meet his or her basic needs.

The above concerns do not detract from the positive signal that Green Shift sends to Canadians – that the Liberal Party of Canada appears seriously interested in tackling poverty and is willing to consider innovative means of following through.  This places the Liberal Party alongside the New Democratic and Green parties of Canada as giving indication of serious intent to assert a stronger federal leadership role on one of most pressing issues of our time – poverty and its brethren (inequality and social exclusion).

However, the absence of a comprehensive approach to poverty reduction and eventual elimination; the unfortunate inclusion of tax cuts for corporations and relatively high income earners at the expense of further support for low-income Canadians; and most of all the absence of recognition of income security as a human right and right of citizenship, detracts not only from enthusiasm for Green Shift but ultimately its power of anti-poverty impact.  Hopefully it is not too late for the Liberal Party to change gears on what is an admirable attempt at innovative environmental, social and economic policy.