Fiscal deficits and social deficits

Why does the Globe oped page save all the good stuff for days when most people are not paying attention? In today’s edition, tax economist Jon Kesselman from SFU says reinforce the automatic stabilizers and focus on social needs:

Getting more funds into the hands of individuals who most need support should take priority over cutting taxes. Much of traditional tax cuts is simply saved rather than spent by those uncertain about their futures. Reducing tax rates is good medicine for “supply side” growth, but it is not the right prescription for an economy suffering from “demand side” deficiency. Incentives to work harder mean little when available jobs are shrinking. And incentives to save more are inappropriate when pocketbooks should be opened.

Two areas are perfectly suited for increasing spending power: Employment Insurance and provincial welfare for employable persons. Fiscal initiatives for these programs should be structured to phase out or be self-financing after the economy recovers.

First, EI should be enhanced for workers losing jobs in lower-unemployment regions. In the lowest-unemployment regions (cities as diverse as Halifax, Quebec, Ottawa, Regina and Vancouver), claimants need at least 700 hours of insured work to obtain benefits, while, in high-unemployment regions, 420 hours suffice. Moreover, claimants are entitled to a minimum of as little as 14 weeks of benefits or as much as 37, again hinging on the regional jobless rate.

The hours-of-work threshold for eligibility and the weeks-of-benefits formula should be adjusted to reduce the role of regional unemployment rates. A person without a job is equally unemployed, regardless of how many others are unemployed around them. EI benefit rates should also be increased for those engaged in retraining. These changes would be self-financing; after economic recovery, EI premium rates would increase to cover the preceding years’ costs. These enhancements would also be time-limited based on benchmarks of economic recovery.

Second, the federal government should re-enter cost-sharing of provincial expenditures on welfare, an approach last used with the Canada Assistance Plan in 1996. Federal funds should cover at least two-thirds of the costs from recession-induced increases in caseloads of employable beneficiaries. Federal funds should also be provided to cover part of hikes to benefit rates for employable beneficiaries; these benefits are the weakest link in our social safety net.

Federal sharing of welfare costs and the EI benefit enhancements during the downturn will enable provinces to undertake their share in fiscal stimulus even while their revenues are declining. After federal funds for welfare are phased out with economic recovery, some provinces may wish to retain higher benefit levels.

Finally, incremental spending on infrastructure should target not only concrete projects such as roads and bridges but also critical aspects of our social needs. In particular, spending should target housing for the poorest Canadians and assistance for those suffering from disabilities, including mental and addiction issues.