USW Budget Letter

January 26, 2009 

The Honourable James M. Flaherty
Minister of Finance
Department of Finance Canada
140 O’Connor Street
Ottawa, Ontario K1A 0G5 

Dear Mr. Flaherty: 

I write regarding the 2009 federal budget on behalf of the United Steelworkers union, which represents 280,000 men and women working in every sector of Canada’s economy. To address the worst economic crisis since the Great Depression, Budget 2009 should deliver a stimulus package worth at least two percent of Gross Domestic Product. But we need more than just a short-term boost.

For years before the current crisis, Canada’s economy was severely out of balance. The corporate sector invested far less than its profits and depreciation, while governments spent and invested less than their revenues. Therefore, the only sources of economic growth were households spending more than their incomes and the country exporting more than its imports. But consumer spending based on borrowing is unsustainable and trade surpluses based on commodity prices are unreliable.

Budget 2009 needs to create jobs and renew the Canadian economy by increasing public investment and promoting private investment. It must also enhance safeguards for unemployed and retired workers.

More investment in public infrastructure would not only provide short-term stimulus and employment opportunities, but also contribute substantially to long-term productivity growth. Statistics Canada recently concluded, “Between 1962 and 2006, roughly onehalf of the total growth in multifactor productivity in the private sector was the result of growth in public infrastructure.” 

Infrastructure projects are artificially delayed by the requirement, set out in Budget 2007, “to demonstrate that the option of undertaking the project as a public-private partnership has been fully considered.” Private capital is extremely scarce due to the credit crisis and, in any case, costs much more than public capital. Budget 2009 must end the federal government’s insistence upon public-private partnerships in order to allow needed public investment to proceed.

Budget 2009 must enact a “Buy Canadian” procurement program to encourage private investment in producing the inputs used for this public investment. In particular, Canada urgently needs to invest in renewable power, public transit, building retrofits and other initiatives to reduce greenhouse-gas emissions. Procurement policy should ensure that such public investments also stimulate the development of green manufacturing capacity in Canada.

No-strings-attached corporate tax cuts have padded corporate profits without increasing real investment. Budget 2009 should maintain the current federal corporate income tax rate of 19% with a view to restoring the 21% rate and corporate surtax when economic conditions improve. Instead of previously scheduled corporate tax cuts, the federal government should provide corporate tax credits for real investments in the Canadian economy. Such credits could be made refundable to also encourage investment by companies that do not currently have taxable profits.

Even with a renewal of public and private investment, relatively high unemployment will likely persist after the recession’s official end. Canada needs a better Employment Insurance (EI) system to assist workers who are losing jobs through no fault of their own. EI improvements are a particularly effective form of economic stimulus because they would automatically provide more funds as unemployment rises.

Budget 2009 must reform EI to ensure that unemployed workers everywhere in Canada who have worked for at least 360 hours can access EI benefits without waiting for two weeks or first exhausting their severance pay. These benefits should be at least sixty percent of earnings from the worker’s best twelve weeks of employment and should last for up to two years.

The EI financing regime and $2 billion cushion instituted by Budget 2008 is woefully insufficient. The EI fund’s former Chief Actuary estimates that a reserve of between $10 billion and $15 billion will be needed to maintain the existing program during a recession without hiking premiums. To meaningfully improve EI, Budget 2009 must repay some of the more than $50 billion of surpluses extracted from the program while unemployment was falling. 

Reliable private pensions and expanded public pensions are important not only for retirees, but also because enabling older workers to retire reduces unemployment. Budget 2009 should establish a national fund to guarantee pension benefits, which could be financed by modest premiums from private pension plans. Federal and provincial governments should work toward doubling Canada Pension Plan benefits from one-quarter to one-half of the average industrial wage.

Thank you for your attention to these matters. Please do not hesitate to contact me if you have any questions or require further information.

Yours truly,

Ken Neumann
National Director for Canada