The Case For Universal Basic Income

When the government provides a basic income to all citizens of the country without any conditions attached, it is termed as universal basic income. It is a form of social security. There is increasing debate in the developed countries about the introduction of Universal Basic Income.

The combination of four factors, globalization, outsourcing, automaton, and the increasing adaptation and use of artificial intelligence is taking a growing toll on the low-income and middle-class sections of the society in developed countries, which is prompting the debate for the introduction of universal basic income.

In Canada, manufacturing employment has decreased. According to Statistics Canada, manufacturing employment decreased by 322,000 between 2004 and 2008. This indicates the impact that globalization, outsourcing and automation had on Canadian manufacturing employment during this period. However, during the same period, 1.5 million jobs were created in the Canadian economy. It was a net increase in jobs, which indicated dynamism in the Canadian economy.

But, some of the unemployed manufacturing workers may have found it difficult to find employment in other industries. This could have been due to lack of skills and not enough opportunities, including financing opportunities, for retraining of the unemployed workers. This might have led to lower income and standard of living for the unemployed workers, and some might have even fallen into poverty.

In the United States, there has been a decline in manufacturing employment as well. 5.8 million manufacturing workers lost their employment between 1999 and 2011. It shows that the combination of globalization, outsourcing and automation has taken a serious toll on US manufacturing employment. While other jobs were created, the manufacturing sector workers might have fallen into economic difficulty.

The same trend is observed in other advanced economies. The manufacturing sector is shrinking. While this trend is expected as an economy matures, it is creating significant manufacturing unemployment in the advanced economies.

Even though retraining the unemployed workers is important, it is a reality that there will simply not be enough jobs to employ the relatively low-skilled unemployed workers as many of these companies, typically manufacturing companies, move their production to low-wage destinations while automation reduces the number of workers required in the production processes.

Again, the increasing adaptation and use of artificial intelligence is also taking a toll on employment in the developed countries.

Therefore, these four factors are leading to unemployment among the low-income and middle-class sections of the society in developed countries, especially among the low-income and low-skilled section of the society. The impact of artificial intelligence on employment may become more pronounced when driverless cars and trucks become more widely used.

These economic changes (globalization and outsourcing) and technological changes (automation and artificial intelligence) are leading to economic difficulty or even poverty among the disenfranchised workers. At the same time, there are people who have benefited significantly from these economic and technological changes. This has led to rising income inequality in the advanced economies which is undesirable.

Also, a large pool of unemployed people can lead to social and political instability. Angst and anger of the unemployed, and adversely affected low-income and middle-class sections of the society have led to the rise and popularity of right-wing politics. Again, reduced income of the low-income and middle-class may have dampened consumption and expenditure by these sections of the society.

Considering the challenges that these four factors have created and may create in the future, it is prudent to introduce universal basic income in the developed countries. It will help the adversely affected workers and their families to have decent standard of living. This will reduce or even eliminate poverty. With higher levels of income, people will be in better health leading to lower health care costs and healthier workers.

Also, they may be more inclined to access and afford education. This may lead to healthier, more skilled and competent workers. Again, the buffer created by universal basic income may encourage people to pursue entrepreneurship and take risks in being self-employed and start businesses. This may increase business activity and employment in the country.

As it will increase the income of the low-income and middle-class, universal basic income will reduce income inequality. With its introduction, the disenfranchised workers and their families will have decent standard of living that will contribute to higher levels of social and political stability. This will stem the rise and popularity of right-wing politics that has affected some developed countries.

Again, with higher income, the low-income and middle-class may consume and spend more. Higher levels of consumption and expenditure will stimulate the economies of developed countries.

One argument against universal basic income is that it may make people less inclined to work. But, research has shown that its introduction has little effect on the number of hours worked. It added that even the people who worked less became involved in alternative work valuable to the society.

There are several countries that have considered as well as experimented with universal basic income. Finland is the first European country to conduct a two-year social experiment to understand the effectiveness of introducing universal basic income.

Universal basic income will replace existing social benefits and be paid irrespective of a citizen’s employment status. The Finnish government hopes that it will reduce poverty and increase employment. However, the majority of Swiss voters rejected a proposal to give every citizen and long-time residents a universal basic income.

Therefore, the idea is not popular in all countries. In Canada, Ontario is planning to run a trial of universal basic income. Even though two-third of the respondents in a poll of 1,500 Canadians were open to the idea of basic income, most were unwilling to pay higher tax to finance the program.

This is a challenge to governments and policy makers trying to implement universal basic income. Also, Silicon Valley has become a supporter of universal basic income realizing the job-replacing effect of technology.

The combination of globalization, outsourcing, automation and the increasing adaptation and use of artificial intelligence is creating significant challenges in the developed countries. This makes the introduction of universal basic income an increasingly viable policy option. It will generate a myriad of benefits like reducing or eliminating poverty to fostering greater social and political stability in the developed countries. Also, research has shown that it has limited effect on the number of hours worked. One concern of universal basic income is the way in which it will be financed.

As respondents from a poll in Canada show, people are unwilling to pay higher tax to finance the program. In this case, governments can get increasing revenues from corporate tax and by encouraging corporations to bring their overseas profits to their home countries at attractive tax rates, generating tax revenues to finance the program of universal basic income. Also, governments can save funds as universal basic income will replace other social programs.

Finally, healthier population will lead to lower health care costs so that governments have to spend less on public health care, sparing funds which can be redirected to finance universal basic income.

Are We In Too Much Debt?

The notion of debt is something very common, whether it is for households or government. Households borrow to finance purchase of houses, vehicles, education, etc. The government borrows to finance its programs like building infrastructure and implementing various social programs while companies borrow to finance their operations.

Debt is necessary for households to build assets and improve human capital while for the government, it facilitates government investment in the society. Debt helps companies to grow and develop. However, excessive debt held by households, companies or the government may create potential financial or economic instability.

In Canada, the combined debt of households, companies and governments is 288 per cent of gross domestic product. At $4.4 trillion in the first quarter of 2015, the combined debt is almost three times the size of the Canadian economy. Compared to other G-7 countries, Canada’s government debt is the lowest. However, Canadian household debt crossed 100 per cent of GDP in September 2015.

This may be putting excessive strain on the economy while making it vulnerable to shocks. Households have been taking advantage of record low interest rates to purchase real estate, which has led to increase in house prices, especially in cities like Toronto and Vancouver. The runaway prices of real estate in these cities may not be viable and may pave the way for a correction in the housing market in the future, which can lead to contagion effects in the economy.

Also, the potential rise of interest rates may put households in a tight spot in terms of higher monthly payments on their debt. If this leads to wide-scale default among indebted households, it can lead to instability in the wider economy.

In the US, debt securities and loans of all sectors stood at US $62.5 trillion in the first quarter of 2015. Again, US national debt is more than US $19 trillion. A high level of national debt which means higher level of government borrowing can crowd out private sector borrowing, which may lead to lower investment. More importantly, a high level of debt can lead to potential instability in the economy.

Also, it can impose excessive burden on future generations as they have to service the national debt and eventually pay it back. It must be mentioned that a significant part of US national debt is held by US citizens while other countries like China and Japan account for the rest. While domestic ownership of national debt makes it less vulnerable to financial or economic chaos, any sudden and major changes in foreign ownership can create problems in the financial sector, which can lead to further problems in the economy.

The second-largest economy in the world, China, also has high level of debt. While public debt stood at 55 per cent of gross domestic product in 2015, total credit excluding equity raising, was close to 200 per cent of GDP in 2015. The high level of debt can create potential instabilities in the economy that can create contagion effects in the Chinese economy, which may lead to financial chaos and unemployment in China. Also, any problems in the Chinese economy may have spillover effects on the global economy.

Many developed countries have high debt-GDP ratio; sometimes, household debt is a bigger concern than government debt. However, as in the case of Japan, most of the debt is held by the citizens of the country. This makes Japan less susceptible to sudden outflow of funds due to foreign investors reducing their holdings of Japanese financial assets. This in turn makes Japan less susceptible to financial and economic instability. Even though public debt was incurred to reinvigorate the Japanese economy, its impact was quite limited while it led to high level of debt-GDP ratio.

Debt is important in a modern economy to both the public and private sector. Public sector debt imposes a burden on the current and future citizens of the country. However, it is important to understand the reason that public debt is incurred.

If the public debt is incurred to finance infrastructure spending, expenditure on retraining of unemployed workers, increased public education or increased public health care, then, they are all investments that the citizens and country can benefit from, in the short-run to the long-run. Therefore, in evaluating public debt, it is important to understand the reason for public debt and its potential costs and benefits to the citizens and the country from the short-run to the long-run.

The same is true for private sector debt. When the private sector is borrowing to invest and establish companies that create employment and grow the economy, it is beneficial for the country. Again, when households borrow to finance their education or purchase a residential property to live in, it is a desirable policy.

However, when household debt increase exponentially to finance housing debt that lead to spiraling housing prices that in turn fuel further housing debt, it can become a vicious cycle that will only lead to a housing market crash that may further lead to a contagion effect on the financial and economic sector of the country. Therefore, policies to cool a hot housing market with regulations for higher down payments, stricter mortgage eligibility and curbing foreign buyers’ appetite for purchasing domestic property may stem the disproportionate rise of housing prices and housing debt.

This will reduce the probability of a housing bubble that may lead to financial or economic instability. Therefore, the type of household debt is important when evaluating its potential problems. However, spiralling household debt would obviously be a concern for policy makers.

Governments, central banks and policy makers need to be vigilant of too much public or private sector debt and a too high debt-GDP ratio. When evaluating the potential implication of debt, the reason for debt needs to be taken into account as well. Unsustainable levels of debt need to be curbed so that they do not cause potential financial or economic instability.

Neoliberalism And The Rise Of Right-Wing Politics

There is rise of right-wing politics in several countries of the world. Brexit in the UK and the election of Donald Trump in the US demonstrate the popularity of right-wing politics in various parts of the world. Also, right-wing politics is gaining traction in countries like France and Germany. Backed by populism, right-wing politics is becoming more and more popular and widespread in several countries.

The rise and popularity of right-wing politics can be categorized into economic and non-economic factors. Immigration and the movement of refugees into Europe played a role. While xenophobia, racism, Islamophobia and other kinds of discrimination play roles in the rise and popularity of right-wing politics in various countries, there are economic factors at play as well. This article focuses on the economic factors that are contributing to the rise and popularity of right-wing politics.

Many Western countries have followed a policy of neoliberalism for the last few decades. A combination of privatization, deregulation including financial deregulation, free trade and globalization characterize neoliberalism. Neoliberalism has been a boon for global economic growth; both developed and developing countries have benefited from neoliberalism in terms of high economic growth.

Globalization and outsourcing have allowed countries like China to rapidly develop while developed countries have benefited from cheaper goods and services produced in low-wage countries. At the same time, technological improvement has allowed to automate manufacturing processes, lowering manufacturing costs by using fewer number of workers. Automation has benefited companies as fewer number of workers mean lower costs and, consequently, higher profits and efficient production processes.

Therefore, outsourcing, globalization and automation led to higher economic growth in both developed and developing countries, benefited companies producing in low-wage countries in terms of lower production costs and higher profits, and consumers in developed countries by having access to cheaper goods and services made in low-wage countries.

However, the benefits of globalization, outsourcing and automation came at a high cost. Companies in developed countries moved their production processes to low-wage countries or outsourced parts of their production processes to low-wage countries. Workers in developed countries who were employed in these manufacturing and service industries have become unemployed with neoliberal policies adopted by the developed countries. Combined with automation, it has been putting significant pressure on the employment situation of the working class and middle-class in developed countries.

Globalization, outsourcing and automation have led to dissipation of the manufacturing sector in developed countries that employed the working class in these countries. This led to increased unemployment among the working class and a shrinking middle class. While manufacturing flourished in low-wage countries, developed countries started to experience industrial rust belts which led to unemployment of factory workers.

With increased globalization, outsourcing and automation, the adverse effects on the working class and middle-class have only increased over time. However, the unemployed did not find alternative employment which forced them to fall into difficult financial circumstances or even poverty. At the same time, the beneficiaries of globalization, outsourcing and automation included the multi-national companies and large corporations. The people who have benefited from this continuous change have become incredibly wealthy while the working class and middle class have suffered financially. This has led to higher income inequality among the population of developed countries.

The suffering of the working class and middle-class have led to rise of angst and anger among this segment of the population, which is a majority in many developed countries. They are disillusioned with globalization and free trade, and the way it has wreaked havoc to their livelihood. Also, the social programs in the developed countries have been inadequate to help these disenfranchised people.

This led to these people rallying against the establishment in these countries contributing to the rise of anti-establishment popularity among the masses and support of right-wing politics, including far-right politics, in these countries. The disillusionment and resentment with neoliberalism, globalization and insufficient social programs have contributed to Brexit in the UK, Donald Trump being elected in the US and the rise of right-wing parties in France, Germany, etc.

Globalization, outsourcing and automation have taken a toll on the working class and middle-class of developed countries. The governments of these countries can introduce social programs that will help the adversely affected population. Health care is a considerable cost to people, especially the working class and middle-class segments of the population. Sometimes, health care costs can push someone into poverty. The introduction of more affordable health care or universal health care could help the low-income and middle-income people in having access to health care services.

Also, while some of the unemployed workers found alternative employment, others have fallen into financial difficulty or poverty. In order to help them have a decent living that will contribute to social stability, guaranteed minimum income may be introduced. Guaranteed minimum income ensures that all citizens have a minimum income that they can live on. The introduction of guaranteed minimum income will allow the adversely affected segments of the population to have a decent living. This will alleviate their suffering and lead to social stability and harmony.

The introduction of affordable post-secondary education will help the low income and middle-class to access post-secondary education for themselves and their children. Rising costs of tuition particularly at the post-secondary level have made it increasingly difficult for the low-income and middle-class to afford post-secondary education.

Also, increased access and affordability to trade schools and retraining opportunities will help the unwitting victims of global economic and technological changes as well as the low-income and middle-class. This will improve the standard of living of the low-income and middle-class of the developed countries as well as stem the rising income inequality that plagues these countries.

The income tax system can be made more progressive so that it taxes high-income earners more to finance social programs targeting the low-income and middle-class sections of the society. This will reduce income inequality while helping the low-income and middle-class. Also, changes can be made in the corporate tax system so that it benefits domestic producers and companies that choose not to offshore production in low-wage countries.

The introduction of subsidies and lower corporate taxes can encourage companies to produce domestically and even reshore, which is bringing back jobs to their home countries. This may improve employment in some types of manufacturing and service sectors in the developed countries.

Again, incentives in terms of lower tax rates can be offered to corporations to bring their overseas profits to their home countries. When they bring back overseas profits and invest in domestic economies of the developed countries, it will boost their respective economies and employment scenarios.

A combination of these economic and public policies accompanied by social policies like increased awareness among the population of the benefits of immigration will definitely reduce the anger and disillusionment among the adversely affected sections of the population in developed countries. Policies that benefit all sections of the population so that they enjoy the benefits of globalization, outsourcing and automation will reap rich rewards in terms of higher economic, social and political stability and harmony. This will make right-wing politics less appealing to the population of developed countries.

Tax Havens Impact Canadians Too

Tax havens have become increasingly formidable players in the global economy. With increased globalization and financialization of the global economy, tax havens have become important players in the world economy. According to a report by Tax Justice Network, $21 to $32 trillion is stashed offshore. According to the World Bank, the GDP of the world was US $73.4 trillion in 2015. This shows the importance of tax havens in the world and the influence they have on the world economy.

The money that pour into tax havens does not stay there, but is invested in various countries. However, any financial flow through a tax haven makes it tax-free, and any return on it tax-free as well.

Corporations and wealthy individuals invest their finances through tax havens to avoid paying taxes or reduce their tax burden. Canada is not immune to it as well.

In 2015, Canadians put $40 billion in tax havens while the total amount of wealthheld in top ten most popular tax havens is $270 billion. This shows that Canadians put significant amount of capital in tax havens. Therefore, the outflow of capital to tax havens is a concern for Canada as well.

The US is also prone to outflow of capital to tax havens. US corporations and wealthy citizens pour capital into tax havens. In 2013, US corporations held $2.1 trillion in untaxed foreign profits held overseas. This shows the level of foreign profits that US corporations hold overseas. If these overseas profits are brought into the US, this will generate increased levels of economic activity and employment generation in the US.

According to a report by US PIRG Education Fund and Citizens for Tax Justice (CTJ), US-based multinational corporations evade $90 billion of federal income taxes each year. This is a substantial amount of revenue that the US federal government could use to support its various programs.

However, there are some areas in the US like Delaware, South Dakota, etc. which effectively operate as corporate tax havens.

This shows that US corporations do not necessarily need to go to tax havens outside the US but take advantage of domestic tax havens to reduce or eliminate their tax burden.

Some of the leading economists of the world mentioned that tax havens ‘serve no useful economic purpose’. It is true that tax havens do not serve any useful economic purpose, as they do not necessarily augment economic activity or increase the level of employment in a society. A counter-argument can be that tax havens reduce or eliminate taxes that lower the cost of doing business. This boosts the incentive to invest which leads to increased economic activity and employment.

However, the capital flow through tax havens are ultimately invested in countries where tax is imposed and going through tax havens only lead to tax avoidance. As the capital is ultimately invested in non-tax havens, companies and wealthy individuals would invest even if tax havens did not exist. Therefore, it can be argued that tax havens do not have significant influence on capital investment and employment generation, and do not necessarily boost capital investment and employment generation. On the other hand, tax havens allow corporations and wealthy individuals to avoid paying taxes, and dodge their tax and social obligations to the societies in which they operate.

Even though tax havens ‘serve no useful economic purpose’, they have important effects on countries. When companies and wealthy individuals evade tax or lower their tax burden by channeling their funds into tax havens, it leads to lower government revenues. When the government has lower revenue, it can fund fewer infrastructure, build fewer public schools, provide less subsidized or free healthcare, and provide fewer social programs for the marginalized sections of the society.

This shows the negative impact of tax havens on a society that experiences capital outflow to a tax haven. When the government has less money to invest in infrastructure and social programs, it leads to poor infrastructure, and lower health and education of the population that in turn lead to lower human capital in the country. This decreases labour productivity and dampens economic activity in the country. Therefore, tax havens can have serious deleterious consequences, both economic and non-economic, for societies.

In Canada, when corporations and wealthy individuals pour capital into tax havens, there are lower tax revenues for the provincial and federal government. When they are evading or lowering their tax burden, the government cannot finance its various programs. Also, to maintain its expenditures, the government has to increase taxation on other sections of the society.

This invariably means that the tax burden on the middle-class and low-income segment of the population increases. The same is true in the US as it leads to lower tax revenue for the federal government, state governments and local governments. Therefore, tax havens lead to two problems, lower government revenues that make it difficult to fund government programs and increased tax burden on the middle-class and low-income segments of the society.

Tax havens have become increasingly important players in the global economy. A significant portion of global finance flows through them. Other than allowing tax avoidance and reduction of tax burden by corporations and wealthy individuals, tax havens do not play any beneficial role for the society. However, they lead to lower government revenues that make it difficult for governments to finance various programs while shifting the tax burden on the middle-income and low-income segments of the population.

A concerted effort by various countries, especially ones with large economies, and international organizations to reduce the practice and existence of tax havens could lead to decrease of tax avoidance by corporations and wealthy individuals. This will enable governments to generate more revenue that could finance various social programs as well as decrease tax burden on the middle-class and low-income section of the society.

Brexit Demonstrates Perils Of Unchecked Globalization

Brexit has rattled the economic, political and social landscape of not only the European Union but also the whole world. Its effects are expected to vibrate throughout the world, including North America. The reasons and consequences of Brexit can be classified as political, social and economic. While discussing the political and social aspects, this article will mainly explore the economic reasons and consequences of Brexit.

The European Union led to harmonized political decisions across the EU countries and, possibly, less independence for individual member countries to enact political decisions contrary to EU policies. This may have fuelled the rise of pro-Brexit voices.

At the social level, free movement of people within the EU led to many EU citizens to move to the U.K. Combined with immigration from non-EU countries, this may have led to U.K. citizens consider immigration less favourably, leading to rise of pro-Brexit voices.

The economic reason behind Brexit is unregulated globalization which led to increased inequality in the U.K. Like other developed countries, automation and outsourcing have led to increased unemployment among low income and middle-class workers in the U.K. Also, migration from EU countries put downward pressure on wages of low-income workers. Increased income inequality, fewer jobs for low income and middle-class workers, and downward pressure on wages of low-income workers were the economic triggers of Brexit.

Various analysis have shown that Brexit will adversely affect Britain’s economy. According to the Centre for Economic Performance, LSE, Britain’s economy will decrease by 1.3 per cent to 2.6 per cent without considering foreign investment, migration and reduced trade. When the long-run effects of Brexit on productivity are considered, the decline in income is forecast to be between 6.3 per cent and 9.5 per cent. PwC estimates that the decrease will be between 3.0 to 5.5 per cent in 2020. Also, Oxford Economics predicts that it will decrease by 0.1 per cent to 3.9 per cent.

Again, analysis by HM Treasury yielded that Brexit will be harmful for the U.K. economy. OECD finds similar predictions for both the near term and long term.

As 44 per cent of Britain’s exports go to the EU and only eight per cent of EU exports go to Britain, this shows the importance of EU trade to Britain’s economy. All analysis of Brexit have predicted that it will be harmful for the UK economy. While the U.K. can implement trade deals with individual EU countries, it would certainly take some time to negotiate and implement these trade deals.

Brexit is forecast to affect the EU economy and reverberate across the whole world. It is predicted that it will negatively affect both Canada and the U.S. Even though the U.K. consists of only three per cent of Canada’s exports, Brexit could adversely affect U.K.’s foreign direct investment to Canada while Canadian companies may be more cautious while investing in the U.K.

The more adverse effect is the uncertainty that Brexit will add to the world economy. The uncertainty and the resultant business pessimism and low confidence could lower everything from investment and consumption, leading to decreased economic performance of countries. The Chief Economist of OECD has predicted that 0.25 per cent of Canada’s GDP could be adversely affected by Brexit by 2018.

Again, the U.K. consists of 3.1 per cent of U.S. total trade. Therefore, the direct effect of Brexit on the US economy may not be that significant. However, the uncertainty in the world economy that Brexit may bring can increase the adverse effects on the world’s largest economy. TD Bank predicts that Brexit could reduce Canada and U.S. growth rates by 0.5 per cent to 1.0 per cent in the second half of 2016.

It seems that the country forecast to be most adversely affected by Brexit is the U.K. itself. Brexit could lead to lower level of GDP and GDP growth, decline in standard of living and loss of jobs in the U.K. It could have a negative effect on London’s position as a financial capital of the world as many financial institutions may move out of the U.K. due to Brexit, which would adversely affect the U.K. economy and employment situation. Foreign direct investment in the U.K. may decrease as many foreign companies invested in the U.K. to access the EU market. Without unlimited access to EU markets, FDI in the U.K. could be adversely affected.

Brexit has indicated the limits of globalization and the effects of unhindered globalization. Globalization and being part of the EU benefited the U.K. significantly in terms of high level of GDP and helping London to position itself as a financial center of the world. However, it also lead to increased income inequality among the British population as globalization mostly benefited high-income groups while the middle-class and low-income people did not benefit from it.

Increase in real estate prices in London made it difficult for middle-class Londoners to purchase real estate in London. The low-income group of the society and people with low education and skills were adversely affected due to increased globalization and free migration of EU citizens to the U.K. While the U.K. economy prospered and London cemented its position as a financial capital, the middle class and the low-income groups, in particular, struggled.

Brexit demonstrated the perils of unhindered globalization. It demonstrates the need for globalization to be inclusive so that it benefits all segments of the population, particularly people in the low-income group, and people with low levels of education and skills. The introduction of guaranteed minimum income, increased opportunities for skills development and incentives for companies to hire locally would improve the economic conditions of the low-income and middle-class population. Only when the fruits of globalization are enjoyed by all segments of the society, especially the low-income and middle-class, would globalization be more acceptable politically and socially by broad segments of the population.

The Federal Budget Benefits Canada’s Most Vulnerable

The proposed budget will increase government spending while having a deficit of $29.4 billion. It will direct billions of dollars to infrastructure spending, First Nations, and the middle class and lower income groups. The budget is expected to be in deficit till 2020-21, when it is forecast to decrease to $14.3 billion. Even though it is predicted to be in deficit, the budget is geared towards helping the middle class as well as the lower income groups of society.

In the proposed budget, the current child benefit system would be replaced by Canada Child Benefit. The average benefit would be $2,300 in 2016-17. This new program would mostly benefit families with less than $30,000 in net income. This program would cost $23 billion and nine out of 10 families would experience higher child benefits than under the current system. It is expected that 300,000 children will escape poverty in 2016-17 relative to 2014-15 due to this program. Canada Child Benefit would definitely help low-income families including single-parent families and middle-class families.

The budget has increased Canada Student Grant by 50 per cent that would help students from low-income families, middle-income families as well as part-time students. Providing assistance of $1.53 billion over five years, this program would benefit 100,000 students from middle-class families, 247,000 students from low-income families and 16,000 part-time students. This program would be very beneficial as it would help students to pursue education. Undoubtedly, it would improve human capital of the country by producing an educated and skilled workforce. Again, increased investment in training as proposed in the budget would help the population to improve its skills. An educated and skilled workforce would translate into higher economic growth of the country.

The budget plans to invest more than $120 billion in infrastructure over ten years. It would invest in public transit, water and wastewater systems, creation of a low-carbon economy that would create jobs in the economy. This will not only improve the economy but, connect and strengthen communities. Investments in green infrastructure is noteworthy especially when climate change is increasingly becoming an important issue to address.

Again, investments to create stronger communities and affordable housing would improve the quality of life of low-income people in the country while creating new jobs. Increased investments in affordable housing for low-income people and First Nations would benefit more than 100,000 households. The budget proposed increasing affordable housing for seniors that would help low-income senior households. Supporting the construction of affordable housing, providing rent subsidies and programs to reduce homelessness would help those who need these services. Investments in creating a more innovative economy would foster job creation and economic growth.

The proposed allocation of $8.4 billion over five years to First Nations is commendable as it would improve their socio-economic conditions and quality of life. Increased investments in education, infrastructure, etc. would improve First Nations’ health and skills that would lead to better employment prospects for them.

The budget has proposed allocation of funds to support clean technology that will help in the transition of the economy to a low-carbon economy. Proposed allocations of almost $2.9 billion in the budget to address climate change and air pollution over five years are commendable. Decreases in air pollution would make air cleaner that would positively contribute to healthier Canadians. Again, a healthy population would lead to decreases in health care costs. Programs to improve water quality of lakes would improve the quality of drinking water for Canadians. Overall, investments to reduce the impact of climate change and transition to a low-carbon economy would be helpful for both the health of Canadians and the economy in short to long-term.

Increases in Guaranteed Minimum Income by up to $947 annually would improve the financial security of 900,000 single seniors in the country. Enhancing the Canada Pension Plan, indexing seniors’ benefits to their cost of living, supporting veterans and increasing the financial support for veterans are commendable as well as programs to strengthen Canada’s health care system.

Investing to reduce tax evasion and combat tax avoidance are noteworthy as it leads to increased tax integrity, fairness of the tax system as well as higher government revenues. Again, measures to strengthen the financial sector to support economic growth are important in a world of uncertainty and risk. The budget’s proposal to introduce a “bail-in” regime which would emphasize that the bank shareholders and creditors would shoulder a bank’s risks and failures, and not taxpayers is positive. The proposal allows the conversion of long-term debt of a troubled bank into common shares to recapitalize the bank, keeping it afloat and operating. In line with international efforts to reduce potential risks to the financial system, this program would dampen the incentive for ‘private profits and social losses’, and the government’s need to bail out “too big to fail” financial institutions.

The budget deficit is predicted to be $113.2 billion by 2020-21. Even though the budget would be in deficit, it is forecast that it would boost GDP by 0.5 per cent in the first year and by 1.0 per cent by the second year, leading to 100,000 jobs created by 2017-18. These projections are dependent on domestic as well as international economic and political conditions. The budget is definitely ambitious and a deficit budget. However, it is expected to help the low-income group and the middle class of the country. The budget is investing in the people of Canada, particularly, the vulnerable members of the society and it is predicted to make meaningful impacts on the lives of Canadians while boosting economic growth of the country.

The TPP May Widen The Gap Between Rich And Poor

The Trans-Pacific Partnership (TPP) is a trade agreement between Canada, the U.S. and 10 Pacific Rim countries. These 12 countries have a combined gross domestic product (GDP) of US$28.5 trillion. The deal will lead to the elimination or reduction of tariff and non-tariff barriers on the trade, investment of goods and services while enforcing intellectual property rights. The effect of the TPP on Canada and the United States has been considered and analyzed, and different conclusions have been drawn. Some research has concluded that the TPP would be beneficial for both the countries, while others have argued that the benefits would be more nuanced. Again, others have concluded that the TPP would be harmful for both the countries in terms of lower GDP, employment and worsening income inequality.

According to the World Bank, the TPP would be beneficial for member countries. It would increase their exports by 11 per cent and boost their GDP by an average of 1.1 per cent by 2030. Both Canada and the U.S. are predicted to see increases in exports and GDP with the implementation of the TPP; however, their gains would be less than smaller TPP members, according to the World Bank. Research by Petri, Plummer and Zhai (2016) states that the TPP would be beneficial for both Canada and the U.S. Their working paper states that the United States would be the largest beneficiary of the TPP in absolute terms. It states that Canada’s exports would increase by U.S. $58 billion or 7.0 per cent while its GDP would increase by US $37 billion, which is 1.3 per cent of GDP, by 2030. Again, U.S. exports would increase by US$357 billion, or 9.1 per cent, while its GDP is predicted to increase by US$131 billion, or 0.5 percent of GDP, by 2030. Also, the paper reveals that wages would slightly increase in the U.S. with movement of workers between industries due to structural changes. Therefore, exports and GDP of both countries are expected to increase while wages are predicted to slightly increase, and there would be movement of workers between industries.

David Autor, David Dorn and Gordon H. Hanson (2015) also state that the TPP would be beneficial for the United States. They state that TPP encompasses intellectual property and foreign investment, which would increase trade in knowledge-intensive services, a sector in which U.S. companies are very strong. Also, they mention that enacting the TPP would raise regulatory rules and standards for several of China’s key trading partners. According to the article in the Washington Post, this would pressure China to meet some of these standards and reduce its attempts to manipulate global trade.

However, other research has found that the TPP would not be that beneficial for Canada and the U.S. According to Economic Policy Institute (2015), the TPP would not be that beneficial for U.S. workers. Their research reveals that a trade deal with trade partners who are poorer and are labour-abundant would lower the wages of most American workers. Also, there would be reshuffling of production and workers from labour-intensive import-competing sectors to capital-intensive export sectors as the U.S. has a comparative advantage in the future. This would dampen wages in the U.S., leading to higher income inequality.

Research conducted by Capaldo and Izurieta (2016) find that the TPP would not be beneficial for Canada and the United States. In their paper, they allow for changes in employment and income distribution. They find that the TPP would lead to lower GDP for the U.S. and a slight increase for Canada. It is predicted that U.S.’s GDP would decrease by 0.54 per cent while Canada’s would slightly increase by 0.28 per cent by 2025. The paper forecasts that the total GDP of the developed economies in the TPP would decrease by 0.34 per cent by 2025.

However, net exports of the U.S. is expected to slightly increase (0.20 per cent), and Canada’s to slightly decrease (0.58 per cent) in the same time period. While changes in GDP and net exports are marginal, the TPP is predicted to lead to employment loss. Canada is expected to lose 58,000 jobs while the U.S. is forecasted to lose 448,000 jobs. Overall, TPP countries are expected to lose 771,000 jobs while non-TPP countries are predicted to lose even higher number of jobs (5.33 million) due to a global race to the bottom.

The movement of production to capital-intensive, export-oriented sectors would lead to decrease in employment and downward pressure on wages. Labour’s share of national income would decrease according to the paper; this would lower consumers’ purchasing power and lead to higher income inequality.

One benefit of enacting the TPP would be increased use of intellectual property rights if the rules and regulations are followed by all member countries. However, there is no provision in the TPP to limit or eliminate currency manipulation by member countries. The introduction of a clause to stop currency manipulation by member countries would be an important positive addition to the TPP agreement. According to research by Capaldo and Izurieta (2016), the TPP would not bring much benefit in terms of net exports and GDP to either Canada or the U.S. However, it would lead to loss of employment in both countries as well as higher income inequality due to labour’s reduced income share. Unemployment and income inequality are issues that are plaguing both countries; so, policies to ameliorate rather than exacerbate them need to be considered. Further research need to be conducted to understand the impact of the TPP on Canada and the U.S. before the trade agreement goes into effect.