OTTAWA - The federal government is being urged to adopt a massive $33-billion spending package to stimulate the creation of more than 400,000 new jobs, but to avoid what it is already planning - tax cuts.
The Canadian Centre for Policy Alternatives is cautioning Finance Minister Jim Flaherty to avoid the politically easy path of relying on tax reductions to boost the economy, saying the $60-billion in cuts introduced in the fall of 2007 have done little.
"The least efficient fashion you can spend stimulus dollars is on tax cuts because those tax cuts are much more likely to be spent on savings and debt repayment as well as purchasing inputs" on imported goods, said David MacDonald, co-ordinator of the centre's alternative budget project.
"If we want the most bang for our buck, we need to spend it on infrastructure, particularly social infrastructure."
Earlier Tuesday, Flaherty told a news conference in Montreal that the Jan. 27 budget would include tax reductions along with added infrastructure spending on such things as roads and bridges.
"(Infrastructure spending) is one way of course of supporting the economy, of stimulating the economy, but also we need to look at tax reductions, additional tax reductions, as another way of supporting the economy," he told a news conference.
The left-leaning Ottawa-based think thank, however, says an international consensus has developed that spending - rather than lower taxes - will be most effective in dealing with the economic crisis that many believe is the most serious Canadians have faced since the Second World War.
The centre recommends that the government spend $14.7 billion of the stimulus on infrastructure construction projects, but also include low-income housing, child care, and extending broadband connectivity to rural areas.
Another $5.8 billion should go to investing in so-called green infrastructure such as energy retrofits, training and education.
And $12.4 billion would go for income supports for poorer Canadians, including $3.4 billion for expanded employment insurance benefits for laid off workers and doubling both the GST refundable credit and the working income tax benefit.
The $32.9 billion package over one year represents the most ambitious spending program so far recommended to Flaherty. Many economists have said the stimulus should be about one per cent of the economy, or about $15 billion.
But the think tank says the problems are enormous and bold action required, saying if Ottawa follows its recommendations, the government will generate enough economic activity to create 407,000 new jobs, grow the economy and increase tax revenues.
"Let's be clear, the scale of economic turmoil we are facing is unlike anything we have seen since the Second World War," said senior economist Armine Yalnizyan.
While she opposed general tax cuts, she said Flaherty should use the tax system to redistribute wealth through the GST credit and low-income tax benefit.
That puts the money in the hands of people who need it, she said, and will spend it because they don't have the resources to save it.
"The lower down the income spectrum you go, the bigger the bang for your buck on the local economy because they are not spending on inputs, they are spending on rent, groceries, public transportation, they are spending on their own communities," she explained.
She also criticized the government's November economic update which sought to shrink spending in order to balance the budget. She said with businesses and consumer spending shrinking, it is up to governments to support the economy by expanding rather than contracting.
"If governments don't expand ... what you've got is a magic recipe for a very deep and prolonged recession," she said.