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Archived - Chapter 3
Creating New Opportunities and Choices for People
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A Skilled, Educated and Adaptable Workforce
Advantage Canada is ultimately about people and families. It is about helping people to reach their full potential, and ensuring that they have the incentives, opportunities and choices they need to build a better quality of life.
High taxes are limiting Canadians' opportunities and choices. With a more focused government, we can lower taxes to create incentives for Canadians to succeed. Canada's New Government has reduced the GST rate from 7 to 6 per cent to ensure that all Canadians keep more of their money for the things that matter to them. The Government is committed to further reducing the GST rate to 5 per cent. Advantage Canada will also reduce personal income taxes to encourage work, knowledge and skills, and saving.
Creating new opportunities and choices for people is about keeping our best and brightest in Canada. It is also about providing a helping hand to those who need support in joining the workforce, and attracting the immigrants Canada will need given our changing demographics and labour shortages. Creating opportunities and choices is also about providing the training and educational opportunities Canadians need to thrive in a knowledge economy. The results: more people with the right skills to succeed, more and better-paying jobs, fewer people unemployed and a brighter future for our children.
Encouraging Work, Knowledge and Skills, and Saving
Compared to other countries with which we are competing for jobs, talent and investment, Canada's taxes are too high. High taxes reduce the rewards to Canadians from working, saving, and investing in new knowledge and skills. Budget 2006 increased the amount Canadians can earn without paying federal personal income tax, permanently reduced the bottom personal income tax rate, introduced the Canada Employment Credit and put in place several targeted tax relief measures, such as the credit for public transit passes.
The Tax Fairness Plan for Canadians, released on October 31, 2006, will ensure that the corporate tax burden is not unfairly shifted onto the backs of hard-working individuals and families. This package also increased the age credit amount and introduced income splitting for pensions. Pension income splitting will increase the rewards to pensioners and seniors from retirement saving, while preserving incentives to participate in labour markets for working families.
More needs to be done. Canada's New Government will continue to reduce personal income taxes to help Canadian families to be better off and more secure. The Government will also make Canada's tax system fairer, focusing on initiatives that contribute the most to economic growth, including:
- Making work pay for the many low- and modest-income individuals who face obstacles to joining or staying in the workforce.
- Making Canada a better place for our highly skilled workers to live and work, and making it more rewarding for all Canadians to invest in the knowledge and skills that will lead to a more productive economy.
- Helping Canadians save for their futures, whether to finance their retirement or the education of their children.
Helping People Over the "Welfare Wall"
For too many low- and modest-income Canadians, working can mean being financially worse off. For example, a typical single parent with one child who takes a low-income job can lose almost 80 cents of each dollar earned to taxes and reduced income support from government programs. In addition, he or she could also lose in-kind benefits such as subsidized housing and prescription drugs, and could often take on work-related expenses. This is often referred to as the "welfare wall," which discourages many low- and modest-income Canadians from getting the jobs they and their families need to have.
With labour shortages already emerging in some regions of the country and an aging population, actions to improve work incentives for low- and modest-income Canadians must be an imperative for all governments.
Canada's New Government announced in Budget 2006 that it would work with the provinces and territories to further lower the welfare wall by implementing a Working Income Tax Benefit (WITB) to make work pay for low- and modest-income Canadians. The Government will implement the WITB in Budget 2007.
Reducing the Tax Burden on Highly Skilled Workers
A fundamental reality of the modern world economy recognized in this plan is that talented people can-and do-go places where they can earn more and improve their quality of life. Advantage Canada understands that talented, creative people are the most critical contributor to a successful national economy over the long term.
Many of us know of bright, talented, young Canadians who have left Canada for opportunities in places like the United States, Europe and Asia. It is in Canada's national interest to create homegrown opportunities for our best and brightest, and to attract the skilled professionals, entrepreneurs and tradespersons that Canada needs to be a world leader.
Canada's tax burden on highly skilled workers is too high relative to other countries, especially compared to other dynamic economies such as the United Kingdom, the United States and Ireland (Chart 3.2). Canada needs lower personal income tax rates to:
- Attract and retain highly skilled workers.
- Encourage more Canadians to realize their full potential and improve their standard of living here in Canada.
- Encourage all workers to invest in training and education to fuel growing segments of the economy.
- Provide incentives to firms that employ highly skilled workers to invest in Canada.
Canada's New Government will continue to reduce personal income tax to make the tax system fairer and ensure Canada attracts and retains the highly skilled workers necessary to foster innovation and growth.
Reducing Taxes on Savings
Saving plays an extremely important role in the economy: it supports investment that is critical for economic growth. The returns from these savings-interest, dividends or capital gains-are important for Canadians as they plan for important life events such as retirement, or when their children pursue post-secondary education. When the return from savings is subject to income taxes, this creates a bias toward consumption over saving. Savings are subject to income tax twice: once when the income is earned and again when the investment income is earned on the savings.
There are a number of features already within Canada's tax system that reduce the double taxation of savings. Outside of tax-efficient savings plans, savings are generally taxed more heavily in Canada than in other countries with which we are competing for investment, jobs and talent. The maximum limits for tax-efficient retirement savings, such as registered pension plans (RPP) and registered retirement savings plans, are also much higher in other countries.
Taxes on savings can also have a direct impact on competitiveness. Lower RPP limits can hamper the ability of Canadian employers to attract and retain highly skilled employees. Taxes on capital gains can also have a negative impact on productivity and economic growth by reducing rewards for risk taking and innovation.
Canada's New Government will reduce personal income taxes on savings, including capital gains. This will support investment and economic growth while enhancing the overall fairness and neutrality of the tax system. It will also make our tax treatment of savings more competitive in relation to other countries.
Improving Opportunities for Canadians
Canada has a well-educated and highly skilled workforce. However, a sea change in labour markets is creating new challenges. A decade ago, the biggest challenge facing Canada was creating enough jobs for our workers. Now, there are labour shortages in some regions of the country-shortages that will only intensify as our population ages and baby boomers begin to retire in large numbers. While efforts to attract skilled immigrants and assist people in entering the labour force will help, these efforts will not be enough to keep our standard of living growing at its recent pace. Higher skills and knowledge will become increasingly important.
Globalization and the growth of the knowledge-based economy are also sharply increasing the importance of the skills, education and adaptability of our workforce for global competitiveness. This means that we need to focus on enhancing the education and skills of Canadians so they get the best jobs, earn a better living and build a strong future for their children. These are the opportunities and challenges education and labour market policies need to address.
To do so, we must move forward on three fronts:
- Quantity: Increasing the participation of Canadians and immigrants in the workforce to meet current and future labour shortages.
- Quality: Enhancing the quality of education, skills development and training, and developing interest and excellence in research in Canada.
- Efficiency: Facilitating workforce mobility and providing the information necessary to make informed labour market choices.
Quantity Initiatives: Increasing the Participation of Canadians and Immigrants in the Workforce
Given slowing labour force growth and emerging skills shortages, we need more workers in the labour force. That means ensuring that as many Canadians as possible have the opportunity to participate in the workforce, and welcoming more immigrants who are most likely to succeed in the modern Canadian economy.
There are several ways that governments can contribute to achieving this goal. In addition to improving work incentives for low-income Canadians by helping people over the "welfare wall" (see previous section), the Government will work with the provinces and territories to examine Canada's current array of labour market, employment and skills development programming that help Canadians find and keep jobs. Labour market programs were designed at a time of high unemployment and may no longer be in the best interest of Canadians. The programs need to be modernized and rationalized in a way that respects the primary responsibility of provinces and territories for delivering these services. The results should be effective spending, clarified roles and responsibilities, streamlined delivery and improved accountability.
Programs need to help people who have traditionally been under-represented in the workforce. Aboriginal Canadians, older workers and persons with disabilities are three groups facing unique challenges to participating in the workforce. We will build on programs such as the Aboriginal Skills and Employment Partnership Program and the recently announced Targeted Initiative for Older Workers.
Our immigration policies should be more closely aligned with our labour market needs. Greater use of the Provincial Nominee Program could help address local shortages. Particular attention should be given to skilled temporary foreign workers with Canadian work experience and foreign graduates from Canadian colleges and universities, as these groups are well placed to adapt quickly to the Canadian economy.
At the same time, more also needs to be done to ensure that immigrants already in Canada are able to utilize fully the skills and knowledge that they bring with them. Too many immigrants face challenges in adapting their knowledge to the Canadian setting, and recently some immigrants have had difficulties integrating into the Canadian workforce. Their employment rates have fallen below those of other Canadians, and their relative earnings, particularly for the university-educated, are lower. To address this issue, in Budget 2006 the Government made significant investments in settlement and integration programming. The Government will also move forward on the commitment to expedite foreign assessment and recognition processes through a new foreign credentials recognition agency.
Canada's New Government will take action to increase participation in the workforce by:
Quality Initiatives: Enhancing Opportunities to Acquire Knowledge and Skills
Actions to increase participation in the labour force will help create a foundation for continued growth, but improving the skills and knowledge of Canadians will be of foremost importance. This is not only necessary to meet skills shortages, but also benefits workers, who will have more job opportunities and choices.
A quality education system-from early childhood development to higher education to ongoing learning-is critical for Canada's continued prosperity. Canadians must adapt to changing technologies and rising skills and knowledge requirements. Fortunately, we start from a strong foundation: Canada has the highest post-secondary attainment rates among OECD countries, and enrolment in post-secondary education continues to grow.
Canada's colleges and universities need to look to the future and position Canada and themselves for long-term success. Our colleges and universities must continue to adapt to changing skills requirements and technological advances, and help meet the needs of adult learners. Other countries are challenging the competitive advantage provided by our education system as they expand and improve their own systems.
Substantial financial assistance for students is offered by both federal and provincial-territorial governments. This assistance improves access and has been effective in supporting increases in the number of Canadians attending post-secondary education. The effectiveness of these programs may be compromised by their complexity, keeping some potential students from obtaining financial help. The Government will work with provinces and territories to better integrate and simplify the administration and delivery of student aid and make supports more transparent and predictable for students.
Governments must work together to meet these challenges. While provinces and territories are primarily responsible for the post-secondary education system, the federal government plays an important role through transfers to provinces and territories as well as by providing considerable direct support for students and research. All of this is aimed at achieving excellence in post-secondary education.
Canada's New Government will further support improvements in the quality of education for Canadians and ensure that Canada remains the OECD leader in the proportion of the population with a university or college education by:
Excellence in University Research
As businesses increase their investments in knowledge and innovation, they will require more workers with advanced science, technology and business skills. Yet fewer Canadians complete science and engineering degrees than in other leading OECD countries.
The Government's investments in university research help create an environment in which Canada's needs for highly skilled graduates can be met. A first-class education at this level depends on the quality of facilities, instructors and experience provided to young Canadians. Students need the opportunity to work in facilities that are on par with the best in the world, so that they have experience using the most advanced tools and equipment. Sustaining facilities at international levels of excellence has an additional benefit: they attract the best and brightest students from around the world and retain top-notch researchers in Canada.
Federal granting councils fund projects that provide students with opportunities to work with the best minds and participate in groundbreaking research. This experience prepares students to add tremendous value to Canadian businesses, health science centres, and Canada's health, social service and other organizations once they graduate. Practical internships also offer young people superb learning opportunities in important sectors of our economy.
Canada's New Government will help prepare young Canadians for success and maintain Canada's G7 leadership in public sector R&D investment by:
Training provided by employers is another key element of Canada's learning system, particularly for apprentices in skilled trades and employees who must upgrade their skills to adapt to new challenges. Canadian employers have the opportunity to do more when it comes to training workers. Training and skills development are critical in order for Canadian businesses to compete successfully on the world stage. Canada's employers, however, are not keeping pace with major competitors in the amount of training they provide to their workers. Having a more competitive business environment supported by strong economic fundamentals will increase the returns from training to both employers and employees.
Canada's New Government will support workplace training for Canadians by:
Creating the Best-Educated, Most-Skilled and Most Flexible Workforce in the World
Talented, creative people are a critical contributor to a successful national economy over the long term. Canada has a long and proud history of excellence and achievement in higher education, and Canadians have the skills needed to create high-quality, value-added products and services.
Given the importance of learning, creativity, innovation and skills in today's global economy, we must strive for nothing less than first place in the knowledge-based economy. Creating the best-educated, most-skilled and most flexible workforce in the world means that Canadians, businesses, federal and provincial governments, and educational organizations must all commit to achieving a Knowledge Advantage, and take action to achieve and deliver excellence.
Efficiency Initiatives: Reducing Barriers to the Mobility of Canadians
An efficient and effective labour market is necessary for a country to succeed in a highly competitive global economy. Workers must be able to pursue the best employment opportunities across the country and practise their occupation wherever those opportunities exist. While encouraging progress has been achieved, interprovincial barriers to labour mobility continue to exist. Provinces and territories have agreed to recognize credentials from other places within Canada by April 1, 2009. Canada's New Government is prepared to provide additional assistance to accelerate these efforts.
Canadians also need relevant, detailed and accessible labour market information so that they will know what job opportunities are available across the country. To plan for the future, employers, students and institutions need enhanced information about what jobs and skills are likely to be in demand and where those jobs will be.
Good labour relations and workplace practices that are both fair and flexible to employers and workers can also make an important contribution to efficient labour markets. The Commission for the Review of Federal Labour Standards has recently submitted its comprehensive review of Part III of the Canada Labour Code to the Government, providing a range of proposals on how to modernize labour standards within private sector enterprises under federal jurisdiction. The Government will seek the views of business and labour before deciding on a course of action.
To create a more efficient national labour market, Canada's New Government will:
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