Federal tax cuts?
by Fred McMahon
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21/02/1999
The Moncton Times and Transcript, The Halifax Daily News
Beware of finance ministers bearing gifts – or a daily cup of coffee. That’s the now famous cup which tax cuts in the new federal budget will buy the average taxpayer. Well not quite, if you like those fancy new coffee shops. You’ll have to save up almost three days of tax relief to get a cup of latte.
Okay, you say, not what we expected, but it’s better than nothing. Actually, nothing would be better. Tax increases since Paul Martin became finance minister lift about $1,000 from the average taxpayer’s pocket each year – $2,000 for the average family.
This tax heist, like deficit spending before it, threatens not just Canadian prosperity, but also our social programs. Deficit spending forced us to pay bankers more each year and spend less on social programs. It didn’t take much intelligence to see what was coming. But, year after year, the debt got bigger until a third of every federal dollar raised was slipped into an envelope and shipped off to our bankers.
And, it doesn’t take much intelligence to see what’s coming next. The OECD warns about it; Industry Canada research warns about it; economists across the country warn about it. A glance at the Canadian economy tells the story.
We are desperately falling behind other nations in growth, productivity and job creation. Taxes are at historic highs. Governments tax away nearly half of our economy, not just through income tax but also through the HST, gasoline tax, liquor tax, fees and licenses, and a host of hidden taxes you never see.
That leaves too little in individuals’ and businesses’ pockets to invest, create jobs and improve productivity, as both the OECD and Industry Canada, among many others, warn. It also kills the incentive to invest. If your investment fails, you lose everything. If it works, government takes half. If it works really well, government takes a lot more.
Canadian productivity has hardly budged in two decades. We’re a third less productive than US workers, but let’s look elsewhere for a comparison. In 1984, Canadian per capita GDP was two and a half time that of Ireland’s per capita GDP. Now, just 15 years later, Irish per capita GDP is greater than Canada’s.
In the late 1980s, the Irish began radical reforms. They cut taxes from just over 37 per cent of GDP – a tax haven by Canadian standards – by about a tenth. In exchange for tax cuts, unions restrained wage growth. The Irish economy spun out of the slow lane – where it had been stuck for generations – and sped ahead.
Let’s look at Canada. We have three rich provinces, Ontario, Alberta and British Columbia. The big chunk of new money the poorer provinces will get is due to the boom in the Ontario economy following a round of tax cuts. Alberta cut taxes and is thriving through oil prices are at near historic lows. British Columbia increased taxes. Its economy is a disaster zone. Premier Glen Clark blames a slump in the forestry and the Asian crisis. Yet, not only does Alberta thrive, but so to do the timber states to the south of British Columbia.
Canada’s lagging performance threatens our social framework because it takes a rich nation to fund expensive programs. Our programs are expensive and we’re getting poorer. But surely there’s a contradiction here. Wouldn’t tax cuts also threaten social programs?
Not at all, if governments stopped throwing money away and concentrated on these programs. The most comprehensive report on health care – produced by the National Health Forum – indeed concluded Canada’s system was troubled. The big problem was the way it was run.
It lacks accountability, spending controls, openness, and it often confuses the amount spent with outcome. Spending more is always good, and the system almost never measures the result. We don’t know whether money is well spent, but we devote more of our economy to health care than any other major advanced nation with a nationalized health system.
And, we need to cut politicized spending which costs a lot of money but fails to bring economic benefits. It’s striking that through all the years of big government spending in the 1970s and 1980s, New Brunswick didn’t make a serious start on a twinned highway to its major markets in Central Canada until Frank McKenna became premier.
Ottawa has all sorts of fancy sounding programs in search of a mission. How about the Canadian Foundation for Innovation from the 1997 budget or last year’s Millennium Scholarship Foundation. They’ll cost you $3.3 billion. Now Martin’s promised another $14 billion in new spending.
How are we going to improve Canada’s lagging productivity performance? Well, more government spending, of course – almost $2 billion of your money for “productivity enhancement” to fight a problem created by overspending.