Writing in the National Post, MLI senior fellow Philip Cross takes issue with the popular notion “in some quarters” that Canadians should be paying higher taxes to fund government services, including former Clerk of the Privy Council Alex Himelfarb and Ontario Premier Kathleen Wynne, who has urged Ontarians to have an “adult” conversation about taxes to pay for transportation infrastructure, that according to Cross, “evidently elicited a string of adult words from taxpayers”. Cross concludes that “governments in Canada are not being starved for resources. All the federal government is doing is shrinking back to its pre-recession size”, and most provinces and municipalities aren’t even considering “such modest restraint”.
Philip Cross, April 8, 2014
The notion is circulating in some quarters that maybe Canada’s problem is we don’t pay enough taxes (try not to laugh). Alex Himelfarb, former head of the federal civil service, co-edited a pro-tax tome called “Tax is not a four-letter word.” One of Kathleen Wynne’s first musings as Ontario Premier was the need to have an “adult” conversation about higher taxes to pay for transportation infrastructure. Wynne’s attempt at such a conversation evidently elicited a string of adult words from taxpayers, as she shelved the idea of tax hikes last month.
The CBC’s Sunday Edition was quick to pick up the thread, inviting former senior mandarin Eugene Lang to harang its listeners about how the federal government was forgoing $45-billion of “needed funds” due to tax cuts, supposedly favouring the rich. Sunday Edition continued its pro-tax crusade last month with a segment devoted to how corporate income taxes were too low. Calls to hike taxes invariably include U.S. Supreme Court Justice Oliver Wendell Holmes’s quote that taxes are the “price one pays to live in civilized society,” although taxes were only 13% of GDP when he wrote that.
Long before Holmes, the philosopher John Locke observed that “the reason why men enter into society is the preservation of property.” Therefore, when governments confiscate people’s property, they enter “a state of war with the people.” Today, taxpayers are well on the way to losing that war, with government revenue in Canada gobbling up 37.9% of GDP, with our average above the OECD’s every year since 1970.
Himelfarb decries the “unnatural divorce” between taxes and the public goods and services they buy. Actually, the public seems to have a very good sense of the relationship between the two, perceiving a large and growing gap. The goal of taxpayers is not to reduce the tax burden to some arbitrary number like its long-run average or pre-recession level, but to reduce the burden to the minimum necessary to provide the services the public wants.
The never-ending revelation of scandalous waste and fraud in government tells the public that they still are not getting good value for their tax dollars. Just in the past couple of years we have witnessed the bottomless money pit that is Ontario’s energy sector, the endless corruption involving Quebec’s construction industry and in many cities across the country, outright fraud by sitting members of the Senate, the F-35 airplane fiasco, and the ongoing charade of public service compensation and pension benefits. On Himelfarb’s watch, the billions of spending on health care recommended by the Romanow Report were swallowed whole by the health care bureaucracy. During his time heading the civil service, pay equity settlements removed the last hinge attaching federal pay to reality, by assuming that all wage gaps between occupational groups reflected one group was being under-paid, never that the other group was being over-paid.
As for the idea that tax cuts have favoured the rich, this is another in a litany of false claims that have been imported wholesale from the polarized ideological debates in the U.S. without relevance to the facts in Canada. In Canada, tax cuts have disproportionately gone to the lower and middle classes. These include the two cuts to the GST (whose progressivity was enhanced from the start by the exemption for food) and the numerous boutique tax cuts targeted to middle class families in recent federal budgets.
Regrettably, there have been no across-the-board tax cuts recently in Canada. As a result, a recent Statistics Canada study by Brian Murphy and Andrew Heisz found that the progressivity of the tax system has increased even as the overall tax burden eased from its record highs. That many regard more progressivity as unquestionably desirable shows an attitude rooted in the 19th century, when the richest people worked the least and the poor the most. Today the reverse is true, as over half of top income earners work over 50 hours a week, compared with less than 20% of everyone else. Why would we want to discourage the most productive and tax-bearing segment of society from working more here rather than in the U.S., or just working less?
Governments in Canada are not being starved for resources. All the federal government is doing is shrinking back to its pre-recession size. No such modest restraint is even being entertained by provincial and municipal governments, who continue to indulge in the spending splurge that began with the 2008 recession, pushing their budget deficits to record levels five years into the recovery. Compassion from progressives never extends to taxpayers. Proponents of the view that more taxes are needed in Canada give substance to Mark Milke’s book, “Tax Me I’m Canadian.”
Philip Cross is a Fellow at the Macdonald-Laurier Institute and former Chief Economic Analyst at Statistics Canada.
