No, The Government Collects Far Too Much Tax!

Lawrence Martin, in his column in this morning’s Globe and Mail, raised the notion that the economy is slipping into stagflation (I agree) and then that the Harper Government would “miss the revenue” it “gave up” through the GST rate cuts. He may well be right that the Conservatives will miss that revenue: goodness knows, they’ve acted far more like bloody Liberals than Conservatives in office, spending like drunken sailors with no clear purposes, no vision, emerging. But I profoundly disagree with the notion that underlies Martin’s thought, which is that the problem with stagflation is a lack of revenue with which to intervene in the economy to “right matters”.

Let’s state my thesis clearly: it’s not the Government’s money; it’s mine.

I am not an anarchist: there are proper functions for government and I have no objection to paying my taxes for them. Nor do I have an objection to government taking on a visionary capital investment programme — akin to Macdonald’s building of the Canadian Pacific, or Laurier’s building of the National Transcontinental — that leave us with a legacy of much-needed infrastructure.

I am, sorry to say, deeply opposed to what are in essence handout programmes that expend operating monies year after year without end: there may well be a need for one of these from time to time, but the case must be made — and the case to continue them must also be made. If I could but wave a magic wand and make one change in the country, it would be to automatically attach sunset provisions to each and every spending programme put forward at all levels of government, forcing politicians to pass them, again and again, in order to continue them. Many, I daresay, would fail to get support the third, fourth or fifth time around: new ideas would almost require the weeding out of old, stale efforts.

(Any programme that achieved 96% of its “total mandate”, for instance, qualifies as “stale”. Pareto’s Law states that the first 20% of the effort will produce 80% of the final results. Two “Pareto cycles” and 96% of the mandate is accomplished [80% + 80% of the residual 20%]. Everything after that plays to deeply diminished returns, and costs at least as much, if not more.)

So, Mr. Martin, if you’re worried about stagflation (the combination of declining economic activity with price inflation) — and I am; the Bank of Canada, with its two rate cuts this year, has practically guaranteed it — the issue is not “whether the government will regret limiting its revenues”. The issue is “what are they going to stop doing in order to find money for whatever programmes they think will ameliorate the pain of stagflation”.

Do we need, for instance, to be funding sports? Why? So that we can afford to play the “undetectable chemical athletic process” that international competitions are laced with? So Canada actually sends true amateurs — who are not people funded by the public purse to pursue medals but people who arrange their own funding to pursue their own excellence — and fails to come home with a bag-full of gold, silver and bronze? The world will not topple from its foundations because we don’t play the drug game with the Chinese, the Americans, the Russians, and all the rest.

Do we need to drop billions into Industry Canada and its affiliated agencies to dispense as largesse across the country? Do we need to turn people into courtiers for a dollop of money from the regional economic expansion agencies? Do we need to fund ever more police-state-like tribunals, status-granting agencies and their kin? I say: you want money, there’s lots of it hiding here. Shut them down and use the cash elsewhere.

Indeed, even on a good day 20¢ out of every $1.00 sent to Ottawa goes into paying the people who administer and deliver programmes. Every programme that is terminated outright — delivery stopped, delivery and administration and policy staff removed from the public payroll, money reclaimed from the relevant spending envelope — generates less spending on overhead. Turn that money back to those of us whose property it is and it’s worth $1.20 per dollar in our pockets.

After all, my overhead, and your overhead, to find ways to do these things (if they matter to us) is far, far less than 20%. Don’t believe me? Ask what the overhead for the child care payments is versus what the overhead would have been for “national day care”. (Check Québec’s experience to determine this.)

There are those, of course, who would say that some “vital interest” or other would be starved or left undone if this type of thinking became pervasive. Sorry, I’m not buying it. Take a look at old Hong Kong, with its 15% government take (compare that to the numbers on your tax return, since April 30 is but two days away!) — an incredibly prosperous community that, somehow, managed just fine (before the Peoples’ Republic regained control in 1997, at any rate). The old Hong Kong colonial government set priorities based on its means, which were kept low (short on resources that could be sold off to close the gap, they were acutely aware that money in the hands of Hong Kong’s citizens was the only economic asset the city had.

Of course, the notion that I might tend to my own affairs and have to be responsible for my own decisions scares so many people, who would prefer to be coddled, cradle-to-grave, no matter what the cost in lost opportunity. But here’s the thing: the standard of living in real terms — not the nominal terms of ever-less-valuable fiat currency systematically ruined by governments and central banks around the world — stopped growing in 1973, right when “stagflation” first reared its ugly head. If the long boom of 1982-2007 couldn’t deliver a real improvement in standards of living (for, remember, in 1973 most families were single-income, drove new vehicles that they paid for in three years or less, had mortgages of 25 year amortization or less, were eating better [more imported food, more and better cuts of meat] — compare that to today’s situation), then this next lengthy period of downturn will eat further into Canadian standards of living.

We will all be much poorer, in other words. Stop taking so much of our money!

Remember, those of you who say that without high taxation — and for the middle class no G-7 country hits its pocketbook harder than Canada, its provinces and municipalities do — no great visionary programmes to build the country or relieve suffering could be undertaken, that when Canada was a brand new nation it took on the building of a transcontinental rail line, on a Federal Government tax and tariff base that amounted to 3±1%! (Provinces barely had budgets compared to today: all those Section 92 responsibilities were provincial in large measure because the public looked after them themselves.)

So we can afford grand infrastructure. We can afford our social safety net, too (but we have to be willing to entertain some hard truths about its costs, and how we deal with demand in an era of restrained supply of funds). We simply need to make choices.

In the first paragraph I decried the Harper Government’s failure in this arena. To those who believe, as Tom Flanagan (judging from his piece in the Globe and Mail last fall), that triangulation to the left is how Conservative majorities will be elected, what Harper & Co. have done is not a failure, but a successful positioning for future power. The skirmishes erupting on various blogs between those who hold to “my party, right or wrong” and those who expected better from a Conservative Government indicate the depth of disagreement that is emerging around this.

So, let’s force the issue. My word to any politician who bangs on my (virtual) door? “We want you cut to 20% maximum. Now, do your job within that.” (The Netherlands has a system like this: on your tax return, if the total of all taxes paid to all levels of government, including VAT, plus fees and charges to all agencies, exceeds 67.5% of your income, you cap your tax so that you do not pay (in total) more than 67.5%. The number is horrendously high — which explains much about the Dutch economy’s structural issues — but the idea is sound.)

With such a cap, parties would be forced to campaign in one of two ways. First, to adjust the cap itself — which makes the “the Government graciously allows you to keep this much this year” crowd stand up and be counted. The second is to prioritise, focus, and make programmes work — because there isn’t enough to do otherwise.

The parties would start to differ on what they would do within a limit rather than being able to simply promise, promise, promise. All that extra money in the hands of Canadians would deal with stagflation — and provide resources for entrepreneurial activity to create a 21st century economy in this country “from the ground up”, not from the “successful grant application downward”.

Not that I’m religious, but even the Deity didn’t ask for a tithe beyond 10%. I’ll grant a transitional 20% as we have a nation of recovering addicts — people who think there really is “something for nothing” — who need to go through detox for a few years. But even at 20%, we’d finally fulfil Laurier’s “the twentieth century belongs to Canada”. A century late, perhaps, but certainly on a sustainable foundation (which depending on rising commodity prices due to supply shortfalls globally isn’t).

I’ve chosen the Canada I want to see, the BC I want to see, the Vancouver I want to see. Now: who wants my support? For the price tag of failing to ultimately come to grips with this is that people like me up and leave rather than pay, pay, pay. (After all, were I to go abroad again, it would be for the third — and last — time, and this time I would be looking to take out citizenship where I land.)

Where do you stand?

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5 responses to “No, The Government Collects Far Too Much Tax!

  1. Hong Kong is not necessarily an ideal comparison point for Canada due to land area and basic structure of the economy issues.

    If Toronto were a city state — same goes for Montreal and Vancouver — we could probably reduce our taxes to Hong Kong levels while maintaining far more generous social programmes. We aren’t — we need to support the rest of Ontario, the rest of Canada.

    I think there’s a strong case for maintaining the support, as not doing so at all would cause a mass migration that would overwhelm the system. It’s the inertia of the past — changing things too quickly doesn’t work.

  2. Hi, Leo, and welcome.

    Yes, comparing a city-state to a continental-sized country isn’t fair. Of course, earlier I have written in support of the notion of moving to city-centred regions, in line with the thinking of Jane Jacobs and others, so that’s certainly my target.

    As for the support question, my point is to start looking at taxation and programmes though the lens of “you get this much, and no more, now prioritize” rather than through the lens of “oh, there’s need, so if there’s a problem it’s on the revenue side” that we’ve lived with certainly as long as I’ve been a taxpayer (which goes back to 1971 for income tax, 1961 for sales taxes, etc.).

    It’s not the amount — we can come down off this addiction at any reasonable rate — but we have to start by being willing to consider an alternative. Otherwise we will spend ourselves into oblivion.

  3. I am not completely against taxes. After all, there must be some money to build infrastructure, maintain schools, etc.

    But it is my firm belief that in Canada, we spend a lot of money, but mostly inefficiently and in the wrong places.

    For example: We have a tremendous shortage of doctors. Instead of putting ever more money into health care, where clearly it has not improved the situation at all, we should set aside a portion of that to make medical school tuition-free. As long as we have a public healthcare system, those who work in it ought to be trained at the public’s expense, instead of having to take up tens of thousands of debt.

    I would love to be a doctor, but I don’t have the money or time to go back to school. If medical school, however, were free, as it is in many other less prosperous countries (in fact, in those places, all post-secondary education is covered by the public purse), I’d give it a second thought.

    Too many people in this country are prevented from becoming doctors or nurses, because money is a factor (as a UK study demonstrated).

    So, we must start using our resources more efficiently and also remember the old saying, less is more. When government takes in less in taxes, it will be forced to become more efficient and economical.

  4. Werner, you’ve done part of what I hoped to achieve with this post — get thinking about how we ought to use our resources. (The other part was thinking about how we ought to be structured to make good use of resources.)

    Thanks for posting.

  5. Actually, I’m not really opposed to funding amateur athletics, and I actually think it’s fundamental.

    Then again, I also long for the Cold War days when our athletes, in terms of international competition, were also some of our best diplomats.

    (Although I do think that the Beijing Olympics will provide us with a valuable opportunity to restore that.)

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