The case for raising taxes

Why sensible tax policy could help Canada build on its competitive advantages


Listening to Barack Obama’s state of the union speech I couldn’t help thinking that in surveying America’s problems he was, quite inadvertently, showing us where Canada should move to entrench competitive advantages.

I don’t mean just the obvious imperative to keep up the diligent efforts of recent years to improve our already manifestly preferable health care system. There’s also the broader matter of responsible government finances—with reasonable levels of taxation.

The U.S. president spoke of inheriting a trillion-dollar federal deficit when he took office last year. Prime Minister Stephen Harper waltzed into power facing only the pleasant task of deciding what to do with multi-billion-dollar surpluses.

Obama talked of how Washington, during the George W. Bush era, failed to pay for “two wars, two tax cuts, and an expensive prescription drug program.” Ottawa shucked off the nasty habit of passing along the bill to future generations in the mid-1990s. Or so we thought.

With this year, however, comes the troubling prospect that we might follow the Americans back into the corrosive cycle of perennial deficits. Credible experts tell us that even after last year’s gush of federal stimulus spending is done, the government is on track to keep spending so much, and taxing so little— against a backdrop of such modest economic growth—that a structural deficit of perhaps $20 billion looms.

So what to do about it? The gambler hopes for stronger-than-forecast growth to churn out tax revenues sufficient to balance the books painlessly. The believer in small government pounces on this a chance to permanently shrink federal programs.

There’s another option: increase taxes. The only problem is that tax hikes are what make voters maddest. Or at least that’s what they say. I’m not so sure. What about a long wait at emergency with a sick family member? Admit it—that’s more maddening.

Or if your kid’s classroom is an overcrowded portable. Parents get pretty mad. Or if the army is being nickel and dimed on vital hardware. Everybody was mad about that. Or if potholes go unfilled. Or if our Olympic athletes don’t get enough training funds to win medals…

Come to think of it, pretty much whenever government fails to perform up to snuff, we’re apt to forget, for a careless moment, that we’re supposed to be fed-up taxpayers. Instead, we respond as citizens who want spending.

And if we want it, we have to support the taxes to pay for it. Up to a point, of course. What’s reasonable? Consider an international comparison. Add up all taxes in Canada and they amount to 33.3 per cent of gross domestic product (in 2007, the latest OECD figures). In the U.S. taxes amount to 28.3 per cent of GDP and in Britain 36.6 per cent.

So compared to the countries we might reasonably benchmark against, there’s no tax-burden problem here. Lowering taxes has been a big preoccupation in Ottawa for a decade. The Liberals introduced deep, across-the-board reductions in 2000, and the Conservatives followed with a range of cuts after 2006. Their boldest move was the two-point GST reduction, and they’ve also cut individual and corporate income taxes, for a combined $45 billion a year in foregone revenue by 2014-15.

Some of that is still to come. A key part of Finance Minister Jim Flaherty’s plan for making Canada’s economy more competitive is reducing the general corporate income tax rate to 15 per cent by 2012 from 22.12 per cent in 2007. For this year, the rate is 18 per cent.

Until the fall 2008 financial meltdown, and return of deep deficits in 2009, cutting corporate taxes looked affordable. Not any more, at least not according to Scott Clark, the retired former deputy minister of Flaherty’s department, and Peter DeVries, Finance’s former top fiscal planner.

They don’t think it’s needed, either. “Canada already has a lower tax rate than in the U.S., and it is highly unlikely that the U.S. will be lowering their corporate rates in the near term,” Clark and DeVries write in a cogent budget analysis made available recently to Maclean’s, as well as to the government and the opposition parties.

Freezing the corporate income tax rate at 18 per cent, rather than keeping on with the planned cuts, would bring in more than $5.5 billion a year by 2013-14, erasing more than a quarter of the structural deficit. Look at it this way: if that money isn’t reaped in taxes, any responsible government will have to cut it out of spending. And saving $5.5 billion is an extraordinarily tall order. Let’s say, for instance, you’re hard-nosed enough to freeze all public servants’ salaries. Independent economist Dale Orr estimates that will net $500 million a year.

In other words, freeze government pay—and then impose nine other cost-cutting measures of similar magnitude—and you might nearly match the fiscal impact of just leaving corporate taxes at their present competitive level. (I look at what Clark and DeVries tell us about spending restraint here.)

Less obvious, for political reasons, is an even more sensible tax option: restore those two points the Conservatives shaved off the GST. “As a matter of principle,” Clark and DeVries write, “one should look at tax changes that favour economic growth. In other words, the balance should favour less tax on income and savings and greater reliance on consumption taxes.”

Raising the GST back to where it stood not so long ago would enrich the federal coffers by about $15 billion a year. That’s enough, combined with holding fast on the corporate tax rate, to balance the books again—assuming reasonable spending restraint. This is basically the plan Clark and DeVries outline in a proposed 2010 budget (their table is reprinted below).

The fact that these two highly credible, mainstream commentators can call for big tax increases without being shouted down is itself heartening. It doesn’t work that way in the U.S., where the need to accept responsible taxation is even more acute. As The Economist observed last week, “If America keeps its distaste for taxes, it will face fiscal Armageddon.”

I don’t wish that on the U.S. Here’s hoping Obama reforms health insurance, restores fiscal sanity in Washington, and presides over prosperity. Canada always does better when the U.S. thrives.

But if Washington remains mired in policy stalemates, all the more reason to make sure Canada strengthens its position as the North American jurisdiction that’s run right. That requires balanced books again soon in Ottawa, and the tax increases necessary to make it happen.

Proposed 2010 Budget: Scott Clark and Peter DeVries
2009-10 2010-11 2011-12 2012-13 2013-12 2014-15
(Billions of dollars)
A. Deficit: Parliamentary Budget Office forecast -54.2 -43.1 -27.9 -23.2 -19.0 -15.0
B. Source of Funds
1. Reduction in program expenses 0.5 1.0 1.5 2.0 3.0
2. Revenue Measures
1-percentage point increase in GST 1.7 6.8 7.2 7.6 8.0
1-percentage point increase in GST 1.7 6.8 7.2 7.6
Freeze general CIT rate at 18% 0.8 5.3 5.5 5.8
Other revenue-raising measures 1.3 5.3 5.4 5.4
Interest savings 0.2 1.0 2.4 3.8
Total fiscal actions 2.2 11.9 27.0 30.1 33.7
C. Use of Funds
1. Dept repayment reserve 2.2 11.9 16.9 18.9 20.0
2. Prudence reserve 10.1 11.2 13.7
3. Total 2.2 11.9 27.0 30.1 33.7


The case for raising taxes

  1. Very much in favor of this plan, with one caveat — not yet.

    There was one point in Harper's speech in Davros that resonated with me.. we need to start figuring out how we're going to get all that stimulus spending back under control, but not be too hasty in actually going about it.

    Wait until June, at least, when we see what Carney is going to do. As the interest rates go up, that's when we start raising the tax burden again.. but do so slooowly, so that the economy has time to shed the stimulus painlessly. With a good deal of careful planning and a fair amount of luck, the combination of the two may be enough to control inflation inough to prevent the return sky high interest rates of the early 80s — something that with our current housing fascination would ruin a lot of people, and a lot of our economy

  2. Bring it on. Personally, I’d still like to see corporate rates fall to 15% eventually, but that can wait a few years.

    • Okay, this is a tired old rant for me, but here goes.

      I'd like to see my taxes drop to 15%. (Well, not really. Living in civilization has a cost.) Those "deep, across-the-board" reductions worked out to less than half a percent for me once all the numbers were crunched (and immediately repealed by the Harper . . .)

      Corporations pay income tax on profits only, so corporate income taxes don't effect their productive spending much. Individuals, are taxed on all their income, so taxing individuals reduces consumption (& by definition GDP) much more than taxing corporations.

      Small business corporations already pay much less than 15%, as do corporate ventures involved in mining & processing. For the most part, the general corporate tax rate only applies to large retailers & service corporations, which traditionally have had more money to donate to political parties.

      • 1) Multinational corporations headquarter in countries with the right mix of low taxes and good HR. We're not just up against America but the world. We want companies to relocate here because it increases jobs and ensures they focus on market saturation in this country, no more being overlooked as a smal market when this is where they live.l

        2) Corporate donations are BANNED. Please don't bring up the old cannard that they somehow buy influence.

  3. Its never a great idea to raise taxes.

    • Conservative "analysis" right there.

  4. Assume taxes of 0%. GOvernment can't pay for military, police, fire, courts, printing money, anything.

    Is it never a great idea to raise taxes?

    • Shining a mirror on the, ahem, logic above:

      Assume taxes of 100%. The people can't pay for anything because it's all up to the government. Is it never a great idea to lower taxes?

      Now we're all just playing tug-of-war in between the two absurdities.

      • Assume Thwim said lowering taxes is never a great idea. Your comment makes sense.

        Assume reality, what Thwim actually said. You're talking to a straw man.

        • "Assume taxes of 0%." There's your straw man.

          • Not at all. Allan said it's never a good idea to raise taxes, Thwim provided a scenario in which it is. He took the argument to it's extreme logical conclusion. Reductio ad absurdum and straw man are very different things. Your example on the other hand was disproving an argument that Thwim never made. That's a straw man. Using a ficticious example to disprove Allan's own logic is perhaps the best method of pointing out its foolishness.

          • Whatever. You've got better vision than I do. I still don't see where Allan called for a zero tax rate.

          • He said it's never a good idea to raise taxes.
            That means at all tax rates, under all conditions. I gave an example of one particular instance where it probably would be a good idea. That's all.

            You're correct it was dueling absurdities, but whereas I was pointing out the absurdity of his first statement, you were pointing out the absurdity of a statement made only by the voices in your head.

            Incidentally, thanks, Tappen.. I was going to respond after MYLs first exchange, but you beat me to it and in a manner better than I likely would have done anyway.

  5. Holding tax rates to current levels seems acceptable given the tenuous nature of the world's "recovery" from the Great Recession. Raising taxes in any area is a non-starter, for me at least. Geddes' clear preference for greater taxation sounds more and more like propaganda, not well-reasoned analysis. He is free to give the government more if he wants. But please stop insisting that I do the same.

    • It’s not more than what the government was collecting a few years ago. I think you’re the one who needs to do some critical thinking. If you mantra is “taxes are always and everywhere a bad idea” then we shouldn’t even bother talking to you: you won’t contribute constructively to the debate.

    • Those last two sentences bug me. Nobody's insisting you do anything. He's presenting a case. You disagree with his argument. All fair to that point. But then you go and make it personal.. it's really a form of ad hominem, just done subtly enough so that it's hard for people to put their finger on it.

      I mean, I certainly can't say I don't make use of the ad hominem.. but have some balls, man, and instead of trying to suggest he's being an oppresor and forcing something on you, come right out and say you think he's an idiot. That way, it's clear as to what's the argument, and what's just you being a dick.

    • The government is set to raise payroll taxes. Do you think that's more productive than raising the GST?

  6. "Geddes' clear preference for greater taxation sounds more and more like propaganda, not well-reasoned analysis."

    Did you actually read the piece? It's clearly a well-reasoned analysis, with a thesis, exploration of the relevant issues and even numbers.

    Rather than slagging the work as "propaganda", how about you dispute something specific? Produce a "well-reasoned analysis" of your own, refuting Geddes' thesis. Remember to show your work.

    • Right. I did not "actually read the piece." Nor have I read Geddes' other columns repeating his mantra of the absolute need to raise taxes, leaving the impression that he's selling a line. I'm such a buffoon. Thanks for pointing out my ignorance. Reductions in base spending (which have soared under the current and previous administrations), reordering priorities and eliminating the so-called regional development agencies would be a good start. You might want to read Andrew Coyne on that score. I trust you won't mind paying the government a bonus when you calculate your own tax bill this year. Peace out.

  7. There's a moral issue here as well: every day that we fund our lifestyle with borrowed money, we negatively impact future generations. Canadians collectively need to either cut services (which is always unpopular when push comes to shove) or raise taxes to pay for them.

  8. For one thing Canada's rates are still fairly high compared to most countries in Asia and even countries in Europe such as the UK(28%) and the Netherlands(25%). I find it interesting that the left for all their talk of being independent of the US tends to only look at the US as a comparative example. There is an interesting Coyne vs Wells from a while back where Coyne mentions how much both left and right in Canada are emotionally invested in the idea that Canada is a more left wing country than the US.

    • Comparing our taxes to Asia, which has many 3rd-world type countries, is preposterous. Or rather, proof that we DON'T want tax rates like them.

      A quick search of words in Google for "countires tax rate" yields the top link to a Wikipedia article, with a graph that shows Canada with the 10th lowest tax rate out of the 30 countriers chosen. Also, the UK is higher, not lower according to this graph AND the article written here.

      Canada's tax rate is actually to the LOWER end of the 1st world countries. I checked two other links to confirm. Funny enough, one was a MSN article that had to explain to Americans that, though it may be hard to believe, they have some of the lowest taxes! Ha! Basically, I take that to mean that no matter a countries tax rate there will likley be a significant proportion that will always complain their rate is too high. Too bad we can't all have a tax rate like say, North or South Vietnam! I wonder what their health care system is like? :)

  9. Apologies for the spelling errors! Damn, should have spell checked first.

    • You are talking about overall tax rates not specifically corporate rates which is what the original article referred to. Last time I was in Hong Kong and Singapore they were NOT Third World countries and the have total corporate rates of 16 and 17 percent respectively. Switzerland(Geneva canton) also has combined federal cantonal corporate rates of 24% still a percentage point lower than what the Harper and Mcguinty governments are proposing for Ontario.

      • Asians have a different culture of taxation, so does Europe. Hong Kong and Singapore are effective analogs of downtown Toronto, as they are heavily concentrated in financials and can allow to keep low rates to retain the companies. I don't think looking at them is productive.

        Still, I agree that it would be a good idea to lower the corporate rate, but we will have to pay for it somehow. I mean, even conceptually there's nothing wrong with lowering one tax and raising another one.

  10. Of the long run, the key point is to get by to a surplus by whatever means necessary, as quickly as possible. Even a "big spender" like Paul Martin was forced to lower tax rates with a surplus.

  11. And where is the cost of reducing green house gases?

    Seems this government is a huge embarrassment when PMSH talks about the cost of carbon reduction,
    but NO WHERE do I see Liberals costing their ghg reduction plan.

    Back to the drawing board.

    • Did Prentice offer any details yesterday?

  12. Excellent article. I don't agree for a second that Canadians are particularly opposed to restoring the GST to 7% much less 6%. Yes, it will make a difference on particularly large purchases, but at some point *all* Canadians must consider fiscal responsibility to be more important than saving a bit on that new LCD TV. If I need to spend an extra 5 cents on my morning coffee, so be it.

  13. I vote to raise taxes on Geddes.

    • Move to Somalia. No taxes there.

      • Very constructive advice, Andrew (not P or C). Shall the rest of us bother talking any more?

        • Certainly. All viewpoints should be considered. After all, Maclean's is open
          to a wide range of conservative opinion.

          I've always been partial to Mozambique myself. Better beaches.

    • And they say socialists are the ones asking for handouts…

  14. The middle class pays almost 50% of their income to the government.

    One half.

    I appreciate that to many here, the state prima facie has a right to take away our income,

    but I suspect the vast majority of Canadians do not share such a statist, leftist view.

    So by all means, spread the message from the left of higher taxes far and wide, and as loudly as you possibly can.

    • I suspect that your exaggeration makes your point meaningless.

      Given that the majority of Canadians did not vote for Harper's cronies, I would suggest they are not so knee-jerk averse to reasonable and fair levels of taxation as you might like to think.

    • biff, how did you come up with the number? Added up top marginal rate of your income, unemployment insurance and CPP?

      The actual number that I paid out of my rather cushy income was about 30% in income taxes, and, maybe, another two grand in GST/PSD on my discretionary spending. The 50% has been created by some moronic assumptions of making infinitely many money so that it is all hit with high marginal rate and then spending it all on cheap junk so that it is all hit with GST. Let us spend all our salaries on booze and cry "Oh no! LCBO took all my moneyz!"

      • Yes, Biff, how did you come up with that number? I just went through every province and territory (except Quebec) at 240,000 salary, admittedly with a 2008 tax program, but I don't think basic rates have changed. I didn't take any deductions at all except the employment tax credit, not even the northern location one. Everywhere comes in below 42%, and if we add 4.2% for CPP, EI, GST & PST (I can tell you how I arrived at that if you like), it is still under 46%. So, if you are paying 50%, I suggest you either, a) not worry about it because you make one heck of a lot of money and are in nobody's definition of 'middle class', b) stop buying so much stuff–you can't take it with you, you know, or c) move to a smaller house in a less taxing municipality.

        But hey, it is always easier just to pick a nice round number out of thin air and rail about paying it, isn't it.

  15. Allow me to offer the Reeses peanut butter cup proposal. Have your chocolate AND your peanut butter. Do both. Cut spending drastically (see Andrew Coyne who didn't even try too hard and slashed mountains) AND raise taxes (particularly the GST) a smidge, because that debt ain't going nowhere if the best you do year-after-year is break even.

  16. "What's reasonable? Consider an international comparison. Add up all taxes in Canada and they amount to 33.3 per cent of gross domestic product (in 2007, the latest OECD figures). In the U.S. taxes amount to 28.3 per cent of GDP and in Britain 36.6 per cent."

    That's one way to look at taxes. Another way, the way most people do, is to think about how much of your salary you actually get to keep. The 3 levels of government take more than 50% of our annual income through one tax or another. I think taking more than 50% of someone's income is when they start to get fed up.

    I support cuts in spending rather than increased taxes but it is nice to see that people are serious about balancing the budget. Maybe MPs/parties should start making choices – if they plan to spend a $1billion on some new initiative, something else should be cut. Government collects more than enough money from us – it is time for them to start making decisions instead of treating public like atm.

    It would also help if government services improved as we spend more and more but that's not what's happening.

    • People are notoriously bad at actually calculating such things. Besides, it is a different number for each person, depending on myriad decisions each individual makes. % of GDP seems like a much more objective, and useful, measure to me. Unfortunately it does not necessarily suit your agenda. Take your pick.

  17. It was a huge mistake to cut the GST. People always grumble about taxes, and always will no matter what the level is, but we live with them. In the next budget, the GST should certainly be raised to 6% and in the budget after that raised to 7% if needed. The population can live with a 1% increase. It's Harper who won't admit he erred.

  18. Really? That's awesome because that is exactly what I'd have done, to start, if I were the one in charge.

    Actually, I'd freeze the corporate tax rate where it is, then look at increasing it by just slightly over the amount that correlates to the amount I'd decrease payroll taxes by. That would take some mighty math skills, (which I don't have) so I'd look to July for that, along with moving GST up a percentage at that time as well.

  19. that is amazing !!!

  20. No matter how high taxes go waiting times in hospitals will not decrease. More money will go to civil servants and union members. More money will go for useless pet projects and income redistribution to favoured groups.

    • I hear your complaint… but that's all. If you have no concept of how to solve a problem don't just whine about it. Put a comment out with a challenge. What general direction do you see the solution taking? That way replies will be able to address that one way or the other. Otherwise you sound like Eeyore!

  21. Thank you for this breath of sanity. Yes, taxes do have to go up and let me compound the heresy by saying that INCOME taxes need to be increased as the priority, Further, the distribution of income taxes needs to be changed to transfer more of the load from the shrinking middle class to to the very comfortable top.

    Until 30 years ago the wealthy were taxed at much higher rates, and society as a whole was the better for it. Its time to end this "let's see what happens if we keep on cutting taxes" experiment.

  22. Behind the 8 ball as usual. I work in the private sector and our wages have been frozen for over 3 years now. Many benefits and perks removed. There is no reason why public sector employees salaries, benefits and perks should not have been reduced long ago. Many taxpayers are in the same boat as me so why should we have to reduce our lifestyles but pay out more and more for others to increase theirs?

    • If you had a good job in the private sector then, when times were booming, you probably made a good deal more than an equivalent position in the public sector ( and no, I'm not a public sector employee). When things went crazy a few years ago all you needed was a pulse and minimal brain activity to get a good position (ask any HR department). Would you have perhaps issued empathy statements for the choices that those poor schmucks made to belong to the public service back then? Or the result of your choices now?

      As far as taxes go it is important for all the citizens of every country to remember:
      – the services we receive have a cost to them, even the ones we don't like or don't want
      – most of the decisions made as to what and how many services we get is based on a broad, national consensus. It is not based off of an individuals shopping list as they decide to access them.
      – Even though an individual may not have children they will still contribute to an education tax for the overall benefit to their society. There are many other examples, Police, Military, Health Care, Regulation of Banks, Food Safety, etc

  23. Mr. Geddes: Your idea makes sense to the grownups, but there aren't enough grownups here.

  24. Please please please raise my GST. I'd much rather pay 2% more on the junk that I don't save than face the structural deficits down the road.

  25. Yes, I think we should keep the corporate taxes, especially for manufacturers, rather low, and move taxation onto dividends, income and GST. I think we should basically try to move the corporate tax burden from outright corporate tax to GST (this tax is the only way to tax imports), so if the magic of "lowering taxes will reduce prices" works, then the two will give a net offset for Canadian-made stuff, and the higher tax on imports (which is really killing many industries in Canada). I think that we should have a new income tax bracket around 300k so that it wouldn't catch salaried employees. I think that at lower level the income tax level is more or less fine.

    • Ugh… taxing imports is protectionism.

      Okay, seriously, economics 101: Canada is an exporting nation. Rather than sitting on mounds of cash that we get when we sell things to other countries (because it ultimately doesn't allow us to purchase any more here), we import things that we normally wouldn't make ourselves. These include food items, clothing, and luxury goods as well. Basically anything. Therefore, taxing imports brings us no gain because we cannot specialize in our exports and instead have to be less productive to produce every type of good that we consume. My recommendation is that you read up on Comparative advantage – if that makes sense, then you understand the old theory of international trade. Krugman's New Trade Theory is more comprehensive, but I wouldn't expect many people to understand it.

      Protectionism aside, none of your other arguments make sense either. No surer way to kill employment than shift burdens onto income tax.

  26. The majority of Canadians are quite happy with raising taxes because a majority of Canadians do not contribute the majority of the tax revenues.

    One must ensure that the economically productive do not find it more appealing to go be productive somewhere else. Currently, the USA is doing a fantastic job making itself look like an economic basket case. Intelligent wealth should be fleeing the US in droves. So, in fact, I suppose there is a case to be made that higher taxation in Canada could be tolerated. My fear is that extra tax revenues will continue to support nonsense, instead of vital infrastructure, the common defense, and debt relief to give us wiggle room as the boomers all become seniors.

    • I found some 2002 info that gives these figures which sort of supports your majority of Canadians do not contribute the majority of the tax revenues statement:

      – 50% of taxfilers had incomes of $23,000 or less, and they contributed just under 5% of total revenue,
      – 10% of taxfilers had incomes of $64,500 or more, and they contributed just over 52% of total revenue, and
      – the remaining 40% of taxfilers contributed the remaining 43% of the total revenue.

      The ratio of the two income breakpoints seems to have been somewhat constant over the 1990 to 2002 time period….I have no reason to suspect that it has changed a lot since then.

      But how much blood (tax revenue) can we squeeze from the under $23,000 group? It would be interesting to get an age breakdown for that group. I suspect that a good portion are students and others who are just getting started, who will have the 'opportunity' to pay a higher rate as their income rises.

      And the middle group, the true middle class I suppose, are basically pulling their weight.

      I'm interested to find out where you would adjust those breakpoints, or if you have other comments related to the three income ranges.

      • OK, look around you: there are kids, students, and retirees. Numbers as in "percents of taxfilers" are meaningless.

        • I suspect that you are right, but some numbers (percent or otherwise) to confirm your thought would have added more to the discussion.

    • Your argument is stupid. Yes, the majority of Canadians don't contribute. Because if you take a typical nuclear family with two kids, there'll be at least two members who don't contribute, one member who undercontributed over lifetime due to maternity leaves and one member who fully contributed. And, yes, chances are their parents may not be contributing either.

      USA is a failure, by the way.

  27. More tax money required and the games have not begun or have they?

    Hello Google Intrwest and find all kinds of valid info wrt to failure and some interesting Real Estate deals and we start with CBC's article. And where is our government wrt to questions and answers? note not a risk- really? because some back room deal will be struck by our PM and Flaherty perhaps at taxpayer expense. Intrawest may miss debt payment: report Operates some 2010 Olympic venues, but Games not at risk Last Updated: Wednesday, December 23, 2009 | 1:36 PM ET Read more: http://www.cbc.ca/money/story/2009/12/23/intrawes

    Read more: http://www.cbc.ca/money/story/2010/02/01/nypost-r

  28. what's the secret to posting so much at once without the error message?

  29. Corporate taxes are way too low in Canada, but that's what "free trade" hath wrought. We're in a race to the bottom. The concept of "trickle down economics" is just that – a concept and nothing more. When the Bank of Canada is re-nationalized and there's still not enough money to go around (which is a practically impossible outcome), then we can talk about raising taxes.

    Very few people know enough about national sovereignty or economics to even be having this debate.

    • Oh, no you don't, Jim D. We ignorant masses fell for that when the U.S. was discussing whether to regulate default swaps and stuff like that.

      I freely admit I don't know what you are talking about with "When the Bank of Canada is re-nationalized and there's still not enough money to go around (which is a practically impossible outcome)," but never again will I leave my part of the discussion to the 'knowledgeable elites' due to the 'complexities of the issues and you wouldn't understand'.

      • Believe me Jenn, I'm coming at this from a completely populist perspective. The Framers of the US Constitution were adamant that if the power of controlling currency was ever given up by the government, and handed to private banking interests, the country would be doomed. It almost happened during Andrew Jackson's presidency (he successfully turned away the charge), but Woodrow Wilson was duped by Paul Warburg, J. P. Morgan and others into handing over the power currency control with the creation of the Federal Reserve, which a PRIVATELY-OWNED bank, run FOR PROFIT. It has been similar in Canada since 1974, although our goverment still creates, and retains control of, the actual coinage and physical paper money in circulation.

      • When a national government controls its currency, it can finance capital projects and the administration of government (pay government wages) by creating its own money supply. World War II, The St. Lawrence Seaway, the Trans-Canada highway, many of our ports, and many urban renewal projects were financed this way, without having to borrow money and go into debt, and without causing inflation. Since 1913 in the US, and 1974 in Canada, anytime the government needs money over and above what it receives in tax revenue, it has to borrow it from, and pay interest to, the private central bank. If everyone knew that our governments once had the power to fund what are essentially stimulus programs debt-free, but gave up that power for the enrichment of private banking interests, there would be a revolution.

        "I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity… is but swindling futurity on a large scale." – Thomas Jefferson

        • Well I'm kind of hoping for a revolution against the big banks, stock brokerages and insurance companies right about now, so maybe we should look into that.

  30. The reason we face structural deficits is that 1997-2007 was an unusually productive decade, and governments habitually match expenditures to incomes (and then some). Our public spending is calibrated to a level above what is sustainable over the long term. If that decade was in fact partly fuelled by a surge of economic activity based on credit, it means we have already pulled future spending into our past. If – as pointed out in another article in the current issue of Macleans – people are looking to pay down their debts, then the level of economic activity is going to not only fall to "average" levels; it is going to fall below that average. Public revenues, which chiefly are based on the number of economic transactions, will fall commensurately. People can be stubbornly insistent about their priorities: if we tax them for things we think they should have, they may choose to further reduce their economic activity to make up the difference and we will be even worse off.

  31. …continuing:

    It was one thing to hope to fill in a short (timewise) trough between 2007 and a resumption of 2007-like levels of public spending a few months or couple of years later, but an entirely different crisis faces us if the reality is that we dropped off a debt-fuelled escarpment (bubble) and we fail to reduce expenditures to match the new reality.

  32. You, sir, have an excellent argument. The only bit of that I would add is that we should still freeze the corporate tax cuts – if they are already lower than the US as the article suggests, further cutting would not offer us a significant competitive advantage. With the revenue saved, we then have a bit more flexibility to either cut the deficit (at $20 billion, not really necessary, as you say), lower taxes that actually need lowering (payroll or income tax), or raise program spending.

    The only downside I could see with this, a more reasoned approach, is that Canadians may lose their familiarity with balanced budgets and care (or notice) less when governments start running significant deficits. Our sense of fiscal responsibility is quite a miracle compared to other developed nations, and it would be a shame to lose it.

Sign in to comment.