Probably every generation thinks they’re at some crucial crossroads where the decisions they make or fail to make will reshape the future. In fact it feels like we have been living through a succession of such turning points, always on the verge of big change but somehow never quite making the turn.

After the 2008 global financial meltdown and the recession that followed, the worst since the Great Depression, pundits declared that we had got it all wrong, that the status quo could not hold. The financial chaos had revealed how costly the deregulation of the financial sector had been and how fragile was an economy built on massive mortgage-fuelled household debt. That many banking executives who had contributed to the crisis got huge bonuses while others were losing their jobs or their homes or were just hanging on made clear that things were indeed upside down. Political leaders talked about the need for a new morality, that we were seeing the dark side of globalization, that we could no longer tolerate corporate giants too big to fail. And yet in no time we were back to business as usual.

Or take climate change. A few years after the financial meltdown, Naomi Klein wrote her powerful This Changes Everything about how climate change will force the world to rethink, well, everything. It seemed no longer possible to ignore or pretend away the already evident consequences of climate change and the risks it poses to civilization. Extreme weather events were telling us our antagonistic relationship with nature could not continue. In Canada, pundits wrote that no political party could hope to win an election without an ambitious and credible climate plan. For a while we were making progress, albeit very modest given the climate crisis. Yet now it seems we are ready to backtrack. Not only can political parties run without a climate plan, they can promise to undo the limited progress we have made.

And then came the pandemic. COVID-19 exposed how woefully unprepared we were, how stretched we had allowed our health and social services to become, and the often fatal costs of privatizing long-term care. It made glaring the consequences of inequality and weak labour protections, as the poor, the marginalized, Indigenous communities, people of colour and frontline service workers were hardest hit.

COVID-19 made glaring the consequences of inequality and weak labour protections.

But the pandemic also showed us that better was possible. Governments of all stripes stepped up to protect our health and keep people and firms afloat, rolling out with unaccustomed speed billion-dollar programs that, for a time, even reduced poverty and inequality. Firms raised the wages of frontline workers who put themselves at risk so we could stay safe. We experienced the kind of solidarity that often comes with crisis, finding ways of helping each other and celebrating healthcare workers and others on the front lines.

In the midst of the pandemic, governments here and just about everywhere were talking about huge public investments “to build back better.” Change was in the air. And then inflation hit, the result of fragile global supply chains, war and greed. The pandemic programs were rolled back, as were the pay raises. There was no more talk of building back better. Even the COVID solidarity proved fragile, momentary, the now infamous “Freedom Convoy” revealing how angry many had become at government and how raw our differences. Social media, the major source of human connection through the lockdown, fuelled our outrage and magnified our divisions. Yet again the opportunity for change passed, the optimism and solidarity with it.

And now we face a new challenge. Donald Trump’s tariffs and insistence that Canada should become the 51st state have ignited an unprecedented burst of patriotism. Will this finally be the turning Perhaps to understand how to move forward we need to look back at how we got here.

It was not so long ago that most people assumed things would just keep getting better, that every generation would surpass the previous one. For decades after the Second World War, it seemed capitalism and democracy were not only compatible but mutually reinforcing, high profits and high wages could coexist, endless economic growth would benefit everyone. Unions were strong. Governments were active in the economy and in providing for our welfare. We owned things together—transportation, energy, cultural institutions, even a vaccine agency.

By the 1960s, in what has become known as the equality revolution, those who’d been left behind in the expansion of the welfare state were demanding to be let in and were making progress. Democracy was expanding, becoming more inclusive, more robust.

And then came the 1980s. While corporations and neoliberal think tanks had been fighting unions and the expansion of the welfare state all along, economic turmoil at the end of the 1970s gave the opposition their moment. The world was changing. Global competition was more intense. Former colonies were demanding more for their raw materials. Oil prices skyrocketed. Profits declined. Businesses raised prices. Inflation soared. Conditions were ripe for the neoliberal counter-revolution. Business leaders and neoliberal institutes pounced.

Defining neoliberalism is a tricky business. It’s a slippery concept and, like every -ism, is used in different ways and takes different shape from place to place and over time. Essentially it holds that competition in the free market is the route to freedom and prosperity, and that government’s role is to create the conditions for the market to work its magic.

As Karl Polanyi wrote in his classic work of economic history and social theory The Great Transformation, ideologies are often hijacked by powerful interests and transformed to support those interests. That was certainly the case especially in the Anglosphere as corporations invested heavily in a network of persuasion—media, think tanks, university chairs—to attack the welfare state and sell neoliberalism.

As a political project, neoliberalism is best understood as the single-minded focus on economic growth, the primary role of government being to create the conditions for business to thrive, stripping away as many of the barriers to profit as politics allows—capitalism with the gloves off. Competition in the “free market” would sort out the winners and losers. Inequality, in this framing, is not only inevitable but right. If the winners are unleashed, everyone benefits; good things will somehow trickle down to the rest.

The winners did win big, but without much of the promised trickling down. Instead, we got extreme inequality and increasing insecurity, as many, especially the young, find themselves competing for precarious jobs with few benefits or prospects, often working in cities where they cannot afford to live.

Neoliberalism has delivered corporate concentration, monopolies, plutocracy, a massive shift from public power to private power. It has even failed in its own terms. Profits grow but the economy not so much.

And yet neoliberalism refuses to die. It contains, it seems, the seeds of its persistence. Of course, those with power and privilege always try to hold on to both. Money talks, and with extreme inequality it talks louder than ever. Neoliberalism changed us. It changed how we view government and how we view one another. It changed what we think is important and what we believe is possible. It’s in how neoliberalism has changed us that it exerts its greatest hold.

Taxes are how we pay for the things we do together that we cannot do alone.

Sociologist Zygmunt Bauman argued that we’ve organized ourselves such that our collective action problems—the ones we can only solve together—have hit the level of “polycrisis” while our collective toolkit has rarely been weaker. Decades of neoliberalism has eroded public power. Nowhere is that more evident than in how we have come to view taxes.

Taxes are how we pay for the things we do together that we cannot do alone. They are also the way we reduce inequality and deconcentrate power. The generations that preceded us were much readier to pay taxes than we have been. No doubt they grumbled—who likes paying bills?—but they kept voting for governments that raised taxes. That was how we got medicare, expanded education, built public infrastructure.

All that changed. Taxes became the third rail of politics, a no-go zone. Just think of the reaction of many business leaders to the modest change the federal government introduced to the capital gains inclusion rate in the 2024 budget. Even though it largely affects the affluent. Even though capital gains are still taxed at a lower rate than earned income. Even though Canada’s marginal effective tax rate is still the lowest in the G7. Investment will dry up, we are told. Why would it Investment didn’t suffer when not so long ago capital gains taxes were even higher.

People will flee, we are warned. Really Where will they go A telling study in the US puts the lie to the taken-for-granted assumption that when governments raise taxes on the rich, the rich take their money and run. Cornell sociologist Cristobal Young and his team recently published a study that examined whether millionaires do in fact move to lower-tax states when their state raises taxes. Their answer: no. Taking your money and moving to another state should be relatively easy compared to changing countries. But millionaires are less likely to move than any other income category, whether to avoid taxes or for any other reason. They prefer to stay right where they made their millions. The poor are far more likely to move, to escape poverty. Opportunity, community, quality of life matter more than tax rates. Of course tax increases have behavioural consequences, but so too do tax cuts.

Think of the language our political leaders use whenever they talk about taxes, offering us tax cuts as though those have no consequences, appealing to us as hard-working taxpayers as if to say we are paying taxes for what some “others” get—the hard-working taxpayer versus the undeserving. So we come to see taxes as a burden, punishment, even theft. No political promise seems to resonate quite as positively as the promise of a tax cut or a “tax holiday.” The revenue-neutral carbon tax, even as most Canadians got back more money than they put in, was made into a contentious issue.

Part of the “problem of taxes” is that people don’t like to be played for suckers, to think they are paying more than their fair share. Not only have we over the last decades shifted the tax burden from the rich and the corporations to the many, but the rich have become extremely effective at avoiding taxes, exploiting tax havens and loopholes, or even using illegal means to evade the tax collector. Ordinary people begin to think: If the system is rigged, why should I pay taxes?

Politicians have learned they should avoid any perception that they are “tax and spenders.” Yet all governments tax and spend. The questions ought to be:  What is it we should be doing together that we could not hope to do alone, and what is a fair and equitable way to pay for that What better way to constrain our ability to do big things together than to take tax increases off the table and treat tax cuts as a free good?

Not only were taxes off the table but government borrowing came to be seen as “for emergencies only.” We have been encouraged to view deficits as toxic and to measure governments on their ability to balance budgets. Here’s how this combination of tax and deficit phobia has changed our world: governments cut taxes on the promise that the cuts will generate so much growth that they will pay for themselves or will be paid for through greater government efficiency. But tax cuts never pay for themselves, and there’s never enough waste to cover the lost revenue. So deficits soar. And because deficits are supposedly toxic, public services are cut back. Quality declines. Wait times lengthen. We come to believe that we are no longer getting our money’s worth. If service is lousy, why not opt for a tax cut—even though that will make things worse—and why not support privatization, even if that makes services more expensive and less accountable?

Of course we need to be fiscally responsible, to manage fiscal risks, but that cannot mean giving priority to fiscal health over human health and the health of the planet. When the Trudeau government eschewed the long-standing commitment to annual balanced budgets, that was to the good. But fiscal hawks and much of the mainstream media continue to view deficits and increasing debt as a sign not that governments should raise taxes but that they must cut spending, regardless of whether spending was the primary cause and with no consideration of the human and economic costs of austerity. Robert Reich, after resigning from Bill Clinton’s cabinet, described the combination of tax and debt phobia as a conceptual straitjacket. And as we obsess over public debt, private debt breaks records and sets us up for more bubble-bursting.

Similarly, think about how we view government regulation. Regulations are how we protect the environment, labour and human rights. Instead, we have been encouraged to think of them as red tape, a drag on the economy. We are, it seems, ready to use the heavy hand of criminal law to regulate people but not so much giant corporations, despite their enormous power to drive prices and deflate wages, despite their devastating impact on our environment and on our democracy.

Yes, we have to take into account the costs of regulation, but we also need to consider what we lose through deregulation and regulatory capture, allowing corporations to self-regulate. Think of the bursting of the dotcom bubble, the Gulf oil spill, Enron, and of course the 2008 meltdown. Bruce Campbell’s book on the tragic oil train crash in Lac-Mégantic, Quebec, lays out in devastating detail how regulatory capture contributed to the disaster. Years before, a deadly E. coli outbreak in Walkerton, Ontario, traced directly to deregulation of the water system, helped bring an end to then premier Harris’s “common sense revolution.” And of course, climate change and nature loss are the most threatening examples of regulatory failure.

All this to say we have organized ourselves in a way that makes crises more frequent and intense and has undermined the tools we need to make things better.

Government has come to be viewed as the problem. Disdain for government now comes not just from those who have been ill-treated or who got the short end—that is to be expected—but from our political leaders themselves. Governments, we are told, should not interfere in the market.

Decades of neoliberalism—of favouring private power over public power and, for that matter, private debt over public debt—have left us with bargain-basement citizenship: government asks less of us, and we ask less of government. There is no society, we were told. Don’t look to government for help or to society for excuses. Look after yourself and your family. Not surprisingly, research has revealed an epidemic of loneliness, as many feel on their own to manage all the change that’s coming at them. If strength is not to be found through common citizenship, many turn to the people they know and like, often people “like them.” The trust and solidarity necessary to act together across our differences are weakened. If the future is not ours to shape, democracy itself is diminished.

The answer for Canada is in rebuilding our collective toolkit and rediscovering our collective power.

So, given all that, am I optimistic, and if so, how is that even possible I find comfort in Antonio Gramsci’s formulation “pessimism of the intellect, optimism of the will.” I am optimistic, in other words, because I have so decided. Pessimism or cynicism sucks out all the energy for making things better. Despair is not an option. Gramsci, writing in Italy in the 1920s and 1930s as fascism was on the rise, cautioned that we must not underestimate the hurdles nor assume that better is assured—only that better is possible and we must fight for it. In these in-between times things could flip either way.

Most of us know the future we’d prefer—living in harmony with one another and the natural world, with security for ourselves and our kids, access to health, learning and the arts, affordable housing, decent work, a balanced life, a secure retirement, liveable communities, peace. Polls bear this out. What’s missing is the belief that we can do big things together, that we are in fact in this together.

Despite this, I do believe there are grounds for optimism of the Gramsci sort. While it’s true that Donald Trump’s Republicans won the White House and Congress, barely, Americans also consistently voted for progressive measures such as higher minimum wages, paid sick days, reproductive rights—when given the choice. Polls show that Canadians are ahead of their politicians in readiness to tax the rich and rein in corporate power. According to a recent Abacus survey, over 70 per cent of Canadians believe the rich and corporations are not paying their fair share.

Big change usually starts outside of conventional politics and political parties—in civil society. Despite everything, many people are fighting to make things better and sometimes winning. #MeToo, Black Lives Matter, Pride. Four Indigenous women decided to fight against a bad bill that undermined Indigenous rights. They lost that battle, but their efforts became a movement, Idle No More, whose impact continues to ripple. It’s been a very tough time for environmental causes, but we might take heart from the recent victory of a coalition of activists in stopping the mayor and council of Vancouver from implementing their plan to reintroduce fossil fuel heating in new homes and buildings, which had been banned since 2022. It was only through the tireless efforts of childcare advocates over decades that we are finally getting a universal $10/day childcare program. Disability activists made important if modest progress with the recent announcement by the federal government of a new disability benefit for working-age adults. Unions are making something of a comeback, bringing in some of the hardest to organize service workers. Recently 20 unions got a taste of collective power when they joined together to stop the Ontario government from thwarting a teachers’ strike.

If the many out there fighting—for decent work, for peace and against racism and hate and poverty, for human and civil rights, for electoral reform, for basic income, for climate action—can overcome the learned neoliberal competitive bias and distrust, to see that they are stronger together, who knows what big things could be achieved Harvard political scientist Erica Chenoweth examined hundreds of protests and civil actions globally, trying to understand what it takes to move the yardsticks, and what she found, to her surprise, was that if just 3.5 per cent of a population join together to fight—peacefully—for progressive change, they almost invariably succeed.

Previous generations built things. They gave us medicare, pensions, welfare, employment insurance, universal education, public infrastructure. They passed along a world better than they inherited. We have not taken good care of what they built. What will we build?

In the face of Donald Trump’s threats and tariffs, some are urging us to do whatever it takes to appease him, and many business leaders are calling for more of the same: even lower taxes, fewer regulations, no more climate action—peak neoliberalism. Some are pushing for greater integration even as Trump has made inescapable the dangers of our US dependence. The answer for Canada is not this; it is in rebuilding our collective toolkit and rediscovering our collective power—taking back the future and breaking free of neoliberalism.

Alex Himelfarb is an author and academic. He served three prime ministers as Clerk of the Privy Council, 2002–2006.

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Read more from the archive “The Case for Taxes” January/February 2015.

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Jeffrey Dvorkin says YES

The Massey College senior fellow and former director of the journalism program at U of T

Government in Canada has been funding the media for 100 years. There has always been a postal subsidy for newspaper distribution. More recently, the Canada Periodical Fund has helped magazines, newspapers (non-daily) and digital periodicals overcome market disadvantages. And, of course, there is the CBC, which gets more than a billion dollars a year from a direct government subsidy.

Conservative and Liberal governments alike have seen support for media as an urgent part of maintaining democracy in Canada. There is widespread agreement among parties and beyond that without a vigorous journalistic culture, democracy here would suffer. US studies, for example, show that less journalism results in more frequent reelection of incumbents.

The question of government funding of media is increasingly about whether Canadian media has become—or is in danger of becoming—an arm of government. Meanwhile the digital transformation of media continues, convergence has given us fewer choices, and so-called “news deserts” spread. Over 500 news outlets in Canada shut down between 2008 and 2024.

How to correct this And what would be the consequences of less government support for media?

It’s worth looking at how other aspects of our society would function with less support. If government stopped funding public education, the private school business would boom. The privatization of hospitals would take us into a vastly poorer version of US healthcare—a life-threatening outcome. What about privatizing the military Let’s not go there.

A free press is a critical element of democracy. We don’t need more government-funded news or pro-government messages. We do need better ways to fund media—and they should involve thoughtful support from government.

Our government gives tax credits to media organizations for labour and technology costs and to invest in regions ill-served with news. Subscriptions to credible media earn individuals a tax benefit. In addition to this, the public should be allowed to donate to the CBC to enable the removal of ads. This would end CBC’s competition for ads with commercial news publishers, which is contributing to the spread of news deserts, and make the public broadcaster more accountable to its audience. A Crown-funded national public broadcaster must do what commercial outlets can’t: develop unique programming to serve the needs of local audiences for information, reflection and perspectives that enable effective participation in democracy and cultural life. Programming must be decentralized while budgets focus on strong local/regional news and information. Local stations must program the needs of a local audience.

We must restore public confidence while deepening journalism and reporting on government. If our democracy is to survive, media as an agency of citizenship must be brought up to date, not defunded.

Peter Menzies says no

The Macdonald–Laurier Institute senior fellow and former Calgary Herald publisher

Not long ago, anyone arguing Canada’s news media should depend on a buffet of taxpayer money controlled by politicians would’ve been labelled a traitor to the craft. In the meantime, a great many moral contortions have brought us to where the matter is even up for debate. But here we are: the vast majority of Canada’s news organizations now depend upon politicians for their existence. They have submitted to the humiliation of applying to the government to become a Qualified Canadian Journalism Organization. They did so to avail themselves of the Journalism Labour Tax Credit and the Local Journalism Initiative. Others shape their content to qualify for the Canada Periodical Fund. Licensed broadcasters queue for assistance at the government-appointed Canadian Radio-television and Telecommunications Commission.

It requires some imagination to square this with statements like this one from the Toronto Star’s Standards and Practices: “Independence from those we cover is a key principle of journalistic integrity. We avoid conflicts of interest and the appearance of such conflicts. …These policies apply to all outside interests that could cause our audiences to question the fairness and independence of our journalism.”

Journalists argue they can’t be bought. But the near-total absence of commentary arguing against these funds within the pages and platforms of organizations bearing the government’s stamp of approval indicates that debate can most certainly be stifled. And what journalists believe on this file is inconsequential. All that matters when it comes to subsidies and journalism is what the news-consuming public believes. And polling suggests the subsidies aren’t saving journalism; they’re killing it. Oh, the husks of once-magnificent titles still stumble around like zombies, but without trust—the bond tying journalists to readers, viewers and listeners—it’s all a charade.

In 2024 The Hub, a subscriber-based platform that eschews government funding (disclosure: I write for it), polled Canadians. Seventy-six per cent of respondents believe subsidies could undermine journalists’ ability to report objectively. Seventy per cent oppose the funding, including 75 per cent of Liberal voters and 86 per cent of Conservatives; 73 per cent say subsidies hamper journalists’ ability to challenge the government. Reuters, meanwhile, reports that Canadians’ trust in journalism fell from 55 per cent in 2016—before the latest subsidies were announced—to just 39 per cent in 2024.

If government and the news industry want trusted news to survive, subsidizing its production is counterproductive. If anything should be subsidized, it should be the consumption of news, through deductibility of subscription costs and other mechanisms, forcing platforms to compete for, and build, public trust. As for the CBC, its primary source of revenue must similarly be detached from the vicarious whims of Parliament and its sustenance placed squarely in the hands of the public.

jeffrey dvorkin responds to peter menzies

As a former managing editor of CBC Radio and former VP of News and Information at National Public Radio (NPR) in Washington, DC, I’m arguing yes to government funding for media—with strict limits.

In the 1990s we operated at CBC on the premise of maintaining an arm’s length relationship with government. We understood, as did our bosses, that our credibility as a provider of reliable information depended on maintaining public trust. The journalists who created our programs and reported the news for CBC had to act without “fear or favour” toward the government. One example of how CBC remained resistant to government pressure was during the Somalia affair. In 1993 a Somali teenager was beaten to death by two Canadian peacekeepers who were part of humanitarian efforts in that country. Captured by photos, the killing revealed internal problems in the Canadian Airborne Regiment. A CBC reporter received and reported on altered military documents, which led to allegations of a cover-up.

In the early 2000s, after moving to NPR, I found that mainstream media believed the first amendment to the US constitution gave journalists a measure of protection. American suspicion of government (quite different from the more accepting Canadian attitude) meant that US media were, for the most part, vigilant in maintaining independence.

But one particularly effective guarantee of public broadcasting’s independence from government in the US is the Corporation for Public Broadcasting. CPB dubs itself “the steward of the federal government’s investment in public broadcasting,” and it distributes public money to some 1,220 public radio stations and 361 public TV stations. These stations can raise their own operational money. Stations (notably PBS, as NPR gets less than 1 per cent of its budget from CPB) that exist in markets where fundraising is limited can ask for government funding in the form of a top-up from the CPB. This includes stations in rural areas, Indigenous communities etc. Congress allocates public funding once a year and CPB distributes it. CPB ensures that public funding is done at arm’s length from government.

Similarly, CBC’s credibility might be improved if its budgets came from an openly neutral source, one that is at arm’s length from the federal government.

Funding from government sources needs to be seen to be free from the influence of government

CBC journalists are of course aware that funding for their work comes directly from a parliamentary allocation, now more than $1-billion a year. Upper management, including the CBC’s president, go before a Heritage committee to press their case for continued annual funding for both CBC and Radio-Canada. English and French TV services alike are allowed to air ads, which bring in a few hundred million dollars. With the ad market softening, that amount has been declining.

Canadian media are suffering. The financial weakness of our broadcasters and newspapers is revealed daily. The spread of news deserts continues apace. Even the CBC is feeling the pinch. In frequent presentations to Parliament and reports to the public, the CBC says it tries to do “all things for all people,” with a range of offerings in two official languages and several Indigenous ones. This goal is clearly impossible when eyeballs and ears are attracted to social media’s more entertaining qualities.

Indeed the internet bears unique responsibility for this collapse of traditional media. Canada’s government is attempting to remedy this by redirecting funds from Meta, X and other deep-pocketed sources that it says are taking advantage of traditional news media. This hasn’t worked, as Meta won’t co-operate and most of the Google funding hasn’t yet been distributed. Increasingly in Canada, as in the US, suspicion is growing about the motives for government largesse. Sequential Heritage ministers haven’t made a strong case for how that funding will come without strings or government interference.

Meanwhile other sources of new income haven’t appreciably boosted circulation numbers or broadcast audiences. Public trust in media continues to decline due to the heightened suspicion of all major institutions, especially government. And digital continues to be the accelerant on a widespread media fire.

One solution Government could play a better role by acting in an arm’s length manner. We need a Canadian version of CPB, for all media. Funding from government sources needs to be seen to be free from the influence of government. A “blue ribbon” panel of citizens could determine how much money should be allocated to various media, including the CBC. This would help restore public trust in journalism by acting as a neutral and accountable supporter of independent media. In turn, news media must foster an environment of contextual, local and investigative journalism by and for Canadians—because the future of our democracy depends on it.

peter menzies responds to jeffrey dvorkin

There is no reason why citizens should have their tax dollars used to prop up media promoting policies—left or right—to which they are opposed. Canadians who lean to the left shouldn’t have to pay taxes to support the National Post, which leans to the right, any more than conservative-minded Canadians should have to feed the bottom line of the Toronto Star, dedicated to the advancement of left-leaning causes.

This doesn’t mean that public policy support should not be provided for the consumption of news and a shared set of facts. As I will show, the current problem is that assistance is being provided at the wrong end of the food chain and is suppressing the innovation needed during a time of historic transition. In the meantime, I will challenge a couple of points.

Yes, the government has always “funded media,” but postal subsidies were never about subsidizing journalism; they were about subsidizing access to journalism by consumers. Newspapers would have been unharmed without these subsidies, while readers in rural and remote areas would have been burdened, having to pay more for local news. The case can similarly be made regarding magazines, although, as they have transitioned to online entities, this rationale has become more questionable.

It’s true that hundreds of publications have shut down in Canada. What needs to be added to the conversation is that somewhere in the neighbourhood of 250 new platforms—most of which are better equipped for the realities of the 21st century—have launched in Canada since 2008. It’s also important to note that Canadians now have access to news from thousands of global outlets. There is no shortage of news—except at the local level, where coverage of municipal councils and courts, for example, is often rudimentary. The more subsidy is given to prop up proprietors who aren’t meeting the public’s demand for this information, the less room there will be for innovators and entrepreneurs willing to do so. The government’s thumb, through subsidies, is permanently on the scale in favour of old structures struggling to innovate while suppressing startups with new energy and ideas.

The government’s thumb, through subsidies, is on the scale in favour of old, struggling media.

Journalism is not fundamental to democracy. It exists and even thrives in authoritarian regimes. Freedom of speech, civil rights, free and fair elections and an independent judiciary are the fundamentals of democracy. Provided journalism supports those fundamentals and delivers news in an objective fashion, it is useful to democracy. When it doesn’t do so, it can harm democracy. The Tehran Times and Pyongyang Times are both examples. Pravda, of course, is legendary. All employ journalists.

Among the civil rights most vital to democracy is a free press. Our democracy guarantees that people who distribute the news are free to do so in whatever fashion they please, moderated only by their ability to meet public—and not government—expectations. Studies invariably show that consumers want news that is thorough, objective and accompanied by a balance of opinion and analysis from a variety of perspectives. Some bias one way or the other in the opinion offerings is tolerated and even rewarded, provided the news can be trusted. The greater the pressure to be trusted and serve readers/consumers in the manner they wish to be served, the better those services will be. Subsidies lessen that pressure, because they decrease news organizations’ need to build trust with the public.

The more the media is funded by the government and politicians, the less people will trust it to hold government to account.

As for the CBC, it’s one thing for a public broadcaster to exist within a news ecosystem rich with independent organizations—a mix that imposes discipline on all involved. It is quite another to declare there can be no ill effects when the entire news industry exists only thanks to subsidy. All this situation does is diminish trust, which reduces public consumption of the news, which increases demands for subsidies. It’s also worth noting that the CBC was born of a desire on the part of the government of the day to control content on the airwaves.

We agree that societies function better when citizens have a shared set of facts they can use to organize their lives and that a stable news industry supportive of democratic principles serves the public good in providing that information. What needs public policy support, however, is the consumption, not the production, of that information. Allowing each citizen to deduct the cost of subscriptions up to $1,000 annually (up from the current $500) would provide such an incentive without the damage to trust and innovation that is being inflicted by current practices. Let the most trusted news providers win and the least trusted and incapable of adaptation lose.

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Tracy Smith-Carrier says no

Associate professor of humanitarian studies and business at Royal Roads University

Charitable tax deductions largely benefit wealthy people and businesses. These days fewer Canadians are making small charitable donations, with older and wealthier donors offsetting this. The top individual donors in Canada have incomes over $150,000. They need the financial boost offered by tax breaks not nearly as much as people who don’t have money to give in the first place. This is especially true of ultra-rich corporations, whose charitable giving may ultimately be intended to reduce their tax liabilities or for marketing that portrays an image of social responsibility. A US survey found employees would rather that corporate philanthropic funds be used to improve wages and working conditions instead.

Giving tax breaks to wealthy people and corporations reduces money that should rightfully go to public coffers. Canadians could benefit from the monies forgone on tax deductions—these could instead support effective policy, such as a basic income or investments in affordable housing.

The science behind what motivates people to give to charity raises further questions. Empirical literature shows that monetary rewards can, in fact, have perverse effects on people’s motivation to donate. A tax break can signal that the action needs to be incentivized. Consequently, “pro-social” behaviours decrease in the presence of financial rewards. The incentives reduce intrinsic motivation—the notion that people do things “that aren’t means to some further end but an end in itself.”

Richard Titmuss, who left an indelible mark on modern social welfare, observed this relationship in 1970. Claudia Niza and colleagues’ 2013 systematic review of the research confirmed Titmuss’s hypothesis, showing that paying blood donors doesn’t increase blood supply. Research on volunteerism shows the same trend: financial compensation significantly reduces volunteer hours. The conclusion: positive rewards have negative effects on intrinsic motivation. In simpler terms, tax breaks provide incentives for people not to give. Motivation to give comes more from the heart, not the pocketbook.

Furthermore, incentivizing charitable donations privileges the charity sector and makes it appear that charity is, and should be, the solution to social problems such as poverty, hunger and homelessness. Certainly, charities contribute to the well-being of society. Yet governments have increasingly looked to this sector to address issues that should be remedied through policy, not charity. Relying on charity exonerates the state from its obligations to ensure citizens’ rights to food, housing and an adequate standard of living. Meanwhile the charitable model, given its inherent unpredictability, has been criticized for tackling symptoms, not root causes, of social problems.

Let’s do away with venerating charity by wealthy donors and corporations, and use the funds from tax deductions to support policies that remedy the problems that charities (while well-intentioned) cannot adequately address.

Justin Smith Says Yes

Associate professor and associate chair of economics at Wilfrid Laurier University

Canada’s tax system has supported charitable donations since the 1930s. Today, federal and provincial governments subsidize giving through generous tax credits. Depending on where you live and how much you give, the combined federal/provincial credit for an additional $1 donation can reach as high as 58.75 cents. In the most recent General Social Survey (2018), half of donors said they would claim credit for donations in the prior year. The forgone federal tax revenue (or “tax expenditure”) arising from such donations amounts to $3.4-billion; this doesn’t count provincial or municipal tax expenditures or those related to corporations.

Given Canada’s generous support for donations through the tax system, it’s natural to ask whether this is a good idea. There is a strong economic case for government intervention in the market: without tax credits, fewer donations would be made. Economists consider charity a “public good”—it can be enjoyed by everyone whether or not they contribute to it. For example, a donation to a hospital that saves someone’s life can be enjoyed by the donor, the person saved, their family and so on. A well-known result in economic theory is that when public goods are financed entirely through voluntary contributions, people “free-ride” on the contributions of others and too little of the good is provided. In the case of charity, if I know that someone else is donating to the food bank, I may feel that those in need are supported and decline to contribute myself. To reach a more optimal level of charity, government can intervene. Canada does this by funding charities directly and by offering tax incentives to individuals and corporations. While it would be simpler if government provided all the funding directly, instead of operating indirectly through the tax system, economic theory and research shows that government contributions are subject to “crowding out,” where private donors pull back their donations when governments contribute.

Recent evidence from Canada by Hickey, Minaker, Payne, Roberts and Smith (2023) that uses tax records going back roughly 15 years shows that, on average, donation tax credits are “treasury efficient”: people respond to them by giving more to charity than the amount of the credit. This happens both because the credits incentivize non-givers to start giving and givers to give more. Looking deeper, tax filers at the bottom of the income distribution respond the most—about three to four times more than people at the very top of the distribution. A larger body of evidence from around the globe—where the exact tax incentives vary—supports the idea that individuals respond to higher subsidies on giving by donating more.

Charities provide essential goods and services that are not always offered in the market. What the economic theory and evidence shows is that governments have good reason to intervene, and that tax incentives are an effective way to increase donations.

Tracy Smith-Carrier responds to Justin Smith

Justin Smith poses an important question: “Is it a good idea to support donations through the tax system?” Canada indeed has a long history of incentivizing charitable giving, yet is this necessarily the right course of action Such giving in Canada has been declining for 20 years, and, according to the Ontario Non-Profit Network, has reached an historic low due to the affordability crisis. “Giving Tuesday” (November 28) last year was awash with emails and ads imploring people to donate.

In Budget 2023 the Government of Canada claimed that “through the significant use of deductions, credits and other tax preferences, some of the wealthiest Canadians pay little to no personal income tax.” It therefore proposed changes to the alternative minimum tax (AMT) to provide fewer tax breaks to the wealthy. Some people in the non-profit sector argued that the changes would reduce the incentive for wealthy people to give, adversely impacting charitable operations and activities. The charity Imagine Canada argued that the changes could “disincentivize the only category of donors whose contributions reliably fill the gaps left by those who are no longer able to give.” And so, when the government initiated its 2023 budget bill (C-59), the AMT wasn’t in it. The notion that incentives are needed to get people to dig deeper into their pockets to give suggests more is at play than mere altruism. People begin to donate to charity as much to lower their tax bill (while seeming benevolent) as to contribute to an important cause.

Smith points to the “generous” tax incentives provided to individuals and corporations for charitable giving, as well as to research showing that tax filers at the bottom of the income distribution respond the most, at “about three to four times more than people at the very top.” While tax credits may be “treasury efficient,” as Smith argues, they aren’t “pocketbook efficient” if they’re being collected from the very people who could benefit most from keeping the money they otherwise donate. It’s also regrettable that their funds (tiny relative to the donations of corporations and wealthy individuals) are being used to prop up the charitable system, which, while well-intentioned, stigmatizes the people who access its services.

Democratic leaders should craft policies on everyone’s behalf. These decisions shouldn’t be left to charities.

The charity system is marked by power and privilege. Status, prestige and money are conferred to the giver, while the receiver is subjected to humiliation, denigration and shame. Frequently people who receive charity must acquiesce to the (often paternalistic) expectations imposed on them to demonstrate preferred behaviours or actions—such as taking parenting classes—to receive services. Such an approach is counter to social justice principles to ensure adequate and dignified means of support.

Democratic governments are expected to craft policies to address societal problems on everyone’s behalf. These decisions shouldn’t be left to charities, which don’t hold the legitimacy of decision-making afforded at the ballot-box, or the human rights duties entrusted to the state. Charity (or the delivery of “privately provided public goods,” as Smith calls it), acts as a “moral safety valve,” in the words of professor Janet Poppendieck, letting state actors off the hook for ignoring problems that should be remedied through policy and law. Our system is deeply flawed, and as we haven’t addressed the root causes of social problems through our policy choices, charity has tried to fill the gaps. Yet the charitable system is characterized by unpredictability (uncertain financial contributions), variability (different volumes at different times), unreliability (no guarantees that activities or projects will be realized or completed), inefficiency (“trendy” causes create duplicate services, while other causes receive scant attention), and ineffectiveness (Valerie Tarasuk’s research shows, for example, that people experiencing profound food insecurity often avoid food banks). It would be simpler, more dignified and effective to provide assistance directly to individuals in need.

Economist David Macdonald’s research shows how, out of the 64 tax expenditures—a.k.a. loopholes—on Canada’s books in 2016, only five can be considered progressive (assisting low-income earners). The charitable donation tax credit is but one. If we eliminate these loopholes altogether, Macdonald estimates we could double the money collected through personal income taxes. We’d curb corporate greed further if we increased corporate taxes (whittled down from 43 per cent in 1997 to the present 15 per cent) and introduced measures to recover revenues lost to tax havens. With a robust national treasury, we could have real conversations about a basic income, affordable housing, reducing post-secondary tuition and bolstering our overwhelmed healthcare system.

I don’t disagree that “generous tax deductions” can incentivize people to give to charity. I do take issue with the assumption that this works in our collective best interest.

Justin smith responds to tracy smith-carrier

One of Tracy Smith-Carrier’s core arguments is that subsidizing charitable donors through the tax system disproportionately benefits the rich, which is inequitable. It’s true that the credit mostly accrues to people at the high end of the income distribution, and I’m sympathetic to the idea that we shouldn’t direct too many public dollars to initiatives where the benefits flow primarily to the rich. In the case of charitable contributions, however, I think it is justified for a few reasons. First, the tax credit per dollar donated for individual donations in Canada is set up to be (mostly) neutral with respect to income, so at least at the level of individual donations the benefits do not actually favour the rich, with a few exceptions. This is unlike in other countries, such as the US, where donations are deducted from income, and as a result people with higher marginal tax rates get a larger deduction on a dollar donated in addition to getting a larger share of the tax benefit.

Given Canada’s tax system, most of the benefits flow to the wealthy only because they donate more. Tax data from 2001 to 2015 show that the inflation-adjusted average donation for people in the bottom 20 per cent of the income distribution was $0, whereas in the top 20 per cent it was $2,900, and in the top 1 per cent it was almost $19,000. From a purely logistical point of view, if we want to incentivize charitable donations at all, it is difficult to do so without those benefits accruing to the rich, simply because they are the ones who donate the most to charity.

Despite the credits mostly flowing to the rich, as I noted in my original argument in favour of tax credits for donations, the data suggest that the tax credit is treasury-efficient across the income distribution, which means people pass on their tax credit to charities. So while the rich are getting big tax breaks on average, it is not that they keep it all for themselves.

While the wealthy indeed receive more in tax benefits, it is important to remember who consumes most of the goods provided by the charitable sector. When it comes to charities that operate in areas such as food, shelter and healthcare, much of what they produce is consumed primarily by Canadians at the bottom of the income distribution.

While the wealthy receive tax benefits, people on low incomes consume most of the goods charities provide.

All of this is to say that looking at the tax credit in isolation makes it appear as though the rich receive significant benefits. Looking more deeply, however, those benefits are largely passed on to charities and appear to achieve the goal of increasing the amount of charity without undoing some of the progressivity of the tax system.

Another key point in professor Smith-Carrier’s initial argument was that we shouldn’t rely on charities to provide goods and services that the government could or should provide. As I argued initially, economists think there is a free-rider problem inherent in the charitable sector, and the government can get involved to help provide more of this public good. In the case of charities, I don’t believe it is the best approach for them to directly provide those goods, for a couple of reasons. As I noted in my original argument, direct government provision of charitable goods might lead to crowding out. If we were to try to increase the number of food banks in Alberta, for example, we might see that existing food banks would get fewer donations.

Furthermore, the charitable sector is large and complex, and it would be difficult for the government to decide what to provide and where. By giving funds to individuals, we can let the market allocate those dollars to the charities that need the most support and that donors favour the most.

Another consideration is the fact that relying on direct government provision can make charitable goods subject to the political cycle, which can lead to inconsistent provision depending on which political party is in power at the time.

Lastly, Smith-Carrier notes that the literature on giving suggests that financial rewards reduce the incentive to give. I would dispute that claim on the basis of an extensive literature in economics—which includes the analysis of surveys, administrative data, field experiments and randomized control trials—that examines the effect of reducing the “price” of a donation by offering a deduction, a credit or a matching donation, and it overwhelmingly suggests that a lower price increases donations, and that the larger the financial incentive, the larger the increase in donations.

Incentivizing people to give is complicated, and Smith-Carrier points out some important issues with doing this through the tax system. My view is that Canada’s system works well and that the tax credits are an important part of increasing donations.

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The post Should Charitable Donations Be Tax Deductible? appeared first on Alberta Views.

David Moscrop says yes

The contributing columnist for the Washington Post and author of Too Dumb For Democracy?

Intergenerational wealth transfer is central to perpetuating wealth inequality. Passing assets along—not the cash your grandmother left you or family heirlooms from parents, but high-value property and financial holdings—maintains family wealth and, through it, power. As Baby Boomers die, many countries are preparing for a massive intergenerational wealth transfer. In the US, in the next few decades, analysts are expecting $68-trillion to be passed along. In Canada, over the next decade, that number could hit CAD $1-trillion.

Canada has neither an inheritance tax nor an estate tax. Rather than levy a tax on the beneficiary, the Income Tax Act applies a “deemed disposition” at the time of death as if the assets had been sold at fair market value. There are limits, including spousal transfer and a principal residence exemption. The estate transferring the assets is taxed on the deemed disposition on any de facto capital gains when filing income tax.

In 2018 the Canadian Centre for Policy Alternatives made the case for tax reforms aimed at reducing wealth inequality. In “Born to Win: Wealth Concentration in Canada Since 1999,” David Macdonald points out that Canadian estate tax policy “contrasts with the US, which maintains a 40 per cent tax on estates above $11.2-million, or Japan, which maintains a 55 per cent maximum rate.” Accordingly, he suggests a 45 per cent inheritance tax be adopted and applied to large estates—those with over $5-million in assets. This would be applied to the beneficiaries of an estate, tackling what is received both as an asset and a transfer of power, because wealth is more than an asset. It’s also a tool. As Macdonald notes, this policy would be consistent with the estate inheritance policies of other G7 countries and would raise some $2-billion in revenue annually.

Capitalism tends not only towards monopoly but to the general pooling of wealth and power into the hands of the few. Rather than a success, this is a market failure of the sort that worried not just Karl Marx but Adam Smith, who was concerned about inequality as a threat to the market. The same logic can be applied to the health of our democratic institutions, which rely on (but rarely realize) the principles of both formal equality and broadly equal opportunity to influence social, political and economic outcomes in the public interest.

Massive wealth transfers through inheritance drive inequality, undermining the market and our democratic institutions, concentrating not just assets but power into the hands of the few. Not only is there a fundamental moral reason to tax and redistribute to help those in need, there is also a functional one: we need to protect our institutions. Taxing inheritance on the beneficiary side offsets the concentration of power and could even be designed to eliminate it if we so wished. At the very least we need a rebalancing—and we need it now.

Franco Terrazzano says no

Federal director of the Canadian Taxpayers Federation,

There are two key challenges for Canada as we move beyond the pandemic: growing the economy and addressing government debt. A death tax won’t achieve either.

A death tax won’t come close to balancing the budget, never mind paying down a $1-trillion federal debt. A death tax on estates valued over $5-million would generate $2-billion per year for the feds, according to the Canadian Centre for Policy Alternatives (CCPA). For context, the federal government adds $424-million to its debt every day. So even if Justin Trudeau received all the death tax money Monday morning, he would blow through it by the end of happy hour on Friday.

In 2018 Canada’s inflation-adjusted per-person spending reached an all-time high. Even before COVID-19, the federal government was spending more than it did during any year of the Second World War.

Politicians would try to sell a death tax as a tax on high earners, similar to the CCPA proposal. But history shows that once politicians are done soaking the rich they quickly set their sights on the wallets of average citizens. Ottawa, for example, imposed its first income tax in 1917 to help pay war expenses. Very few Canadians had to pay the tax, because of its high exemptions. More than a century after the war ended, most Canadians with paycheques now make more than the income-tax-free threshold because of the lower personal exemption.

Similarly, when France introduced its wealth tax in 1988, it was indexed to inflation. But in 1997 the threshold stopped moving with inflation, and as property values rose, more families were hit by the tax.

During Canada’s 2019 federal election, the NDP proposed a tax on wealth over $20-million. In 2021 they promised a lower threshold of $10-million. How long before a Canadian party follows New Zealand’s Green Party and demands a wealth tax starting at $1-million, including the value of primary homes?

A death tax won’t fix the nation’s finances. It would, however, discourage the savings and investment sorely needed for job creation. The Tax Foundation’s 2021 International Tax Competitiveness Index ranked Canada 20th out of 37 OECD countries. After falling two spots this year, Canada is in the bottom half of the pack of developed countries on tax competitiveness. The index noted that a rare bright spot is that “Canada does not levy wealth, estate or inheritance taxes.”

Even Prime Minister Trudeau has dismissed the idea of more taxes on the wealthy. “People know we need to have economic growth in order to create jobs, opportunities,” he said during the 2021 election. “The idea that you can go with unlimited zeal against the successful and wealthy in this country to pay for everything else is an idea that reaches its limit at [some] point.”

Any politician looking to grow investment and recover the economy should prioritize tax relief instead of looking for new schemes to punish hard-working Canadians.

David Moscrop responds to Franco Terrazzano

An inheritance tax—often called a “death tax” by those who oppose the measure, and who wish it to sound like one’s end itself is being taxed—offers at least two sorts of public goods. First, it raises revenue. Second, it redistributes wealth and thus balances power. Either good on its own is sufficient reason to adopt an inheritance tax, but combined they make the policy particularly appealing—as long as you don’t expect it to do everything on its own.

Franco Terrazzano argues that while an inheritance tax would raise revenue, it would not raise sufficient revenue to pay down the national debt or even balance the federal budget. But, I’d add, nor should it. Few tax measures on their own can address such aims or, for that matter, are designed to. An inheritance tax would add to the federal treasury and would in fact contribute to debt reduction and a balanced budget if we should decide that such things are necessary in the short, medium or long term. Indeed, if combined with cuts to federal spending—which I’m not advocating—the measure would be all the more effective at such aims, though it would come at some expense: the opportunity costs that accompany spending cuts. There are, however, better ways to spend such funds.

Inheritance taxes are designed to redistribute wealth from people who have been fortunate enough to take advantage of public infrastructure— and who no doubt have benefited from a dollop of their own fortune and hard work—back to the public that provided that infrastructure, once those people are, well, done with their wealth. Our government can then use that money to support citizens who need it or to build out more and better infrastructure. This redistribution is fundamental to contemporary conceptions of fairness that rest on the idea that the people who are served most by our society owe the most back to it. Moreover, since workers generate wealth that flows to owners, this redistribution is essential to pay to them what the system extracts from them. No single tax can do that on its own, but an inheritance tax can play its part when properly constructed and applied.

As Terrazzano notes, the federal New Democratic Party proposed a $10-million threshold for applying a wealth tax. Indeed, he worried that it could be reduced to $1-million. Well, reduce it further still and you’ll have the £325,000 ($535,000) threshold used in the United Kingdom to tax estates at death. In 2019 the UK’s inheritance tax raised over £5-billion ($8.5-billion), which the Office for Budget Responsibility notes is “0.6 per cent of all receipts and was equivalent to 0.2 per cent of national income.” Not a paltry sum. And the UK threshold is plenty reasonable, ensuring that smaller estates are left untouched in a country where the average income is roughly £31,000 ($53,000) per year.

And while an inheritance tax would redistribute wealth and, through it, power, this doesn’t have to come at the expense of economic competitiveness or economic investment. For instance, Terrazzano notes that Canada ranked 20th of 37 OECD countries in the Tax Foundation’s 2021 International Tax Competitiveness rankings. A handful of countries ahead of Canada on that list have inheritance taxes, including Ireland (19th), Turkey (17th), Germany (16th), Finland (15th), the Netherlands (12th) and Switzerland (4th). Those countries apply a tax ranging from a low of 7 per cent in Switzerland to a high of 33 per cent in Ireland. Of note, the annual growth rate of GDP per capita was 7.2 per cent in Ireland in 2018 and over 4 per cent in 2019, pre-pandemic. Those figures are not representative of all states with inheritance taxes, but they certainly suggest that having such a tax is no barrier to robust growth.

The goal should be to rebalance wealth and power from year to year, and also from one generation to the next.

An inheritance tax ought to be established with the goal of rebalancing wealth and power from year to year, and also from one generation to the next. We must ensure that wealth flows through a society and doesn’t become stagnant and used to create economic blocs that prevent not just economic growth and innovation but also social mobility. Regrettably, Canada already has a problem with both. And each is keeping people down. In Canada, social mobility is in decline. As Statistics Canada reports, “Canada and all its provinces have been ‘going up the Great Gatsby Curve’ ”—that is, it’s getting harder for people to be upwardly mobile across generations.

Fixing our social, economic and political problems requires us to rebalance wealth and power, and that requires that we break up dynasties and the economic monopolies they tend to create while freeing up resources for everyone and growing the economy. And while an inheritance tax would be no panacea, it could play an important part in creating a fairer, more inclusive society for everyone.

Franco Terrazzano responds to David Moscrop.

A death tax that takes $2-billion a year from Canadian families is the wrong way to address inequality and will make it harder to grow our way out of the pandemic downturn. Death taxes are effectively a form of double taxation and create strong perverse incentives against the savings needed for long-term investment and a post-pandemic recovery. That’s because death taxes impose a penalty on future consumption by taxing it at a much higher rate than current consumption, meaning thrifty people who save and invest end up paying far more tax than people who fritter their money away.

Death taxes create incentives for aggressive estate planning, ensuring that wealth is allocated in less-efficient but more-protected ways. This also reduces economic growth while simultaneously minimizing the government’s eventual take. The proportion of total government revenues raised by such taxes has been falling in OECD countries since the 1960s.

What empirical evidence suggests that a Canadian death tax would minimize inequality Post-death-tax Sweden remains a relatively egalitarian country, while the US and the UK, which both have death taxes, remain more unequal than death-tax-free Australia, Norway and Canada.

A 2018 study from the Canadian Centre for Policy Alternatives shows that nearly half of Canada’s 87 richest families weren’t heirs to a fortune, and that by the third generation, only 18 per cent of the ultra-rich owed their status to having wealthy forebears. That means the advantage of inherited wealth tends to dissipate over time, and income inequality doesn’t automatically perpetuate itself across generations.

Record spending didn’t solve inequality. But increasing Ottawa’s budget by less than half a per cent will…?

Giving politicians another $2-billion to spend won’t end inequality. The federal government was already spending at all-time highs before the pandemic. If record levels of government spending couldn’t solve inequality, what makes anyone think that increasing Ottawa’s budget by less than half a per cent will?

Even if the government directly transferred the $2-billion it took through a death tax to all impoverished Canadians, the result would be less than $8 every week for each Canadian living in poverty.

And that overstates the benefits. First, the new bureaucrats needed to administer the redistribution would eat away at the revenue. The number of federal bureaucrats grew by 43 per cent from 2006 to 2012.

Second, a new welfare program would encourage more Canadians to collect the new money, further reducing the per-person subsidy. This happened during the pandemic. Ontario’s auditor general report shows that 14,500 ineligible businesses collected the pandemic subsidies, while many businesses received more tax dollars than they lost in revenue. In March 2021 the office of the federal Auditor General said it counted 30,000 suspected cases of fraudulent Canada Emergency Response Benefit (CERB) claims.

Third, it’s a good bet that by reducing savings, the death tax would reduce charitable contributions that total five times more than estimated death tax revenues. In the US, 9 per cent of all charitable donations are bequests ($42-billion annually). If you knew the government was going to take more of your income after you die, would you allocate as much to charity?

It’s important to distinguish how incomes are created before advocating government action. If consumers are willing to exchange their money for goods and services that an entrepreneur provides, why should that entrepreneur be punished with a death tax on top of the great many taxes they’ve already paid, such as income taxes, corporate taxes and capital gains and property taxes The top 1 per cent already pay 22 per cent of all income taxes.

Accumulating wealth through government coercion is a different story. Ford Motor Company, for example, a Fortune 500 corporation whose CEO’s salary in 2019 was over 300 times the average Canadian household’s, recently received $590-million from the governments of Canada and Ontario. Just before the last federal election, the feds announced $440-million for aerospace companies and $420-million for Algoma Steel. Businesses receive $29-billion annually worth of special taxpayer treatment from the feds and four largest provinces, according to a 2018 University of Calgary report. That’s over 10 times more than the revenue that would be generated by a death tax.

Ending corporate welfare would be a much better way to reallocate spending to higher priorities. Meanwhile, Canada can grow its economy and combat negative forms of income inequality not by instituting a death tax but by removing government barriers to competition and opening opportunity for everyone in our economy.

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The post Should Canada Have An Inheritance Tax? appeared first on Alberta Views.

It didn’t escape attention that Kenney seemed to be predetermining the panel’s findings—that nowhere among the panel’s recommendations would citizens find “raise revenues.” As Maclean’s reporter Jason Markusoff wrote: “Kenney[’s] government may as well have announced a task force on nutrition, populated it with children and ice cream manufacturers, and limited their mandate to determining what we should eat for dinner.”

True to expectations, the MacKinnon report, released in August 2019, did not recommend any ways for Alberta to increase revenues. Instead it focused on “restructuring in order to achieve significant savings,” “efficiencies” and “reductions in spending,” and this advice has since informed provincial budgets in 2019 and 2020.

In both budgets, the UCP government made huge cuts. And in both cases it failed to balance the budget. In fact, deficits have only grown. In the wake of the latest dismal budget update, Alberta Views decided to strike its own “blue ribbon” panel, asking a selection of local experts for their ideas about how this province might raise revenues. (Think of this as the MacKinnon panel flipped on its head.)

“Our leaders have received lots of ideas about cutting and reducing,” I wrote to these experts. “What about the other side of the ledger?” Here are their ideas.

Raise income and corporate taxes, says Junaid Jahangir

I teach undergraduate economics students, but I was briefly involved in data analysis with former MLA Kevin Taft when he published Follow the Money: Where is Alberta’s Wealth Going? The book showed that whereas personal incomes in Alberta increased by 35 per cent from 1989 to 2009, corporate profits increased by 317 per cent. If Alberta didn’t have enough money to pay for public services, we concluded that it didn’t have a spending problem but rather a revenue problem.

Instead of focusing on revenues, the current UCP government, facing a fiscal crisis, has resuscitated the slice and dice approach of the Klein era, cutting taxes along with essential services such as education and healthcare. I’m particularly concerned about how cuts are affecting my students, many of whom earn a pittance as frontline essential workers.

The UCP government says it’s incentivizing job creation by cutting corporate taxes from 12 per cent to 8 per cent. Is this working For the first 11 months of UCP government, 35,700 full-time jobs were lost in Alberta and only 14,600 part time jobs were created. From the start of the pandemic until September, Alberta had the worst job recovery in Canada.

Many top economists reject the Klein/Kenney approach. Nobel laureate Paul Krugman has written on the austerity delusion and its destructive legacy. Fellow Nobel laureate Joseph Stiglitz has written that we need to restore balance by increasing public sector funding. 2019 Nobel laureate Abhijit Banerjee writes that we need to tax the wealthy, who are sitting on cash. Peter Diamond, Nobel laureate at MIT, Emmanuel Saez at Berkeley, Christina Romer, and the French economist Thomas Piketty have all argued for an optimal top marginal tax rate of 73 to 80 per cent or above.

Currently, the top marginal tax rate in Alberta (federal and provincial combined) is 48 per cent, the second-lowest among the provinces. And this rate only kicks in at $314,928—the Ontario threshold is $220,000. Canadian economist Lars Osberg has argued that the top marginal rate in Canada should be raised to 65 per cent on income over $205,000. This is still lower than the 70 per cent rate from 1940 to 1980, and would bring revenues from $15.8-billion to $26.1-billion.

The reasoning is simple. The marginal utility of an additional dollar is much lower for a wealthy person than it is for someone with meagre means. This means taxing the uber-wealthy doesn’t “hurt” them nearly as much as it benefits people near the poverty line.

Also, corporations don’t create jobs because of tax cuts but because of favourable economic conditions. This lesson should have been learned long ago. Despite fiscal stimulus during the financial crisis of 2007–2009, companies sat on huge piles of cash or funnelled financial incentives to overpaid CEOs and shareholders rather than invest in long-term projects. The stock market is performing quite well in the current pandemic even as millions of people have lost their jobs. Consider Husky, which got about $233-million in provincial tax cuts but laid off hundreds of workers. Or Cenovus, which saved $658-million from the Kenney tax cut, then announced in January 2021 it would be eliminating up to 2,150 jobs.

The risk of corporations leaving Alberta because of higher taxes is overblown. Osberg has argued that entrepreneurs shift to places with excellent public services including “pothole-free roads, nice parks and crime-free public spaces,” along with “orchestras, live theatre and opera.” Instead of tax cuts, this requires tax upkeep to sustain public services. Osberg highlighted that the highest top marginal tax rate jurisdictions of New York and California have a heavy corporate presence—Wall Street and Silicon Valley, respectively.

Some will argue that companies would hide their wealth in tax havens or through shell companies. But overdue reforms could treat multinationals as single entities for tax purposes, require them to publish tax accounts on a country-by-country basis, end Canada’s agreements with tax havens and give financial incentives to whistleblowers who expose tax fraud.

Let’s increase Alberta’s corporate tax rate back to 12 per cent and raise the top marginal tax rate to at least 65 per cent at a threshold of $220,000. Let’s also introduce more tiers beyond $220,000, and raise the top marginal rate to 90 per cent. Nobody deserves to hoard an obscene amount of wealth.

Junaid Jahangir is an assistant professor of economics at MacEwan University.

Bring in a sales tax, says Bob Ascah

The main arguments against a sales tax are basically political: No political party believes they would be re-elected if they introduce a sales tax, or elected if they propose one. Albertans oppose a sales tax. This, however, may be changing, as recent CBC polling shows a significant minority of Albertans now support the tax.

Nonetheless, a sales tax is regressive and represents an additional layer of regressive taxation on such items as tobacco, fuel, alcohol and vehicle registration fees. Imposing a sales tax to justify lower income taxes, as some economists propose, would only increase regressivity and income inequality. Provincial legislation requires a referendum on this issue.

Few Albertans know that in March 1936, Social Credit introduced the Ultimate Purchasers Tax Act, which imposed a 2 per cent retail sales tax on a range of goods. At that time, the Alberta government’s, municipalities’ and school boards’ finances were in terrible shape. The province was on the brink of default. The sales tax idea was supported by a government committee and by orthodox financial advisors. The law quickly passed and went into effect on May 1, 1936.

Almost immediately there was business and political opposition to the tax. The following year, the government decided it would rescind the tax, as it had many political and constitutional fights going on with the dominion government and the banks. However, the tax raised about 10–15 per cent of total government revenue over the 16 months it was collected.

There are a number of good reasons for Alberta again to implement a provincial sales tax, to be harmonized with the federal GST. These include:

■ The cost of raising a dollar of revenue from a sales tax is much lower than with other taxes.

■ A sales tax is a far more stable source of revenue than corporate and personal income taxes and non-renewable resource revenue. A 5 per cent rate would reliably raise about $5-billion each year.

■ Even with a 5 per cent sales tax, Alberta would still remain the lowest-taxed jurisdiction in Canada.

■ A sales tax would obtain revenue from visitors to the province, who use our public services and infrastructure.

■ The regressive nature of a sales tax can be mitigated by a refundable tax credit directed at low-income individuals and families. In addition, as with the GST, many necessities could be exempt from the tax.

■ A sales tax is efficient to collect and difficult to avoid.

While the Alberta government today isn’t approaching a default, its financial prospects remain dependent on volatile resource revenue. This dependency has, over the past half century, allowed Alberta to keep taxes low. Absent a sustained return to higher oil prices, we may have little choice but to bite the bullet and implement a sales tax as a remedy for our unstable revenue base.

Bob Ascah is editor of the forthcoming A Sales Tax for Alberta: Why and How (AUP). His blog is abpolecon.ca.

Institute a property transfer tax, says Greg Flanagan

A property (or land) transfer tax is not the property tax that is levied annually on the owner of a property by a municipal government based on the current assessed value. A property transfer tax (PTT) is imposed on the new owner of a residential property, assessed on its market value at the time of sale or transfer, and administered along with the registration of the title at a provincial land titles office.

A PTT is a type of wealth tax, although limited to one type of wealth—real estate. This wealth tax is warranted in that the Canadian tax system promotes home ownership as a form of wealth. Specifically, Canadians don’t pay tax on the imputed value of the shelter services a home provides; and upon sale, any capital gains realized on a principal residence are tax free. A PTT is usually structured to be progressive—that is, the marginal tax rate increases with the price of the residence.

The British Columbia Property Transfer Tax (then called the Property Purchase Tax) was first introduced in 1987 as a wealth tax to discourage speculation. The tax was set at 1 per cent of the first $200,000 and 2 per cent of the remainder of the selling price. At the time, approximately 95 per cent of home sales were below $200,000 and didn’t qualify for the PTT, so the tax had little effect, raising only a small amount of revenue. But as home prices have risen (and as changes have been made to the PTT), the tax now brings in considerable revenue.

The PTT in BC, to qualify as a wealth tax and to be truly fair, is imposed only on high-value properties for first-time buyers and on individuals who have owned property previously. Recently, similar ancillary property taxes have been levied in some regions of BC, including the foreign buyer tax, the vacancy tax and the speculation tax. These aren’t considered here for Alberta, but they have similar structures and purposes as the PPT—that is, they attempt to reduce inequality between people who own homes and those who can’t afford to.

First-time homebuyers in BC are exempt from paying the PTT if the price of the home is less than $500,000. There’s also a proportional exemption for homes priced between $500,000 and $525,000. A price exceeding $525,000 eliminates the first-time-buyer tax exemption. The first-time exemption only applies if you’ve never bought property anywhere, not just in BC.

To promote new home construction, BC exempts buyers of new homes from the PTT if the purchase price is less than $750,000 (with a proportional exemption for homes between $750,000 and $800,000). If the home costs more than $800,000, the buyer pays the PTT.

For people who formerly owned or currently own property, the tax rate of 1 per cent on the first $200,000 remains, while 2 per cent is now charged on the next range up to $2-million, 3 per cent on the next million, and 5 per cent on amounts greater than that.

The property transfer tax in BC contributed $1.8-billion to the public purse, approximately 3 per cent of BC government revenue in 2019. If we were to assume the same percentage of Alberta’s total revenue, then a PTT could possibly bring in $1.5-billion to Alberta. However, Alberta’s residential real estate costs less than BC’s and its population is smaller—85 per cent of BC’s. With a similar tax here, it wouldn’t be unreasonable to expect up to $1-billion in revenue.

A property transfer tax is politically supportable as fair and progressive. And it’s worth noting that the PTT has had little to no opposition in BC—unlike, for example, the implementation of the harmonized sales tax.

Greg Flanagan worked for 30 years in the Alberta post-secondary system, and retired from the University of Lethbridge. He is a distinguished research fellow with the Parkland Institute.

Take back control of the carbon tax, says Trevor Tombe

For most provinces, it’s fiscal fantasy to have high spending, low taxes and balanced budgets. But Alberta is not most provinces. Massive windfalls from non-renewable resource revenues and investment income meant that, historically, Albertans could live this fantasy. Over the past 50 years, non-renewable resource revenues alone contributed nearly 30 per cent of all government revenue in this province. Alberta hasn’t balanced the budget without resource revenues in generations.

But all good things must come to an end. Future resource revenues in Alberta are likely to disappoint. Luckily, there’s another (nearly) free fiscal lunch on offer, one that can increase government revenues and shrink Alberta’s deficit—without any new tax at all!

It’s simple: We take back control of the carbon tax.

Alberta’s first carbon tax was implemented under premier Ed Stelmach. The rate and scope of the tax were later expanded by premier Rachel Notley. With a new government in 2019, things changed again, but by less than you might think.

Contrary to popular opinion, Alberta’s current government is a strong supporter of some carbon taxes (in policy, if not rhetoric) so long as the public doesn’t see them at the pump or on heating bills. So, after their election in 2019, the UCP shrank the carbon tax coverage, removing it from gasoline, natural gas and other fuels while maintaining the carbon tax on large industrial emitters. But even the change at the retail level didn’t eliminate carbon taxation on fuels. It merely opened the door for Ottawa to step in and fill the gap. We still pay a carbon tax on fuel, only now it’s a federal tax—and slated to rise to $50 per tonne by 2022.

The trouble: Whereas previously Alberta received the revenues from a carbon tax, today the province gets none. Instead, the federal carbon tax is fully (and perfectly) revenue neutral. All proceeds are rebated directly to Alberta households and businesses—over 90 per cent to households in relatively flat amounts (in 2020, an average of $888 for a household of four).

It doesn’t have to be this way. Alberta can, if it chooses, take back control and use the revenues to shrink its deficit.

The amounts are large. By 2022 we’re talking about $2.4-billion per year. After the government takes, say, a sixth of this ($400-million) for boosted cash transfers to lower-income households to compensate for the tax’s regressive effect, we’d have $2-billion to shrink the deficit.

An increase in revenues, without a tax increase on Albertans…! We pay the tax already; we’d pay no more if this change were made.

Of course, this isn’t magic. There would certainly be a cost to Alberta households if the provincial government eliminated the current federal rebates. But two things work in Alberta’s favour here. First, the Kenney government regularly ignores the very existence of the generous federal household rebates, so many Albertans might not even notice the elimination of the rebates. (This is a political point, rather than an economic one.) Second, in both Budgets 2019 and 2020, spending reductions were the Kenney government’s priority. Provincial carbon rebates would be a type of spending. So, eliminating them would technically be a cut to provincial spending rather than a tax increase.

While $2-billion is not the entire fiscal gap we need to fill, it’s roughly one-quarter of the challenge. That’s meaningful improvement. Higher revenues and smaller deficits, all with no new taxes That’s an option worth considering.

Trevor Tombe is an associate professor of economics at the University of Calgary and a research fellow at the School of Public Policy.

Reduce TIER’s large-emitter subsidies, says Jennifer Winter

Solving Alberta’s budget challenges requires having another look at existing sources of revenue. The Technology Innovation and Emissions Reduction (TIER) regulation, Alberta’s greenhouse gas emissions pricing system for large emitters, is just such a potential source of additional revenue.

Briefly, the regulation covers onsite emissions of 34 GHGs from regulated facilities such as power plants and oil sands operations. Facilities are required to reduce their emissions below an emissions-intensity benchmark (emissions per unit of output, such as tonnes per barrel). Compliance can be via emissions reductions, use of emissions performance credits (purchased from facilities that exceed the emissions-reduction requirement), use of Alberta-based emissions offsets, or payment into the TIER fund. Facilities, however, are also granted a “free allocation” of emissions based on their output, which substantially lowers the cost of compliance. These free allocations are a subsidy to regulated facilities. The allocations also represent forgone revenue compared to full compliance.

TIER applies to facilities with emissions greater than 100,000 tonnes of CO₂e (carbon dioxide equivalent) per year, but facilities with lower annual emissions can opt in. Doing so exempts them from the federal fuel charge, or carbon price.

Based on 2018 emissions and data from Canada’s National Inventory Report and Greenhouse Gas Reporting Program, I estimate TIER covers 52 per cent of Alberta’s 272,555,000 tonnes of emissions. This increases by another 8–10 percentage points of coverage if all conventional oil and gas facilities opt in. At $40 per tonne (the price in 2021), expected revenue from full pricing of emissions covered by TIER would be $5.7-billion–$6.8 billion. (Recall that prior to COVID, Alberta’s estimated deficit for 2020–21 was $6.8-billion.)

Actual TIER compliance payments were estimated in Budget 2020 at $421-million for 2020–21, $463-million for 2021–22 and $485-million for 2022–23. (The 2020–21 first quarter fiscal update subsequently dropped expected TIER revenue to $298-million.) TIER is deliberately set up to reduce cost impacts to large emitters by protecting them from the competitiveness impacts of emissions pricing, but the consequence is forgoing quite a lot of revenue—literally billions of dollars.

Alberta’s TIER subsidies are set to taper over time, reducing the free allocations for emissions by 1 per cent annually starting in 2021. But a faster tightening rate would raise much-needed revenue—and as more countries enact climate policies, Alberta’s rationale for these subsidies disappears. Of course, the expected effect of increasing the cost of emissions is that facilities will start reducing emissions, which will have an offsetting effect on revenue. Nevertheless, reducing the subsidies to industry which result from TIER would be a significant source of revenue in the short and medium term.

Jennifer Winter is an associate professor of economics and Scientific Director of the Energy and Environmental Policy research division at the School of Public Policy, University of Calgary.

Put a tax on empty calories, says Kim Raine

Imagine a policy that would reduce healthcare costs in Alberta by more than $1-billion over 25 years and generate annual revenue to the province of $141-million. The 25-year health and economic impacts of this policy would provide a net benefit of over $4.6-billion to Alberta’s economy, an average of $185-million annually. Although it may sound too good to be true, this is the predicted outcome of a 20 per cent tax on sugar-sweetened beverages.

Sugar sweetened beverages (SSBs) contain added sugar, syrup or other caloric sweeteners, and include products such as soft drinks, sports and energy drinks, flavoured water, and sweetened fruit drinks and juices, as well as sweetened tea and coffee beverages. A growing body of research links SSB consumption to weight gain and obesity among children and adults alike. Independent of weight, SSB consumption is associated with a variety of nutritional health risks, including heart disease, hypertension and diabetes. SSBs are not the innocent treats we’ve been led to believe they are!

Sugar sweetened beverages are widely available and relatively inexpensive compared to healthier beverages such as milk, and this accessibility plays out in their consumption. The most recent (2015) estimates of dietary intake in Alberta show the average per capita daily intake of SSBs is 247 ml, which works out to 123 calories per day. The most frequent consumers are teenage boys, who take in over 600 ml (or 286 calories) per day, mostly in the form of soft drinks and sports drinks.

After a comprehensive tobacco control strategy was instituted, which included raising prices through taxes, tobacco use dramatically decreased in Canada. Taxes can similarly encourage healthy eating by decreasing demand for more expensive unhealthy foods and beverages. SSBs are an ideal target, as they’re clearly linked to health risks, they offer no nutritional value, and consumers of these products are sensitive to price increases. A 10 per cent price increase is expected to reduce SSB consumption by 10 per cent on average—and by even more among the most frequent consumers.

Over 20 jurisdictions around the world, from countries such as Mexico to cities like Berkeley, California, have implemented an SSB tax. Mexico’s six-year-old tax has driven down SSB purchases, while sales of (untaxed) bottled water have increased. Similar findings were observed in Berkeley after one year of the tax.

These findings can inform economic modelling studies to predict the health and economic outcomes of taxes elsewhere. In 2017 an Assessing Cost-Effectiveness model was used to simulate the impact of a tax on Alberta’s adult population. It estimated that a 20 per cent tax on SSBs would postpone 1,201 deaths in this province and prevent 61,324 cases of excessive weight gain, 21,661 new cases of type 2 diabetes, 5,700 cases of heart disease and 2,099 new cases of cancer over a 25-year period. This is where the $1.1-billion in health savings comes from.

These taxes are popular, too. In a 2019 survey of 1,200 Albertans, the majority of respondents (57 per cent) supported a tax on soft drinks and energy drinks. If revenue from taxes were reinvested in prevention, the public might be even more supportive. Even if only half of the revenue were reinvested, think of the possibilities of a $70-million annual infusion into subsidizing healthier foods or a universal school nutrition program.

It’s time to think of creative solutions to our health and economic crises, and leverage the beverage!

Kim Raine is a distinguished professor of public health and a researcher in the Centre for Healthy Communities at the University of Alberta.

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Many seem to accept without question the neoliberal myth that government is bad and taxes are an abomination. Right wing propagandists, of course, don’t really care about us whose brains they work so hard to wash. They and their funders profit from the myth that we’re entitled to something for nothing: “Hey, give me roads without potholes, cities without crime, free healthcare, a clean environment and peace in our time, and send the bill… well, somewhere else. Maybe charge it to the grandkids; they’ll understand.”

Free-market capitalists describe any tax policy that doesn’t simply siphon wealth into corporate bank accounts as “social engineering.” That’s automatically always bad, except when private businesses want subsidies—when oil companies, for example, want more rail cars.

We’ve steeped in the neoliberal thought-soup for so long now that it’s hard to have a conversation based on an alternative view. But it’s time.

Government is something we choose, based on what kind of province we want. Since we’re all busy and it’s hard to organize the big things we need, we elect people to act on our behalf. Their work takes money. Nothing is free, after all.

Given we need to raise funds, it might make sense to tax the things we least value and then spend the revenues on the things we most need. What do we most need Well, that’s for us to decide—it shouldn’t be up to neoliberal think tanks and industry associations who consider tax policy good only when corporations and rich people benefit.

An example of taxing what we don’t want in order to fund what we do: climate policy. We face rapid, probably catastrophic climate change driven primarily by the burning of hydrocarbons. We know how to produce non-carbon energy, but switching won’t be cheap or easy. So perhaps we should tax the consumption of hydrocarbons, and then use the revenues to help make the shift to non-carbon energy.

That’s exactly the approach our NDP government adopted with Alberta’s Climate Leadership Plan. Neoliberals are horrified by so blatant an intervention in the god-like glory of the free market. The truth is that there has never been a free market for energy; we’ve been subsidizing oil for decades. With the carbon levy, renewable energy producers gain, and given the horrific implications of climate change, so do ecosystems, farming and future generations. Seems like smart policy.

So here are some similar ideas worth considering.

Too much sugar and too little physical activity cause lots of health problems. We could impose new taxes on sugar-laden foods and things like golf carts, off-highway vehicles and video games that discourage physical activity. The revenues could then finance school sports, field trips in nature or maybe even rebates on hiking gear and organic vegetables. The health rewards could be huge. We’d save on health costs too.

Water security is a critical issue for our dry province. But industry and motorized recreation have badly impaired the Eastern Slopes, where our water originates. Snowmelt and rainfall now drain off too quickly. But government has no money for repairing those gullied trails, eroding clear-cuts and abandoned wells. We could charge logging and oil companies a hefty annual fee for every kilometre of logging or well road until they’re fully reclaimed. We could greatly increase registration fees for recreational vehicles. Walking, after all, is a healthy alternative. The revenues could finance repairs to eroding land and damaged creeks.

Replacing income tax with a sales tax makes more sense than punishing employment while rewarding consumerism.

Pesticides and agricultural chemicals kill nature. Most prairie bird species are now at risk. Even insects are vanishing. But current policies actually encourage the use of those poisons. Why not tax them The revenues could pay farmers to store atmospheric carbon in restored soils and to produce other ecological benefits through regenerative agriculture.

If we value work, why do we tax income Wouldn’t it make more sense to tax consumption of disposable commodities Many Albertans foam at the mouth at the simple mention of a sales tax. But shifting from an income tax to a sales tax would reward work while discouraging wasteful consumption.

Neoliberal dogmatists want Albertans to see government as the enemy and taxes as bad. But we elect governments for important reasons. And since we pay taxes to finance the work they do for us, we might as well tailor those taxes to the best public outcomes.

You get what you pay for. We’re paying for environmental harm and ill health—because vested interests always try to kill the smarter tax conversation before it starts.

Kevin Van Tighem’s latest book, Our Place: Changing the Nature of Alberta, was released in spring 2017 by RMB.

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Why impose taxes in the first place First and foremost, to pay for the public services we all need and enjoy. In an ideal public-finance world we’d first determine the level and cost of the public services we want, then set the tax system to provide the needed revenue. Second, taxes—subject to their progressivity—redistribute net income, thus reducing inequality. Even when not progressive, tax revenues support redistribution through public goods such as healthcare and education. Third, taxes help stabilize the economy, offsetting the cyclical nature of markets. Fourth, taxes can be used to change behaviour—think taxes on cigarettes and liquor, or tax exemptions such as RRSPs. Fifth, taxes can be used to correct market failures. A carbon tax, for example, puts a price on pollution. More generally, paying taxes contributes to the collective well-being, helping build a sense of connectedness and community.

Alberta’s taxes are too low. For decades Alberta’s government under the PCs bragged about having Canada’s lowest taxes. More bizarrely, the NDP government continues to profess the “Alberta Advantage”—$11-billion to $21-billion less tax revenue than other provinces’ tax regimes would generate in Alberta. But the province’s tax revenue has never covered the cost of its public services, not even in the 1990s, when Klein cut the public sector by an unsustainable 20–25 per cent. Alberta’s budgets have only ever been balanced (or in surplus) by adding non-renewable resource revenues. This is clearly not a sustainable plan over the long run.

Income inequality is an increasingly serious social problem, and Alberta has by far the worst record in Canada. Food bank use is rising. Redistribution through higher taxes and basic income security could reverse these trends.

Alberta’s economy is volatile largely due to its reliance on the petroleum market. This volatility is magnified when public finances depend so much on the same industry. Worse, the PCs cut public expenditures when revenues declined, further exacerbating the cyclical ups and downs. A stable public service paid for by stable tax revenues would dampen the volatility of Alberta’s primarily resource-based economy. In a world where climate change due to fossil fuel consumption is a prime concern, dependence on petroleum revenues to fund public services further constrains the government’s policy agenda.

Finally, Alberta’s emphasis on low taxes accentuates individualism and self-interest. All citizens need to contribute to the cost of society. With no sales tax and a high exemption amount ($38,000 per couple) in the provincial income tax, many Albertans pay almost no taxes—including some high-earners.

Alberta must raise at least another $10-billion a year in tax revenue. A sales tax would generate half the amount needed. The province must increase alcohol and fuel taxes (Canada’s lowest) too. Higher and more-progressive taxes (both personal and business) would do the rest.

Bev Dahlby says No—AT LEAST NOT YET

Unlike “Should Calgary host the Winter Olympics?” the question “Should Alberta have higher taxes?” cannot be answered with a simple yes or no. It must be considered in the context of our province’s fiscal situation, with its large fiscal deficits and growing provincial debt, and the decline in household incomes and higher unemployment rates owing to the downturn in the provincial economy. The status quo, however, is not an option. Eventually the provincial government will need to raise revenues, cut spending or implement some combination of the two.

The first question, then, is “How much of the fiscal adjustment should be through spending cuts and how much through tax increases?” Given that Alberta’s per capita expenditures are exceeded only by Newfoundland and Labrador’s, Albertans should see how much the government can reduce spending without sacrificing key public services. In areas such as healthcare, it will be as important to reform how services are provided in order to achieve lasting savings.

I don’t know how much of the adjustment can be achieved this way. For the sake of argument, suppose that only half of the fiscal adjustment can be done through cuts, and the province must increase revenues by about $5-billion per year.

Now the question is which taxes to raise. Options include personal and corporate income taxes, post-secondary tuitions, carbon taxes and provincial property taxes, but the elephant in the room—the largest untapped source of tax revenue—is a provincial sales tax. Alberta is the only province that does not levy a sales tax, and is the lowest-taxing province overall. The differential—the amount of extra taxes Albertans would pay if we had the same tax system as other provinces—is known as the Alberta Advantage. Some 60 per cent of our tax advantage with Ontario and BC and over 80 per cent with Saskatchewan is attributable to the absence of a provincial sales tax.

My research with MacEwan University’s Ergete Ferede shows that a broad-based sales tax, such as the harmonized sales tax in five provinces, has the least harmful effect on taxpayers’ incentives to work, save and invest, which ultimately determine a province’s level of economic activity and its citizens’ standard of living. Research by the University of Calgary’s Philip Bazel and Jack Mintz has shown that an HST in Alberta accompanied by a tax credit for low-income families would offset the potentially regressive effects of a consumption tax. Of all the major tax changes that could help alleviate Alberta’s fiscal situation, an HST is the most appropriate.

So should Alberta have higher taxes In my view, a major tax increase is only warranted after the public has become convinced that spending cuts have gone as far as possible and that further cuts would imperil vital public services. Then we should be prepared to start paying a sales tax to help pay for public services.

Greg Flanagan responds to Bev Dahlby

There’s much in Professor Dahlby’s initial statement that I agree with. Changes to the tax regime should be considered within the context of the province’s fiscal situation. I would not recommend increasing taxes at this time; possibly some rates for low-income individuals should even be lowered and/or subsidies given to certain individuals and firms until the economy recovers or adapts. The province can carry deficits for a considerable time before debt becomes an economic drag. I also agree with the statement “Eventually the provincial government will need to raise revenues, cut spending or implement some combination of the two.”

However, as public spending cuts are often floated as a budget solution when Alberta faces a deficit, and inevitably Alberta’s spending levels are compared to other jurisdictions, I will delve into these comparisons.

Dahlby has made a simple comparison of provincial public spending using gross expenditure per capita. It’s true that if you take each province’s 2017 gross expenditures per capita, Alberta is second-highest. Note that Alberta is not much higher than Saskatchewan, Manitoba or Quebec. However, for many reasons these provincial comparisons are irrelevant.

First, these gross figures do not consider circumstantial expenditures. For example, Alberta has had the greatest net migration and expansion in the country. This in-migration has created large infrastructure needs, which are exacerbated by the infrastructure deficit left by former governments. Newfoundland and Labrador, the highest spender, has been caught up in the Muskrat Falls financial burden ($10-billion in 2018 alone) and is adjusting to the demise of fishing industries.

Inflation rates among provinces have diverged significantly over the last few decades, and Alberta has had by far the highest increases. Thus the current-dollar value of Alberta expenditures doesn’t equate to other provinces’. Also, Ontario and Quebec, with much larger populations, can take advantage of economies of scale in the provision of public goods.

Personal incomes are considerably higher in Alberta. Albertans average $36,600 compensation per employee compared to a national average of $29,270. This has two effects. It costs more to hire a public sector worker here, given high private sector wages. Secondly, wealthy Albertans want more public goods as well as more private goods.

If we want a single metric for provincial comparisons, gross domestic product seems a better measure. GDP is used when making international comparisons, to overcome the inherent complications in comparing finances of different jurisdictions with divergent economic contexts. As a percentage of provincial GDP, Alberta’s government expenditures are the lowest in Canada, at 17 per cent.

Does this indicate that Alberta needs to increase public sector spending Although it adds another perspective, I don’t think it or any other indicator captures the complexity of the question. Ultimately the citizens of Alberta need to decide, through some process, the right level of public goods and services for Albertans. And in the longer term they will have to accept a tax system that pays for that level.

For the sake of argument, Dahlby has proposed a spending reduction of $5-billion. I’m all for efficiency, including in the provision of public services. If a given level of service could be provided equitably at a lower cost, then do so. However, a $5-billion decrease in current expenditures wouldn’t be an exercise in efficiency—it would be a disaster: $5-billion is almost the entire post-secondary education budget.

Notley’s government has been wise in maintaining public sector spending. Alberta didn’t need higher unemployment during the recent economic downturn. Also, the public sector needed to regain stability and direction after decades of turbulent civil service funding determined by volatile resource revenues. As my opening statement notes, income disparity is also a major concern for Alberta. Public services redistribute net income; reducing them would only increase disparity.

Alberta should have higher taxes. A PST wouldn’t eliminate the deficit, so personal and business income taxes would also have to increase.

This brings us back to taxes. Alberta’s tax regime must be reformed substantially to create stable public revenues. I agree completely with Dahlby that the lack of a provincial sales tax (PST) comprises the largest differential—“the amount of extra taxes Albertans would pay if we had the same tax system as other provinces.” I too see a sales tax as necessary, but equity considerations must be foremost in creating one. Good mechanisms can offset the regressive tendencies of a sales tax; for example, exempting certain goods and services. With the addition of income-based rebates, sales taxes on lower-income households can in some cases be eliminated.

A PST alone wouldn’t eliminate Alberta’s deficit, so personal and business income taxes would also have to increase. Other taxes could be implemented, such as a land transfer tax (which brings in considerable revenue in BC). To be fair, first-time homebuyers would be exempted and the rate would rise with the property price. Such a tax captures some of the speculative and unearned revenue obtained through real-estate inflation, without affecting incentives.

Alberta should have higher taxes. Public spending seems about right and any efficiency gains are likely small. Unless the Alberta public chooses to significantly reduce public spending, tax changes should be implemented as the economy recovers and incomes rise. To get it right, tax regime change will require education and leadership.

Bev Dahlby responds to Greg Flanagan

Greg Flanagan and I agree that taxes are important; indeed the tax system provides the foundation for a prosperous and just society. Many years ago, as the author of a public finance textbook, I wrote that taxes are one of mankind’s great inventions, on a par with the invention of fire and the wheel. Yes, really!

But, like most great inventions, that which has the power to do enormous good can also, if misused, inflict tremendous damage. In the case of taxation, it is necessary to balance the tax system’s ability to generate revenue to fund public services—including a social safety net that is the hallmark of a civilized society—with its negative impact on the economy’s capacity to generate economic opportunities for citizens. Tax rates erode incentives to work, save and invest, impairing the ability of the private sector to provide the goods and services that contribute to our high standard of living. And yes, Virginia, there is a Laffer curve. Higher tax rates cause tax bases to shrink through tax avoidance and evasion. At some point, a higher tax rate can actually lead to lower tax revenues.

Given the Government of Alberta’s current deficits, Albertans have to decide on the balance between reducing public expenditures and raising more revenue through higher taxes and user fees. To the extent that Albertans collectively agree that more revenue must be raised, we will also need to decide which taxes should be increased.

Flanagan and I agree that in broad terms, Alberta has a $10-billion annual fiscal gap. He argues that the fiscal adjustment should fall entirely on the revenue side, with the adoption of a sales tax, higher alcohol and fuel taxes, and higher personal and corporate income taxes.

Will Albertans want to pay higher taxes in order to maintain our government’s currently high spending levels The Alberta government’s per capita program expenditures are the second-highest in Canada—22 per cent higher than the average of the other provincial governments. As my colleague Melville McMillan of the University of Alberta has pointed out, one reason why Alberta’s public expenditures are so large is that per capita income in Alberta is so high. High private sector incomes mean that wages and salaries in the public sector must also be high, to attract and retain public sector employees. As well, higher incomes mean that people demand better public services. However, real (inflation-adjusted) per capita household incomes in Alberta declined by 12.8 per cent between 2015 and 2017, and the provincial budget forecasts that real per capita household incomes in 2021 will be lower than they were in 2013. Private sector incomes have taken a significant hit, and according to the above logic, public spending should also decline through public sector wage cuts and a public willingness to accept reduced public services.

Another reason why public sector spending is so high is that Albertans have not had to pay the full cost of public services through their taxes. Since 2000, taxes, user fees and other charges have only covered 77 per cent of Alberta’s public spending. We have been content with a high level of public spending because we have only had to pay 77 per cent of the cost of providing public services. In my view, many Albertans will want to see belt-tightening by the provincial government before they’re willing to pay a much higher share of the cost of public services through higher taxes.

A further reason why most of the fiscal adjustment will have to be mainly on the expenditure side is that there is no prospect for raising significantly more revenue through higher personal and corporate income taxes. Alberta’s top marginal personal income tax rate of 15 per cent, combined with the top federal marginal tax rate of 33 per cent, results in a 48 per cent marginal tax rate for the highest income earners. That places Alberta slightly below the Canadian average of 50.3 per cent, but higher than any US state except California. A number of studies have shown that the taxable incomes reported by high income individuals decline when the top tax rate increases. Because of this, raising the top rate in Alberta might generate some additional revenues—but not nearly enough to close the deficit.

The general corporate income tax rate in Alberta of 12 per cent, combined with the federal rate of 15 per cent, puts Alberta in line with BC and Saskatchewan and slightly higher than Ontario. However, we need to look beyond our borders to consider our business tax competitiveness. Studies by Philip Bazel and Jack Mintz of the University of Calgary show that the marginal effective tax rate on investment, which takes into account tax depreciation allowances and other deductions, is substantially higher in Alberta than in most US states. Numerous econometric studies have shown that higher effective corporate income tax rates reduce private sector investment, lowering labour productivity, wages and employment opportunities for workers. Raising corporate tax rates would make it even more difficult for Alberta to attract investment at a time when the energy sector is facing significant challenges. My research with Ergete Ferede indicates that the corporate income tax is the costliest source of provincial tax revenues in terms of forgone income-generating opportunities for Alberta’s working population. Thus it is neither feasible nor desirable to fix our deficit problem by increasing personal or corporate income taxes, with or without a sales tax in place.

The post Should Alberta Have Higher Taxes? appeared first on Alberta Views.

Some Albertans say a sales tax could comprise the missing piece of our revenue pie. Over the last 10 years of Progressive Conservative rule in Alberta, oil and gas royalties and sales averaged well over a quarter of the province’s revenue—including a whopping 40 per cent in 2005/2006. Since 2014, however, resource revenues have crashed, now making up only 7 per cent of the government’s income. A sales tax could level out the extreme highs and lows that come from depending on natural resource revenues. It might even steer Alberta away from financial crisis, as oil and gas prices seem unlikely to bounce back to $100 per barrel anytime soon.

Some, however, say a sales tax is a cop-out. Introducing it, they argue, would just give the provincial government of the day more money to “play with,” when the premier and their cabinet ministers should spend more carefully. The idea of cutting back, tightening belts, spending less, certainly sounds responsible. But such arguments rarely go beyond the hypothetical. What would cuts mean for student/teacher ratios, emergency room wait times or highway maintenance How deeply would a government that now collects about $42-billion annually and spends about $53-billion need to hack at services and infrastructure to get to balance if new revenues from a sales tax aren’t added to the mix?

Still other Albertans say a sales tax is simply long overdue. They tend not to over-complicate the matter with details—legislators and bureaucrats could nail down the rate and what the tax would cover or wouldn’t. Some have advocated for a sales tax even in years of plenty. They argue it’s past time political leaders simply recognized Alberta’s revenue picture for what it is: volatile. They add the province should pay for public services out of tax revenues, not out of resource revenues, which come from the one-time sale of assets.

Welcome to Alberta’s provincial sales tax debate. For decades some version of this debate has pitted experts, advocates, politicians, businesspeople, journalists and ordinary citizens against each other. But the stakes are particularly high today, when oil prices remain stubbornly low because of forces beyond Alberta’s control, such as a glut of non-traditional oil and international price-setting. The stakes go higher still when we consider that other non-renewables, such as natural gas, are yielding less and less revenue each year as well.

Whether to introduce a provincial sales tax in Alberta is a debate that needs to be taken seriously. The so-called “Alberta Advantage”—low taxes—was long made possible by high oil and gas revenues. Short of a time machine that would allow contemporary Albertan policymakers to go back to the past (repeatedly) to urge their counterparts to save more resource revenues or to restructure royalties, a sales tax would seem an obvious solution for addressing the province’s financial woes.

Every other province has a sales tax, ranging from a high of 10 per cent in each of the Maritime provinces to a low of 6 per cent in Saskatchewan. In Quebec, for example, where a provincial sales tax of just under 10 per cent is added to a 5 per cent federal sales tax (goods and services tax, or GST), a $10 pair of gloves becomes an $11.50 purchase. Exceptions abound, however: there isn’t a PST on prescription drugs, books or “basic groceries,” and at government-run liquor stores the sales tax on a bottle of wine is rolled into the sticker price. In BC the sales tax is 7 per cent, but with exemptions for groceries, restaurant meals, books, magazines, newspapers, prescription drugs (and non-prescription medications such as cough syrup), children’s clothing and even bicycles.

In 2013 Jack Mintz, director of the School of Public Policy at the University of Calgary, and researcher Philip Bazel proposed that Alberta introduce an 8 per cent provincial sales tax alongside lower income taxes and corporate taxes. More provincial revenue would come from a consumption tax and less from other taxes—a wash, perhaps, but the province would be less reliant on resource revenues. Mintz also called a sales tax one of the “best taxes,” arguing it’s fairer than a tax on income and stimulates investment. His and Bazel’s proposed sales tax would have yielded some $8-billion in annual revenue.

Today others are suggesting that a provincial sales tax—unaccompanied by a cut to other taxes—could help Alberta cover its deficit, avoid selling public assets and even help bulk up the Heritage Savings Trust Fund. In 2016 a group of 19 Albertans co-authored an appeal to the province to bring in a sales tax, arguing, “The accepted rule is that every 1 per cent on a sales tax equates to $1-billion in revenue. A 5 per cent sales tax—harmonized (with the federal GST) in order to lessen the costs of implementation—would thus bring in $5-billion, enough to significantly address the province’s current fiscal problems.” The signatories added “there is simply no realistic alternative if the province hopes to return to a balanced budget and pay for necessary services.”

The “Alberta Advantage”—low taxes—was made possible by high oil revenues, which have evaporated.

Melville McMillan, emeritus economics professor at the University of Alberta, was one of the appeal’s signatories (the others include 15 Alberta academics plus one-time federal privy council clerk Alex Himelfarb, former Alberta Liberal leader Kevin Taft and economist Greg Flanagan). McMillan says a sales tax could help wean Albertans from an addiction to resource revenues. “We’ve been very fortunate—but that natural resource revenue has been extremely volatile, so we’ve had booms and busts,” he says. “In the boom times, we sometimes save a little bit, and in the bust we always feel we deserve another boom. We’re there with our fingers crossed, waiting for the next boom to get us out of trouble.”

Natural resources always seemed to come to the rescue, McMillan says, even curtailing premier Ralph Klein’s sweeping cuts to government services and infrastructure in the 1990s with a sudden influx of cash. But we can’t expect this to happen anymore, he says; more people living in Alberta means more sharing in whatever wealth is generated by the energy sector. “Natural resource revenues have been declining as a contribution to our provincial government, largely because the population has been increasing and the revenues haven’t been increasing in parallel or as fast,” he says. “Resource revenues have been spread across more and more people. So they have come to be a relatively smaller contributor.”

McMillan argues an Alberta sales tax would still have to be accompanied by spending cuts in order for the province’s budget to balance. Meanwhile, if the government only cut away at the budget, he says, and didn’t add new revenues, “You’d get down to the lowest level of provincial government spending in the country. And I don’t think Albertans are quite prepared to go there. But that’s a political issue.”

Indeed, if it were simply a matter of negating the effect of reliance on resource revenue or finding a revenue source to pay down debt, perhaps Alberta would already have a sales tax. And the province does already levy a tax on some consumable goods: liquor and tobacco (though this is hidden in the price), gaming and tourism. Meanwhile Albertans have been paying GST since 1991. Alberta did have a sales tax—briefly—during the Depression. It was called the “ultimate purchasers’ tax,” rang in at 2 per cent and lasted one year.

But rather than a subject for debate in Alberta, the sales tax long ago got lodged in the realm of mythology, culture and even our identity. This is perhaps best revealed by the Edmonton Journal’s archive, where hundreds of headlines between 1989 and 2017 relay a history of Alberta’s long-term love/hate relationship both with the concept of a sales tax and uneven resource royalty revenues.

A February 1990 headline “Sales tax due sooner or later” coincided with a $1.5-billion provincial deficit. The Heritage Savings Trust Fund, designed by former premier Peter Lougheed to save some oil revenues for a day when there would be less oil, was stagnating—even losing money when its value was adjusted for inflation. Natural gas was failing to live up to expectations as a revenue generator. Don Getty was premier, the economy was bad and all the ingredients were in place for Albertans to flirt with the notion of a sales tax.

Such flirtation, as manifest in media coverage, is nearly always expressed through the words of someone who knows economics and is not necessarily advocating a PST (of course) but merely pointing out its merits. Usually a politician—who may or may not have also expressed interest in investigating a sales tax, or a source of revenue that could smooth the rough edges of the province’s reliance on natural resources—promises to never, ever, not ever, introduce one in Alberta.

Never.

Probably.

In one 1990 story, by Journal columnist Mark Lisac, the leading expert is Al O’Brien, Alberta’s deputy provincial treasurer at the time, who wrote his late 1960s master’s thesis on introducing a sales tax—because it seemed unavoidable. Lisac marvels at the change in political tone two decades later, when every party in Alberta’s legislature objected to introducing one.

The following year the GST was brought in across the country by prime minister Brian Mulroney’s Progressive Conservative government. The rate was set at 7 per cent: If you bought a pair of gloves for $10, you paid $10.70 at the till. Alberta took Ottawa to court over the new tax, suggesting that a sales tax stepped hard on the province’s toes.

But a November 1991 headline speaks for itself: “No provincial sales taxes in Alberta For how long If slumping oil revenues are permanent, Alberta may only be delaying the inevitable.”

In 1993, during a provincial election, all three of Alberta’s major party leaders threatened that their opponents would introduce a PST—even though no party intended to introduce one. Liberal Laurence Decore told the Journal he wouldn’t introduce a sales tax, adding, “The provincial government has a responsibility to get its spending under control rather than asking Albertans to bear the burden of tax increases.” The NDP’s Ray Martin offered, “Sales taxes are unfair. They force ordinary families to pay a greater percentage of their income than the wealthy. Sales taxes also act as a brake on economic recovery.” And premier Klein told the Journal: “I’ve always said that in Alberta we have a spending problem, not a revenue problem. No government can tax itself back to prosperity. Just look at the other provinces to see that a sales tax is no solution to deficits and debts.”

Almost a decade later Klein’s government was on track to eliminate the province’s debt, and the absence of a PST was once more a badge of honour. Things were so good that Treasurer Stockwell Day began to muse about whether Albertans could be taxed very differently. Would it make sense to trade off income tax for a sales tax Day gently floated the idea in February 2000 when delivering the provincial budget.

April 2000: “Sales tax could be good for Alberta, but a tough sell.” May 2000: “Sales tax to replace income tax recommended to the Klein government.” November 2000: “Is a sales tax a bright idea Albertans will be asked if they prefer a sales tax over paying provincial income tax.” November 2000: “Hard sell for provincial sales tax: Opposition critics, retail store officials denounce proposal.”

As for Klein, who had, through the 1990s, cited the lowest taxes in the land as the “Alberta Advantage”… If there were to be a sales tax, he said, it would have to go to a referendum. Regular Albertans would have to make the call, not politicians. Not him.

By the end of the 2000s, Alberta’s oil and gas revenues had collapsed in the midst of a global economic slowdown, the rise of new, non-traditional oil sources in the US, and international price-setting aimed at driving high-cost producers out of the market. A Klein-era law that had made it illegal for the province to do anything but balance its budget was tossed aside by his PC successors to allow the government to borrow money and run deficits.

October 2009: “Sales tax touted as boost for declining Alberta advantage.” October 2011: “No provincial sales tax contemplated.” February 2013: “Sales tax talk won’t go away.” January 2015: “The tax that dare not speak its name; Math adds up, but politics are complicated.”

Journal columnist Graham Thomson explained the politics of the sales tax: “It is the banana peel of Alberta politics and every year an Alberta cabinet minister manages to step on it.” And: “One of the quirks of Alberta politics is that even though there isn’t a politician in the province arguing in favour of a sales tax, we can’t seem to stop talking about it.”

 “Tightening one’s belt” sounds responsible. But such arguments rarely go beyond the hypothetical.

In 2015 Rachel Notley’s NDP won a majority government in Alberta but took power just a few months before oil—priced at over $100 US per barrel the year before—bottomed out at $30. More recently, oil prices have bounced back to the $60 range per barrel. But no one forecasts those prices to get much higher through the early 2020s.

In spring 2016, during the Q&A following a speech to Calgary’s Chamber of Commerce, Finance Minister Joe Ceci was asked his thoughts on a “notional” sales tax for Alberta, given the province’s record deficits. “Oh, look, the time’s up,” Ceci quipped, before adding that his party hadn’t campaigned on introducing a sales tax and wouldn’t introduce one any time soon.

Ceci and his ministry have not wavered. In April 2017 Finance spokesperson Mike Brown announced that “…with the highest basic personal and spousal deductions, no sales tax and no payroll tax, Albertans benefit from the lowest overall taxes among the provinces.” He added that Albertans in 2016 “enjoyed a $7.5-billion tax advantage over the next-lowest-taxed jurisdiction.” In other words, the province collects $7.5-billion less tax revenue than it would if it had the tax rates of BC, the province with the second-lowest taxes. Alberta collects $13-billion less than it would if the province had Ontario’s taxes.

This “advantage” presumably exceeds whatever “disadvantage” is created by Alberta’s current budget deficits.

More recently Brown issued a statement from minister Ceci: “In the last election, our government committed to not implement a PST. We are keeping that promise. Our government is taking a thoughtful and prudent approach to the budget during this time of economic recovery.” He did not respond to a question about why a PST is something to avoid. But the statement did indicate the Notley government expects to balance its budget by 2024 by reducing spending and raising revenues through economic diversification.

 In Alberta a sales tax long ago got lodged in the realm of mythology, culture and even our identity.

Alberta’s deficit for 2017–18 is expected to be in the ballpark of $10-billion. Alberta’s total debt is now estimated at about $45-billion. Notwithstanding the province’s reassurances, Melville McMillan says Albertans will eventually feel the effects in hospitals or classrooms.

“As you accumulate more debt, you have to pay the cost of servicing that debt,” he says. “It’s going to mean you have less money to spend on other things or you have to raise taxes. One way or another, Albertans aren’t used to that.”

He expects that by 2022 the Alberta government could be spending the same proportion of its revenue on paying down debt as Quebec and Ontario do now. In Ontario, for example, the provincial government spent $11.4-billion servicing debt in 2016. “If we continue accumulating debt at the quite substantial rate that we are, this will become quite burdensome to Albertans,” says McMillan.

If the “always-against-a-sales-tax-probably” positions of Alberta politicians can be mapped across nearly 30 years of Journal headlines, the “always-against-a-sales-tax-definitely” position of the Canadian Taxpayers Federation never moves. Alberta directors change, but they are always stridently opposed.

Colin Craig, the CTF’s interim Alberta director, is against a PST because, he argues, “The provincial government has a pretty serious spending problem, so it’s not really fair to go to taxpayers and ask them to pay more.” “Everyday Albertans” don’t want a sales tax, he says: “It’s not the common people thinking about a provincial sales tax, it’s more those in the ivory towers looking at the province’s finances and looking to take the easy way out.”

Amber Ruddy, the Canadian Federation of Independent Business’ director of provincial affairs for Alberta, says keeping the province PST-free is among her top priorities. Likewise, a January 2017 Fraser Institute report suggests Alberta’s PST-free status is the last-standing pillar of a crumbling “Alberta Advantage.”

If a government did want to introduce a sales tax, Ruddy says, they would have to actively campaign on it, rather than “sneak it in” at the start of a mandate. “PST is often known here as the ‘political suicide tax,’ because the first government that introduces it will definitely feel a bit of heat from the electorate on that policy,” she says.

A perhaps more compelling objection comes from Queen’s University law professor Kathleen Lahey, who, in a 2015 report for the Parkland Institute, cast serious doubt on how fair a sales tax would be for Alberta. To start, she wrote, a sales tax stands to have a greater impact on people who make little money to begin with, taking up a greater percentage of their overall income. Sales taxes don’t care about your income, your gender, your home life, your education or any of your other life circumstances. A sales tax, she suggests, is the ultimate flat tax: no matter who is buying that pair of gloves (or how much they need them), everyone pays the same percentage.

The 19 signatories who in 2016 called on the Alberta government to enact a sales tax acknowledged the argument that sales taxes are regressive. “But there are ways,” they added, “such as rebates to low-income earners, to mitigate the negative effects of a sales tax upon the poor and vulnerable.”

Kevin Taft doesn’t believe the oil industry will generate the proportion of provincial revenues it once did, and that huge cuts to provincial spending (which would certainly entail public-sector layoffs) aren’t a viable option. He calls a PST a tool for staunching the government’s bleeding. “The provincial government needs to come up with a good, reasonable communication strategy and then have the courage to sell this idea,” he says. “The people of Alberta are starting to clue in that the oil industry’s not going to pay their bills anymore, and somebody has to. And so one part of that is a sales tax.”

Taft describes Alberta as in the midst of a long-term financial crisis, one marked by unsustainably rising debt and overreliance on oil and gas. “I just don’t think there’s any way around Alberta needing a provincial sales tax, and the longer we delay this decision the deeper our problems are going to be,” he says. “This issue goes back decades. The financial structure of Alberta’s government is so out of whack.”

And that ties back not just to oil and gas prices rising and falling, but to royalties, or how much money the province collects from oil and gas producers. “Here we are in Alberta with a population roughly about (the size of) Greater Montreal, smaller than Phoenix, smaller than metro Seattle, we own more oil than all of Russia, all of the US, all of Iraq, and yet we’re giving it away so cheap that we can’t even balance our budget. And that problem has been building, I would argue, probably since Ralph Klein’s first term.”

Taft continues to urge the Notley government to bring in a sales tax.

“This is one of those problems where if you catch it early, it’s quite manageable,” he says. “And if you keep delaying the difficult decisions then the problem becomes really painful and overwhelming.”

Trish Audette-Longo is a freelance journalist. She was a staff writer for the Edmonton Journal between 2005 and 2012.

The post Salestaxphobia appeared first on Alberta Views.

Over the past months, thanks in part to the Metcalf Foundation and the Canadian Centre for Policy Alternatives, I had a chance to talk taxes with communities across Canada. The intent was to make the case for taxes, but these conversations turned out to be more than I had reckoned on. Tax talk triggers intense reaction and not exactly as I had imagined.

Predictably, Conservative pundits described me as a tax apologist, as though it took some nerve to challenge the benefits of tax cuts. A minority—the Fraser Institute and a few like it—attack all and any taxes, whatever their level and whatever the benefits, as an unfair burden and a constraint on our freedom. Clearly a discussion of taxes does expose ideological differences in how we understand the role of government, how we define fairness, how much inequality we are prepared to tolerate. But there’s no simple left/right divide.

Across all ideologies the tax discussion triggers widespread anger with government, near-universal perceptions of rampant waste and inefficiency, and a growing skepticism about the competency and capacity of government to tackle the big issues or even to deliver on its promises. A conversation about taxes, then, is inevitably a conversation about the kind of Canada we want but also about the kind of Canada we think is possible.

I don’t want to suggest that there was ever some golden time when we all just loved paying taxes, though in the past we were perhaps more likely to see taxes as an expression of our shared citizenship and mutual responsibility. Still, grumbling about taxes is about as long-standing a tradition as taxes themselves. Writing 500 years ago, Machiavelli advised the Prince to avoid being too generous to the people lest he have to raise taxes, not very popular then or since.

Getting the bill is probably never our favourite part of shopping. And taxes are, after all, the way we pay the bill for the things we have decided to do together because we cannot do them as well, or at all, alone. For my small-business-owning parents, tax grumblers though they were, those things we do together included safe communities and free schools and some old age security and what was to them the miracle of medicare. For much of the time they were alive, raising a family and building a business, taxes were going up. And public services were improving. So they grumbled, but they knew and liked what they were buying.

How is it that we don’t now ask of these tax cuts: What will be the consequences for public goods, goods that most of us continue to value, that demonstrably contribute to the general welfare In part the answer may be that we devalue public goods—roads, schools, hospitals, parks—because they are not priced and so we underestimate their value or simply take them for granted. We surely don’t think very often, if at all, of how much it costs to light our streets, or ensure that clean water pours from the tap or that we can trust the food we eat. But these are all things we buy with our taxes because together is the only way we could ever afford them.

We devalue public goods—roads, schools, hospitals, parks—because we take them for granted.

Public goods don’t give us any positional advantage over our neighbours. Unlike the bigger house or the fancier car, our access to quality education or healthcare confers no special status. Perhaps that is one reason that some, usually rich, Canadians insist that they should be able to buy their way to better or faster service even when the evidence is overwhelming that that would make things worse for the many. We ought to be asking whether more money to fuel the consumption race is really what we need, whether a little more change in our pocket is more important than strengthened public goods—better healthcare, affordable childcare, first-rate infrastructure, access to justice…

Of course, the rewards from a little more change in our pockets are immediate, while the payoffs from some public goods—say, investments in scientific research or environmental protection—are pretty abstract or long-term. As University of Toronto philosopher Joseph Heath has argued, for all these reasons—competitive consumption, a preference for immediate payoffs, the invisible price of public goods—public goods and the taxes to pay for them typically get shortchanged. We often go for the cash in hand.

The last 30 years have given us an almost constant assault on government. Since the 1980s it has become commonplace for politicians to describe government as the problem. In what is sometimes referred to as the neoliberal counter-revolution ushered in by Thatcher and Reagan, the answer to all our woes was less government, more market; less public, more private. For this new brand of conservatism, the way to reduce the role of government, the only sure way, was to cut taxes. While these ideas entered Canada more slowly and subtly—they were a harder sell here—their impact, especially recently, is undeniable. By last year the gap between the size of our central government (relative to the size of our economy) and that of the US had just about disappeared. The libertarian Cato Institute points to Canada as a model of limited government and low taxes. The 2014 federal budget figures projected spending and tax as a percentage of the economy to hit lows not seen for 70 years.

No doubt government—like all large institutions—needs reform, needs to be brought into the information age. But instead of focusing on reform, market rhetoric undermines the very idea of government, equating it with waste and corruption. This in turn allows politicians to claim that they can cut taxes deeply without any impact on public services. In the 1980s the claim was that the cuts would generate so much economic activity that they would pay for themselves—though the monstrously high debt-loads these policies created soon put the lie to that promise. Now, the claims are typically that taxes can be cut without destroying public goods and services—simply by cleaning up government, ending the “gravy train,” cutting waste and enhancing efficiency.

We are right to be outraged at any excesses of government, and to demand better. Wasteful or inappropriate spending fritters away not only public resources but also public trust. Nonetheless, our anger—and the extensive media coverage these incidents produce—leads us to exaggerate the extent of the waste. In fact, there’s never enough gravy to fund the cuts. The numbers never add up. Yes, there is waste and significant room for efficiency, but this almost always represents a smaller portion of the total budget than most of us assume or are deliberately led to believe. No organization—private, public or in-between—is perfectly efficient. Studies of the past few years of greater privatization remind us of the dangers of assuming that private delivery is necessarily cheaper or more efficient.

But the belief that government is inevitably more wasteful and inefficient dies hard. For example, a recent extensive University of Toronto study concluded that Toronto has no spending problem but rather a revenue problem, that Toronto is underspending on key infrastructure and services and there’s not much waste, not much gravy to be found. But when the media covered the study, readers’ online comments were adamant in their disbelief. It’s inconceivable, they said, that there isn’t huge waste, unthinkable that the city could possibly need more money.

We should not be surprised that the governments that for years promised painless—consequence-free—tax cuts, now tell us that our most basic programs are unsustainable, that we have no alternative but to cut or privatize services. Of course tax cuts have consequences: in a word, austerity.

Austerity in Canada is certainly not as deep or brutal as in some parts of Europe. But even our slow motion version brings with it a vicious cycle of erosion and distrust. It leads to what game theorists call a social trap—when we don’t trust one another enough to do what we know is in our interest. Economist Hugh Mackenzie has been quantifying the value of the public services we buy with our taxes and has found that for the vast majority, taxes are one of the last great bargains. Most of us get more back than we put in, and that’s the case at every stage of the life cycle. But austerity undermines our trust in this bargain. Programs and services are starved of resources and slowly erode, amplifying our perceptions that governments can’t do anything right, further sapping our will to pay taxes. The family that celebrates tax cuts soon finds that the gains are dwarfed by what is lost—for example, in unavailable or more expensive childcare, higher tuitions, out of pocket healthcare expenses, delayed old age security, endless user fees, including higher postage, and the end of home mail delivery. And then they hate government and taxes even more.

Austerity feeds short-termism. We today reap the benefits of public services built by previous generations who were more willing to pay taxes. But what will we be passing on to future generations In the name of austerity we put off investments critical to our future. We also put off the maintenance of our existing infrastructure, our schools and hospitals, roads and bridges, the worst kind of false economy, passing along even more expensive problems to future governments, future generations, jeopardizing our economic performance and exposing citizens to avoidable health and safety risks.

Austerity also leads to greater inequality, eroding our redistributive institutions and the programs that reduce and help mitigate inequality. The consequences of austerity always fall first and most heavily on the vulnerable—the poor, people with disabilities, the young, refugees, migrant workers, prisoners—a kind of trickle-down meanness. Economic inequality, particularly the gap between the very top and the rest, is growing dangerously fast in Canada. A disproportionate amount of economic growth goes to the already rich while at the same time increasing numbers of Canadians are unemployed, underemployed or employed in precarious jobs that offer no benefits and certainly no security.

The preoccupation with tax-cutting is a diversion, a conjurer’s trick, as our real problems get harder to fix.

In their book The Spirit Level, Richard Wilkinson and Kate Pickett exhaustively document the costs: More-unequal societies have more crime and violence, family disruption, sickness and conflict. Extreme inequality is corrosive, undermining our ability to find common ground and common purpose. It threatens democracy and social trust. Those at the top often come to believe that they deserve everything they have and oughtn’t to pay. And their voice carries great weight. Those at the bottom come to think that the game is rigged. And extreme economic inequality eventually undermines equality of opportunity as the wealthiest pass along their privilege and the poor pass along their disadvantage.

Taxes are not just about revenue; they are also about the fair distribution of economic benefits and about how much inequality we are willing to tolerate. The Canadians I have talked to over the past year are almost always surprised to learn how deeply taxes have been cut. Many say they don’t feel it and just about everybody thinks they pay more than their fair share. That’s in part because for most of us—except for the very rich—the costs of tax cuts obliterate the gains. For example, the monthly costs for childcare now can be as high as $1,200 and the lack of regulated spaces means significant lost income for those who cannot find or afford quality care. A small tax cut is far less helpful to a young family than publicly funded childcare.

But beyond this, Canadians would be right to wonder who got most of the tax cuts. While taxes over the last decades have come down for everybody, they have come down most for the most wealthy. Cuts to corporate taxes benefit shareholders most, and along with various loopholes, make tax avoidance for corporations and the wealthy easier. The preferential rates on capital gains benefit owners of stock—those with money to invest. And changes to income taxes have made those levies less progressive, lowering rates on higher incomes. We depend more than in the past on regressive taxes such as the GST/HST and payroll taxes.

Growing evidence demonstrates that progressive taxes, where those who benefit most pay the greatest share, make good economic sense. Fair is smart. For a snapshot of the economic consequences of reduced progressivity we need only look at the current controversies surrounding tax reform in Kansas and Ohio. The unlikeliest sources, such as the rating agency Standard and Poor’s, have cautioned that these states’ shift to “flatter” taxes, where everyone pays the same rate, are jeopardizing these states’ economies, not to mention their quality of life: first, because public revenues are too low; and second, because the poor and middle earners don’t have enough purchasing power. Progressive taxes ensure that the benefits of the economy are at least somewhat more evenly distributed, which, it turns out, is essential for a healthy economy.

Income taxes are the key component of a progressive tax system. At the federal level and in most provinces, taxes on income are pretty progressive up to about the middle, but not at all progressive at the top. Should someone earning $1-million, or $10-million or more, pay at the same rate as someone earning under $140,000 That’s neither fair nor economically sound. As our income rises, its marginal utility declines. Simply, if we were to tax all income at the same rate, as flat tax advocates would have it, we would be asking far greater sacrifice from those living paycheque to paycheque than those making millions—and we would also be setting tight limits on how much revenue we could hope to collect. It’s no coincidence that Alberta, the only flat tax jurisdiction in Canada and one of the few in the world, has high levels of inequality and even with its booming economy struggles to balance its budget, having run six consecutive deficits.

Tax policy has to take into account the incentive effects of changes in tax rates as well as the political receptivity to any change. But even the IMF has pointed out that Canada does indeed have room for higher income taxes, particularly on the rich. Value-added taxes such as the GST/HST are smart in that they do not negatively affect productivity, cannot be offshored to tax havens, and provide a large base for needed revenue. So long as the consequences for low-income Canadians are offset through the tax credit, and to the extent that the revenues are used for progressive purposes, such taxes will be an important part of the mix. In the future, carbon taxes and financial transaction taxes may provide socially beneficial approaches. In the end, we all benefit if we restore greater progressivity to our tax system.

Perhaps the most troubling consequence of the neoliberal counter-revolution of the past few decades—the tax cuts, the austerity, the inequality—is that it has stunted our political imagination and undermined our sense of what’s possible. Recent Ekos research found that many Canadians are losing trust in the future, in the idea of progress, in our ability to tackle our big challenges: climate change, inequality, Aboriginal justice, the erosion of democracy. For the first time in living memory we suspect that our kids won’t have it as good as we did. The paradox of our times is that we have weakened our capacity for collective action just when our collective problems are most threatening. If we deny the connections that tie citizens together, how do we hope to find common purpose to tackle the problems that transcend our local milieux How can we reassert the importance of the public sphere to our freedom and well-being How do we rediscover our capacity to act together, especially across the fault lines that now divide us?

It will no doubt take time and political courage to begin to turn this around. There’s not much appetite for higher taxes or bigger government. But preoccupation with tax-cutting and the size of government are diversions, a conjurer’s trick that has us looking in the wrong direction as our real problems get worse and harder to fix.

Still, we are seeing here and there some hopeful signs. Concern about austerity, inequality and their impact on social solidarity, democracy and even the economy is no longer solely coming from the left. The IMF, the OECD, rating agencies and countless others have started to raise questions, often challenging the advice they themselves were dispensing not so long ago.

And there’s movement at the municipal level. One of the ways federal and provincial governments manage tax cuts is to download responsibilities. Municipalities, then, inherit many of the negative consequences but have nowhere to pass them along. At the local level, the consequences are visible, concrete, close to home—homelessness, traffic gridlock, dangerously eroding infrastructure. Perhaps it’s at the local level that social and political trust can most easily be rebuilt. But municipalities have pretty weak tax instruments—largely property taxes and fees—so they need other governments to step up. Ironically, the flat-tax province may lead the charge. Public Interest Alberta is driving a year-long campaign called “Alberta Could…” to inspire citizens to think about what they might achieve—together—if they were to shift to a progressive income tax and raise corporate taxes. This could be the start of something.

The longer we wait, the higher the human and financial price. With an aging population, which will put increasing pressures on public services, and with a smaller proportion of Canadians earning and paying the taxes to sustain those services, we have no time to lose.

Alex Himelfarb is director emeritus of the Glendon School of Public and International Affairs at York University.

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