How Not to Pay For Canada
In the fall of 1994, three partner organizations dedicated to social justice produced a document entitled: Paying for Canada: Perspectives on Public Finance and National Programs. It outlines their contribution to the far-reaching debate within Canada's borders as we begin collectively to discuss the ramifications of being the world's most indebted nation. The authors clearly state the issue at hand at the outset. "This dialogue is about defining the role of government and its character. The real fight in this country is about public responsibility, the public role around shaping economic development. Public finances are at the heart of the struggle to redefine the quality and scope of the Canadian welfare state."
Their response is to protect and expand the current role of government. Thus they recommend dramatically higher taxes and increased government regulation. Paying for Canada outlines a classical argument for bigger government and an expanded welfare state in the mould of the industrialized European nations. It is an excellent survey of the broad Left position in Canada and well worth reading and reflecting upon. Yet while they quite correctly frame the major question facing Canadians today, their answers disappoint.
The taxpayer culprit
The first issue dealt with in Paying for Canada is to expose the apparently false assumptions put forth to explain our yawning debt cavern. The authors suggest that the problem was not overspending on social programs in the late seventies, but rather insufficient taxation during these years and high real interest rates paid on our debt load in the eighties. The Liberals knowingly wildly overspent in the late seventies when Jean Chrétien was Finance Minister, at the suggestion of those many who didn't quite comprehend that foreign lenders actually expected their loans to be repaid. These same people are now placing the blame on Canadians for not paying their fair share of taxes during those years. "Fair share" appears to mean footing whatever expense bill the government happens to ring up each year.
The issue confronting all Canadians is how do we deal with the nearly three quarters of a trillion dollars in government debt on our backs. Paying for Canada desires to maintain the current social spending quilt at all costs. Not surprisingly, after singling the taxpayer as the culprit for the federal government's debt load, their solution is to get revenues in line with government spending. This proposal requires locating a whopping $40 billion yearly in tax increases and debt servicing savings.
Paying for Canada plans on making Canadians pay in the following manner. First, they propose to increase tax levels dramatically for individuals and corporations. After garnering a bigger share of individual incomes, the only target left is the money that is untaxed and unspent, namely, savings. Their goal is fairly simple: Erect walls to trap our savings in Canada and then allow the government to dictate the yield we are given on the captive capital which was supposed to provide for our future. Paying for Canada then proposes to renegotiate bond yields and severely restrict tax deferrals such as RRSPs and private pension plans. In addition, new taxes would be levied to create national funds to permanently fund social programs.
Noting, ever so briefly, the "sustainability" troubles with the Canada Pension Plan, they contemplate resolving its difficulties by abolishing private pension plans and RRSPs and rolling them into the CPP. The current $750 billion saving in private pensions and RRSPs is already being ogled by the Liberals as a captive tax well. The 'troubles" with CPP perfectly illustrate the problem with compulsory state planning for our retirement. As Andrew Coyne noted in The Globe and Mail this past summer: "The CPP has proved better at financing government extravagance than at ensuring future generations a secure and comfortable retirement." This is because nearly all the $40 odd billion in the CPP fund has been "borrowed" by the provinces at below market rates. The provinces in effect use our state retirement fund as a line of credit to finance current spending. Not surprisingly, the remarkable low rate of return has helped place the CPP in a major crisis. Benefits paid out exceeded contributions and interest for the first time in 1993. Thus the fund for our retirement is shrinking despite the fact the baby boomers haven't begun to retire yet. Contribution rates are set to soar and many young Canadians do not believe CPP will exist when they retire.
The UI hammock
Our social safety net is providing perverse incentives for Canadians. Almost half of all welfare payments in Ontario ($3.4 billion annually) are sent to childless, able-bodied adults. Unemployment insurance has little to do with insuring against unemployment and everything to do with regional subsidization. For every dollar they contribute, fishery workers extract fourteen, agricultural workers nine, and construction workers nearly four. Our UI hammock is a national payroll tax based on the notion that wherever Canadians choose to live, the government will seek to level their incomes. It thereby creates a disincentive to work fiilltime or move to areas of economic vitality and taxes those areas of the country that dare attempt to create permanent employment. As a recent Globe editorial noted: "UI increases unemployment in one place in the name of subsidizing underemployment in another."
Two decades of escalating unemployment, rising personal and government indebtedness, and stagnant personal income levels have left many Canadians wondering about the advisability of continuing to trudge down the same path. We would do well to reflect on the utter mismanagement seen in the CPP, workers compensation boards, and crown corporations, all of which are not included in the government's published debt figures. It is difficult to cultivate trust in governments that base their actions on the assumption that average Canadians are too simple to run their own lives. Witness, for example, Ontario's Finance Minister openly admitting several months ago that his province has one set of books for international lenders and one for voters.
The authors of Paying for Canada believe our welfare state defines our identity as Canadians. This would seem to indicate that we had no national identity until the Liberal governments of the sixties began the massive social experiment that is now stretching our resources to the limit. How immense regulation of our lives and bureaucratic, impersonal service, which is the trademark of a welfare state, builds community within Canada is never explained. In effect, it is an article of ideology never to be tested.
The far-reaching revenue grab outlined in Paying for Canada is a circuitous attempt to refinance our fiscal dilemma without truly addressing our entrenched spendthrift habits. As a nation we have lost our moral fibre to elect governments who tax us for what they propose to spend. And so we borrow from increasingly frowning lenders. Perhaps now more than ever Canada would do well to heed the words of Abraham Lincoln: "You cannot establish sound security on borrowed money. You cannot keep out of trouble by spending more than you earn. You cannot build character by taking away man's initiative."
These words ring out an honest message that our country desperately needs to hear. By contrast, the never-kept promise of then Finance Minister, Jean Chretien, on budget day, November 16,1978, sounds hollow in comparison: "Significant reductions in the deficit can be expected."Subscribe