Bring back the tax revolt
Across this fair land spring seeds are being sewn for a tax revolt. In three provinces — Quebec, Alberta and B.C. — increases in sales taxes are on the agenda. Along with Ontario, Canada’s provinces are in various stages of fiscal decrepitude, collectively borrowing billions to stave off the wolves at the door. There is only one way out: spending cuts. But politicians know of few alternatives but maintaining and/or increasing tax collections.
Budgets loom this week in Quebec and Alberta. Ontario comes later, but spending cuts are rarely taken seriously around the province. Even in B.C., where the government claims a surplus, a Vancouver plebiscite is underway to impose a $250-million-a-year “transit tax” on the city. Alberta’s budget, coming Tuesday, is almost certainly going to contain tax increases to offset falling corporate taxes.
It is time — time to go back to the 1990s, to March of 1991 when I called for creation of a National Tax Revolt Week.
Back to 1993, when a 25-year-old media-wise whiz kid named Jason Kenney, then head of the Alberta wing of the Canadian Taxpayers Federation, drove the Westernbased CTF east into Ontario, where a fledgling tax revolution had developed under the Ontario Taxpayer’s Coalition, founded by a smalltown small-business guy named George Lansens.
The 1990s tax revolt met with much success. But the fiscal deterioration in Canada’s provinces since then has taken much of Canada back to spending and debt levels that, while not as gruesome as the federal-provincial operating disasters of the 1990s, are running ahead of the current tax system’s ability to keep up.
The spending levels are best illustrated by the increase in the amount of money provincial governments spend per capita. Measured in constant 2013 inflation-adjusted dollars, the increase in spending across the four major provinces has been dramatic: up 44% to $8,923 in B.C. since 1997; up 54% in Alberta to $10,967; up 23% in Ontario to $8,545; and up 44% in Quebec to $10,343. As they say, that’s about $40,000 in spending per family of four.
To pay for these spending levels that were run up in the boom years before the 2008 financial crisis, the provinces have been borrowing at a collective rate of about $35 billion per year — or, in the case of Alberta, wiping out surpluses.
Instead of moving in to seriously tackle spending excesses, the provincial preference is to play around with the tax system, looking for fresh revenues, asset sales and other measures. Some reductions in expenditures have been talked about in Alberta and Quebec, for example, but the spending fiddles are minor. The major political push is to manipulate the tax system.
The latest in this line is the report last week from Quebec’s Taxation Review Committee, created by the Liberal government with a warped “zero-cost reform” mandate. The reform plan had to be “neutral for public finances,” which means no reduction in total taxes or overall spending. Instead, the review produced a massive complex shuffling of the Quebec tax deck. It proposed an increase in the provincial sales tax rate to 11%, plus assorted new taxes on books, baby diapers, big cars, electricity consumption and a carbon-tax increase of 5 cents per litre.
Raising sales taxes may be good economic policy, but not when the offsets are a hodge-podge of tax cuts that often make little sense. Personal income taxes would be cut, a good idea in principle, but not when it means a major increase in the number of tax brackets from four to nine, including more progressive rates through the range.
The general Quebec corporate tax rate would also be cut from 11.9% to 10%, but a range of micro-managed special provisions will continue to be given to select corporate sectors.
Little of this can be expected to make it into Thursday’s Quebec budget. But if recent statements from finance officials are any indication, there is little appetite for significant spending reform to offset the big run-up of the last 15 years.
In British Columbia, the vote on the transit tax — an increase of 0.5% in the Vancouver region sales tax — is an attempt to avoid spending reform. As the Fraser Institute points out, government spending in Metro Vancouver over the last decade has increased 73%, well above inflation and population growth. The proposed transit tax is essentially a routine tax increase to offset rapid increases in previous spending. (See FP Comment.)
The Ontario budget is still in the works, with little sign of spending cuts and much rumination about how to extract cash from assets.
Barring a dramatic change in thinking, taxpayers of Ontario and most of the provinces face continued high tax rates and the prospect of tax increases. What taxpayers are getting is a constant search for new taxes and tax reforms that merely juggle existing tax structures.
A little tax revolt is needed. Or, better still, instead of committees to review taxation, how about committees to review spending?
The spending levels are best illustrated by the increase in the amount of money
provincial governments spend
per capita