Ontario’s pension tax
It seems that every time Ontario Premier Kathleen Wynne opens her mouth, she proves that when it comes to economics, she simply doesn’t get it. Never will. Some people are like that; fortunately for Canada, few ever become premiers.
The latest example was on this week’s edition of The House on CBC Radio. She complained that the federal government insisted on calling compulsory Ontario Retirement Pension Plan contributions a “tax” when she said it was just benignly helping people to save.
This misses the fundamental point of what a tax is. Google the definition of taxes, and what comes up first is “a compulsory contribution to state revenue.” Investopedia defines taxes as “an involuntary fee.” The key concept in defining a tax is its compulsion, not its use. It doesn’t matter if you spend taxes on closing gas-fired power plants or health and education or fighting Nazi Germany, the only relevant point is that the taxpayer has no choice but to pay. For determining if the ORPP is a tax, all that counts is that participation is obligatory.
Taxes don’t just transfer money from people to government, but are the obligatory removal of an individual’s freedom to spend that money as they wish. Saying that ORPP contributions are helping Ontarians to save is irrelevant (and unproven, since it is quite likely people simply will reduce other saving to compensate). If Ontario wants to set up a voluntary pension plan to encourage more saving, that would be a different matter. But the ORPP is compulsory and therefore is properly classified as a tax.
The same principle about what is a tax applies to the Ontario Health Premium, one of the first measures introduced by the Liberal government in 2004, and which broke its election promise to not raise taxes. Calling it a “premium” instead of a tax may make it sound like you’re paying for admission to a select club, but all that matters is its compulsion. Ditto for the cap and trade “pricing” system, which is just a tax on carbon emissions. Relabelling taxes might be good public relations, but it’s a lousy classification taxonomy.
Not calling taxes what they are encourages governments to engage in the fiction of having dedicated levies to fund every type of expenditure from education to roads to debt service without the burden of taxes. It seems this is Wynne’s nirvana, to live in a society where government directs most of society’s spending but taxes superficially don’t exist, replaced by a slew of contributions, premiums, levies and user fees every bit as onerous but without the distasteful label of “taxes.” It is a measure of some progress in our society’s thinking that Wynne’s defensiveness implicitly acknowledges that tax actually is a “four letter word,” no matter what state apologist Alex Himelfarb claims.
It is surprising that Premier Wynne doesn’t know what a tax is, since the Liberal government has introduced so many new ones or raised the rate on others. These include the ORPP contributions, the Harmonized Sales Tax (which boosted the provincial sales tax rate), higher personal income taxes, the health care levy, a slew of environmental levies and the ritual hikes to beer, tobacco and fuel taxes favoured by cash-strapped governments everywhere. Perhaps not understanding what a tax fundamentally represents, and how its obligatory nature displaces other spending, helps explain why this administration keeps raising taxes blissfully unaware of how they inhibit economic growth.
Wynne’s nirvana is to live in a society where government directs most of society’s spending