Obsolete Reaganomics don’t resonate with Canada’s COVID reality
One of life’s most predictable things is that the Canadian Taxpayers Federation (CTF) will propose the same solution for whatever issue they are addressing: cut taxes, cut government spending, give people incentives to work, save and invest. This worn reprise from U.S. Reaganomics, repeated in their Sept. 15 commentary, is not relevant today.
How would tax cuts “incentivize” the 1.1 million fewer Canadians who are employed in August compared to the PRECOVID level? How would tax cuts “incentivize” the 158,000 small businesses that the Canadian Federation of Independent Business estimates will close because of COVID-19? If you don’t have prospects for a job or you lose your customer base and so have little earned income, then “lower taxes” will not be an incentive.
An implied CTF assertion one might agree with is that many businesses are highly innovative. Consider a few example: (1) many businesses turned to providing PPE over the past few months, including cloth masks to meet a brand new demand — fashion face masks, not something on the radar six months ago! (2) great success of the FOX40 whistle, developed earlier but which addressed a growing need in the new COVID-19 environment (3) new technology developed by Canadian companies for the direct air capture of CO2, one of many approaches to addressing climate change (4) Air Canada’s new go-anywhere annual travel pass for Canadian travellers which may or may not work, and of course (5) Shopify, which has expanded exponentially by assisting thousands upon thousands of small businesses which coped with COVID-19 by creating online shops to survive and, in some, cases grow. All these companies have innovated in the absence of tax cuts; does anyone really believe cuts would have significantly affected the drive of such firms to innovate? Arguably they’ve been driven by creativity, opportunities and, right now, the sheer desperation to survive.
Cutting taxes for corporations also raise complex questions of what they would do with the money. Ernst & Young Global Limited recommends companies should consider developing a focused M&A strategy, once the pandemic is over, to find growth into the next period. However, the resulting increased industry concentration would not automatically translate into a more competitive and productive economy; increased concentration can easily turn into anti-competitive behaviour and lower productivity and innovation. Corporate behaviour is a big reason why Alphabet, Amazon, Apple and Facebook are in trouble with the EU competition commissioner.
The priorities of the Canadian public show just how marginal CTF’S thinking is. A recent survey by Abacus Data on “Post-covid Recovery Policies,” identified POST-COVID policy directions that were “very” or “extremely” important to respondents. The top six are: Canada should produce key food and medical supplies (74 per cent); investments in strengthening health care and introducing universal pharmacare (70 per cent); helping people and not allowing corporations to benefit most from the recovery (67 per cent); more legal protections, against exploitation, for vulnerable front-line workers (63 per cent); more assistance to municipalities for core services and for infrastructure (63 per cent); and increased taxes on rich folks. The gap between the CTF and the needs, aspirations and priorities of ordinary Canadians is more like a chasm.
Jim Martin worked the Government of Canada as a senior executive (director general level) in various departments and central agencies in both social and economic policy areas.