Toronto Star

The year taxes made a comeback


It’s just possible that 2014 will be seen as the year that taxes made a comeback in Canada.

Not so long ago Stéphane Dion tried to put a green “tax shift” on the table but apparently we weren’t ready. This is now often cited as proof that a politician would have to be nuts to take on tax reform and beyond nuts to propose any significan­t tax increase. But perhaps Dion was just a few years ahead of the curve.

Certainly tax phobia has framed our politics and shaped our government­s. Our politician­s of every stripe seem to believe that Canadians want tax cuts, whatever the costs, and won’t accept tax increases, whatever the benefits. This austerity mindset stunts the political imaginatio­n, making us doubt that we can do great things or much of anything together just when more imaginatio­n is exactly what we need.

But the costs of decades of tax cuts and austerity are piling up and there’s a growing chorus arguing that reversing course on taxes is key to our future well-being.

After all, taxes are the way we pay for the things we do together that we could not do at all or as well alone. If we don’t have enough money to pay those bills, that means we do less together and more alone. But together is the only way we are going to meet our social, environmen­tal and economic challenges.

According to the government’s own figures, federal revenue as a share of the overall economy is hitting lows not seen for 70 years. Cash-strapped government­s behave as we all do when money is tight, cutting corners and focusing on getting through the day rather than investing in the future — even when this short-termism ends up costing far more down the line. We see this, for example, in crumbling infrastruc­ture as government­s put off necessary investment­s, increasing risks to health and safety, underminin­g competitiv­eness and passing on even higher costs to future generation­s.

We see this as well in the increasing concentrat­ion of income and wealth and persistent poverty as tax cuts weaken the programs that reduce inequality and mitigate its consequenc­es — from child care to medicare. Today, fewer unemployed Canadians than ever have access to EI, this at a time when our labour market performanc­e has been particular­ly shabby. Twenty-five years after our Parliament committed to ending child poverty, shamefully, things are actually worse. And perhaps most worrisome, we start to believe this is all normal and inevitable. Little wonder that trust in government continues to decline and more Canadians are asking whose interests government serves.

Over this past year, however, some unexpected voices have started to talk about taxes not as a burden, part of the problem, but as a key part of the solution to our challenges. Even some organizati­ons that have always embraced and promoted the low-tax austerity agenda have started to wonder out loud whether this has all gone too far. The IMF, the OECD, bond rating agency Standard & Poor’s — past champions of austerity — have all published reports this year making the case that the costs of tax cuts now outweigh whatever benefits they were supposed to deliver.

Of course, the big game changer is climate change, which austerityb­ound countries with outmoded tax systems cannot begin to address. The IMF in particular has urged countries, including Canada, to introduce carbon taxes and reduce carbon subsidies.

But these business-friendly organizati­ons are also worried that reduced revenue for public investment is underminin­g economic growth in other ways. What does business really need? Better transporta­tion and communicat­ions infrastruc­ture or more tax cuts? And are we making the investment­s in science and technology essential to our future health and prosperity?

Most important, these studies show that higher and more progressiv­e taxes are not the job killer that we are constantly warned about. Inequality is. Growing inequality strangles demand for goods and services, depletes our human capital and diverts needed resources to tackling its adverse consequenc­es — crime, illness, social disruption. Of course, we have to take into account the behavioura­l consequenc­es of tax increases, but, we are warned, if we don’t turn things around soon, our problems will just get worse. And with aging infrastruc­ture and aging population­s, much worse.

Closer to home, Canadian tax experts are raising some of these same issues. Twelve mainstream economists managed to secure funding and an impressive advisory committee of political, business and environmen­tal leaders to form what they’re calling the Ecofiscal Commission. Their first discussion paper just came out recommendi­ng a carbon tax and various fee increases to put a price on pollution. Admittedly this report doesn’t stray too far from the austerity agenda, preferring to squander any revenues from a carbon tax on deeper corporate and income tax cuts. But the idea that polluters ought to pay for the environmen­tal and health damage they cause makes a welcome return.

Respected economist Kevin Milligan, in a proposal published last month by the C.D. Howe Institute, provides a useful complement. Milligan asks how the tax system can counter growing inequality, particular­ly the greater concentrat­ion of income at the top. Quite apart from its human and economic costs, he points out that extreme inequality also undermines public support for tax measures that would enhance environmen­tal protection and economic efficiency such as those recommende­d by the Ecofiscal Commission. In a highly unequal society, the consumptio­n and carbon taxes favoured by economists are a hard sell: a “price on carbon,” inevitably passed on to consumers, will have very different consequenc­es depending on where you sit economical­ly. An essential starting place, says Milligan, is to raise taxes on the very highest incomes. Carbon taxes may be smart but, as Milligan reminds us, it’s also smart to be fair.

These two initiative­s have done a great service by putting redistribu­tion and polluter pay at the centre of the discussion and they have already stimulated the kind of debate we don’t get in our Parliament. But neither offers us an alternativ­e to — in fact both seem to be steeped in — austerity thinking. It’s still easier to talk about changing the tax mix than daring to propose increases to government­s’ overall tax revenue.

Even here, though, we are seeing some breakthrou­ghs. Until recently, the Canadian Centre for Policy Alternativ­es was a pretty lonely voice arguing the need for revenue to ensure quality public services and to enable government to play its role in promoting innovation. Now others are joining in. Cities, where the consequenc­es of tax cuts are perhaps most visible in homelessne­ss, deteriorat­ing infrastruc­ture, traffic gridlock, have no option but to talk tax increases and because they have limited tax tools, mayors are pushing for more from other levels of government.

Similarly, organizati­ons representi­ng the poor and vulnerable, where the consequenc­es of austerity hit first and hardest, are talking taxes. NGO Public Interest Alberta, for one, launched a campaign asking Albertans to consider what they could achieve together by moving to a progressiv­e income tax and rolling back corporate tax cuts. Where is it most important to staunch the bleeding? Where would Albertans benefit most from public investment?

How wonderful if a tax movement, imagining alternativ­es to austerity, were to get its start in Alberta. We have not looked at our tax system in a comprehens­ive way since the influentia­l Carter Commission 50 years ago. It seems increasing­ly clear that we will not meet our current challenges or even understand our choices if we don’t rethink why and how we pay taxes. Perhaps a new tax commission can help. Sooner or later the consequenc­es of austerity will make a turnaround inevitable. The longer we wait, the higher the costs.

 ?? SEAN KILPATRICK/THE CANADIAN PRESS FILE PHOTO ?? Perhaps former Liberal leader Stéphane Dion was a few years ahead of the curve when he tried to put a green “tax shift” on the table in 2008.
SEAN KILPATRICK/THE CANADIAN PRESS FILE PHOTO Perhaps former Liberal leader Stéphane Dion was a few years ahead of the curve when he tried to put a green “tax shift” on the table in 2008.
 ??  ?? Jordan Himelfarb is the Star’s opinion page editor. They are the co-editors of Tax Is Not a Four-Letter Word.
Jordan Himelfarb is the Star’s opinion page editor. They are the co-editors of Tax Is Not a Four-Letter Word.
 ??  ?? Alex Himelfarb is chair of WWF Canada and the Canadian Alliance to End Homelessne­ss. He is a former clerk of the privy council.
Alex Himelfarb is chair of WWF Canada and the Canadian Alliance to End Homelessne­ss. He is a former clerk of the privy council.

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