Social contract requires new programs, higher taxation
As COVID-19 swept across the country, killing some, sickening many and sending unemployment soaring, it exposed gaps in the social safety net and forced our attention to long-standing injustices. But this terrible time has given us an opportunity to re-imagine our future.
The Toronto Star is leading a civic conversation titled The Great ReVision. The call is for a new social contract between citizens and government, to create a more caring and just society.
The agenda for change is lengthy: new funding for long-term care; a basic universal income; protections for gig workers; reconciliation with First Nations; and a full assault on anti-Black racism.
These are added to the priority items before the pandemic: pharmacare, universal daycare, and affordable housing.
If we are to realize this new future, it will require more than progressive activists enumerating the needed programs and indeed more than building a political coalition to win the next election.
A new social contract requires a conversation engaging all citizens to produce a deep consensus about what we as Canadian citizens can expect of our government, a consensus which will last through election cycles.
All the discussion to date has been about the needed programs.
But a social contract has two parts, not just what citizens can expect from their government, but also what citizens will contribute to their government. The social contract includes the commitments of citizens to pay the taxes required to fund the programs.
How does our social contract compare with other countries? Western Europe, where countries have similar advanced economies and high incomes, offers the best comparators.
I looked at 10 countries: the largest five economies (Germany, the U.K., France, Spain and Italy), Belgium and the Netherlands, and three Scandinavian countries (Denmark, Sweden, and Norway). We devote a relatively low share of GDP to social expenditure: Canada spends 17.3 per cent, whereas the 10-country comparator group spent on average 25.5 per cent. Government under our social contract provides fewer social programs and protections.
On the other side of the social contract, Canadians contribute a relatively low share of GDP in taxes: Total government revenue as a share of GDP is 33 per cent in Canada and 43.9 per cent in the 10country group.
Canada is a very low tax country and our taxes as a share of GDP have gone down over the past 10 years.
Canada has a low-social-expenditure/ low-tax social contract.
So, there is lots of room to raise taxes to get better services. But the tax increases are major. If we were to raise total government revenue from the current 33 per cent of GDP to the 10-country average of 43.9 per cent, total government revenue would have to increase 25 per cent.
Every tax instrument would have to yield 25 per cent more revenue: personal income taxes, corporate income taxes, the GST, and property taxes.
These increases seem astonishing, but to have European levels of service, we must pay European levels of tax.
Sometimes progressives do acknowledge the need for more government revenue, but their answer is to raise taxes on the rich and the big corporations.
These would not raise nearly enough. But more problematic, they would reduce entrepreneurship and innovation, and risk capital and high-income labour leaving the country.
The 10-country group recognize this: They do not have especially high corporate tax rates or high top-marginal rates on personal income.
The simple truth is that for Canada to have a more caring and just society, all citizens — lower income, middle income, and high income — must commit to paying higher taxes.
Let us ensure that this truth is part of the conversation as we write a new social contract.