Thursday, April 23, 2015

State-entitlement: a little less of the same, please

From listening to remarks by the likes of Tom Mulcair and Justin Trudeau one could get the impression that the NDP and, to a lesser extent, the Liberals believe all income we earn—one hundred per cent of it—whether from individuals or corporations, belongs outright to the various levels of government in Canada.

It is then left to those governments to decide how much of that income they will allow us keep for our own discretionary use. This rationing process—sometimes referred as income redistribution—is achieved to a large extent through our income tax system.

This is what I call state-entitlement. Which is to say that the state is entitled to all income from all sources, not unlike communism whereby all property is owned in common—in effect by the ruling political party—and citizens work and are paid according to the government’s view of their needs. The main difference between state-entitlement and communism is the former’s willingness to tolerate an economic mix of private enterprise with government interference, ostensibly to achieve loosely defined social aims.

In the case of Mr. Mulcair’s New Democrats, the primary social aim seems to be to maximize the total number of public sector trade union jobs with top-tier wage and benefit packages.

In the case of Mr. Trudeau’s Liberals, the social aim seems less focussed and seems to have more to do with winning and keeping political power, which converts inevitably to the enrichment of “friends” and financial supporters of that party. (Should you require some convincing evidence of this do some research on Kathleen Wynne’s Ontario Liberals.) So, with the Grits, opinion polls inform their public policy far more than does principle or political theory.

Recently we have seen examples of how the opposition parties try to protect and advance the goals of state-entitlement.

Whenever a tax reduction is announced by the Conservatives, the NDP and the Liberals turn to their economic advisors for calculations of how much of the benefit is received by which sectors of the economy. The prevailing view seems to be that we all give up something so that some subset of our population can benefit. That is to say, when the state’s entitlement is reduced marginally, we all lose and accordingly have the right to ensure the beneficiaries of the tax cut are worthy of the state’s largess.

You see it matters not an iota that beneficiaries are being allowed to keep more of the money they earned from their own labour. Under state-entitlement, after all, individuals and corporations have no automatic right to the product of their labour. It all belongs to the state.

Let’s use a few examples to illustrate my point.

First, lets look at Prime Minister Stephen Harper’s proposed income splitting tax break for Canadian families with children under 18, which would allow spouses in different tax brackets to split incomes for tax purposes.

According to a Parliamentary Budget Office’s study in March of this year, that plan will benefit about 15 per cent of Canadian families (about two million households, according to the National Post), some of whom are higher-income families. It matters not a scintilla to Dippers and Grits alike that those families who benefit from income splitting do so only because they have been unfairly penalized by our current tax system.

The beneficiaries are those households whose income tax bill has traditionally been higher than other households with the same total income, because one spouse earns substantially more than the other.

Household income, it is worth noting, is widely accepted as the fairest measure of a family’s ability to pay, which is why governments have used it for years when calculating certain of their tax credits.

So why have households whose spouses’ incomes are more or less equal been traditionally been paying less income tax, when one would think simple fairness would demand equal household incomes would be taxed equally?

As far as I can tell, its only because Canada’s income tax is based on individual income—unlike the U.S.’s system which does allow spouses to file joint income tax returns. This leads to fundamentally unfair tax treatment of some couples and income splitting is designed to help correct this injustice.

Nonetheless, the Dippers and the Grits cast this tax “realignment” as a tax-break for Canada’s richest families and mock the Tories for advocating it. You see, allowing 15 per cent of Canadian families to keep more of their hard-earned income is anathema to proponents of state-entitlement like Messrs. Mulcair and Trudeau.

My second example is the higher annual limit on contributions to Tax-Free Savings Accounts (TFSA) announced in Tuesday’s federal budget. Here’s a quote from this morning’s National Post:

Finance department statistics show that of 11-million TFSA holders in 2013, 80 per cent had incomes below $80,000, and 50% were below $42,000. Of those who made the maximum contribution, 60 per cent had incomes below $60,000. To be sure, richer Canadians are more likely to contribute to their TFSA than poorer Canadians, but it’s simply incorrect to suggest it is just a tax break for the rich.”

In the case of the proposed TFSA contribution limit increase, we are dealing with Canadians’ after-tax income. In other words, the government has already taken its share in the form of income tax, and contributions to a TFSA comes out of what Canadians have left to invest or spend at their discretion. Should a Canadian decide or need to spend his share, the government will tax it again in the form of GST. Should he decide to save it, the government will tax it again in the form of income tax on interest or any other gain he realizes on his investment.

In other words, taxes on investment income is a form of double taxation, another fundamentally unfair tax practice whereby a Canadian is taxed when he earns income and again when his after-tax savings receive interest, etc.

Many governments have recognized that gains on invested capital should be, at least, taxed at a reduced rate. In Canada, however, investment income has traditionally been treated pretty much like any other income and has been similarly taxed. Now the government seeks to redress this fundamental flaw by allowing some investment income to be shielded from tax until the money is used for some other purpose. Yet, again, the opposition leaders say they’d reverse the Tories’ plan.

Finally, lets consider Mr. Mulcair’s $15-a-day-child-care pledge.

This would, obviously, only benefit families and individuals with young children. And consider this quote from a piece Jeffrey Simpson wrote for The Globe and Mail last October:

Quebec’s [NDP’s plan is based on Quebec’s] heavily subsidized daycare program has been a special boon to the province’s middle class, especially the upper middle class, who use their knowledge of the system and contacts to get their kids into the right spots.”

Simpson added, “all sorts of parents who don’t need the [child care] subsidy benefit from it.”

What? The NDP plan benefits the rich? Shocking!

But remember the Dippers’ axiom: the primary social aim is to maximize the total number of public sector trade union jobs with top-tier wage and benefit packages. And remember that the NDP will press for most child-care employees to be unionized. That’s all it takes to make this a “good” tax break.

As to Mr. Trudeau’s proposed tax policy changes? Well he’s still studying the opinion polls. He’ll let us in on his plans once he learns which way the wind’s blowing.

Thursday, April 9, 2015

Canada’s participation in TPP jeopardized by communist-style supply management

Canadian governments of all stripes have traditionally supported the communist-style regime used to regulate prices and production of Canada’s dairy, egg and poultry industries and to protect them from foreign competition.

Since mid-2012, however, U.S. trade officials have made it clear that the system has to go if Canada wants to be part of the Trans-Pacific Partnership (TPP), a new free trade zone of twelve countries representing 40 per cent of the world’s economy.

The TPP, which would also include the United States, Japan, Australia, Brunei, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, has the potential to be one of Canada’s most lucrative trade deals. Here’s an excerpt from the federal government’s website:

The rapidly-growing Asia-Pacific market is critical to Canada’s growth and economic prosperity. 

“The Trans-Pacific Partnership is one of the most ambitious trade and investment initiatives being negotiated in the Asia-Pacific region. TPP members want an ambitious, 21st-century agreement that will enhance trade and investment among the partner countries, promote innovation, economic growth and development, and create jobs.”

It is no secret that Canada’s dairy and poultry farms are artificially supported by an archaic, costly, anti-consumer supply management system. Moreover, these farms—only about six per cent of Canadian farmers—have been singled out from among all of Canada’s food producing farms and other operations to be a regulated cartel that is supported by price fixing practices and by imposing extremely high tariffs to support high prices.

I’ll not go into detail about this egregious system, but I strongly suggest you read former Liberal MP, Martha Hall Findlay’s excellent three-part series on the subject at Maclean’s website if you haven’t already done so. And here’s a link to her research paper published by the School of Public Policy, University of Calgary.

Hall Findlay’s research shows there are little more than 12,000 dairy producers in Canada, fewer than 3,000 poultry farmers and fewer than 1,000 egg farmers. Furthermore, they represent less than one-half of one per cent of Canada’s economy.

Because of supply management, there is a massive transfer of wealth from low and middle income Canadian families to these few farmers whose average net worth ranges from $2.5-million for dairy farms to almost $4-million for poultry/egg farms.

Moreover, Hall Findlay tells us that:

There are only 13 ridings in Canada with more than 300 dairy farms. And to put things into relative electoral perspective, these are ridings which have an average of 80,000 registered voters each. Eight of these are in Quebec, three of which (based on both the 2008 and 2011 elections) are held comfortably by Conservatives. Three are held by the NDP, two by the Bloc Quebecois, but in four of these, the Conservatives did not even come second, so the situation is
not likely to change one way or the other. The other five of this group of 13 are in Ontario, strongly held by Conservatives, each by over 10,000 votes in 2011.”

So there would be limited political fallout should the Tories decide to scrap this artificial system, or so one would think. But the Tories continue to argue in favour of retaining it—against all logic, even if it impedes trade negotiations that might be of benefit to other industries and even though it must stick in the craw of many free-market conservatives in the House.

The Tory stand confounds me and offends my sense of fairness. There must, I tell myself, be some clever strategy behind such a stubborn refusal to give low- and middle-income families a break by phasing out supply management. And perhaps there is.

Consider that in trade negotiations one must give something up to get something in return. By refusing so resolutely to keep our dairy and poultry business more or less closed to foreign competition, we have created an area for countries like the U.S., Australia and New Zealand to target. So are the Tories really holding out on supply management only to have it as a prize they will “reluctantly” give up when forced to do so in return for trade concessions not otherwise available to Canada?

I hope so. Other explanations aren’t very flattering to our Conservative champions of free-enterprise.