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Enough Tax Cuts!

Harper keeps carving away at Canada's soul.

By Murray Dobbin 1 Dec 2006 | TheTyee.ca

Murray Dobbin writes his State of the Nation column twice monthly for The Tyee. You can find previous ones here.

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Finance Minister Flaherty: Competitive?

So, Harper's finance minister is promising $22 billion in tax cuts. Great. Another nail in the coffin for democracy in Canada.

Some historian in the future will look at this period of Canadian democratic governance and in sombre tones describe how Canadian society, somehow, inexplicably, began to deliberately diminish itself. It did this not, the historian will say, because it needed to. There was no sudden collapse of its economy. There was no outside force that required this shrinking of the nation. There wasn't any popular shift in attitude away from nurturing the commons.

There was no lack of wealth to tax in order to find the necessary revenue. In terms of wealth per capita, Canada, in 2006, was more than twice as wealthy, in constant dollars, as it had been when medicare, its most popular social program, was established 40 years earlier.

In spite of this extraordinary wealth, the diminution of the country, of the society, of its culture and its sense of community, was self-imposed. In a stunning reversal of the usual pattern of collective denial, the country that the UN at the time proclaimed one of the best in the world in which to live, denied its incredible capacity to become more than it was.

It decided, bit by bit, to become less.

$250 billion gone, but not the needs

That it may take a historian many years hence to recognize what we are doing to ourselves is a tribute to the power of ideology and to the capture of the news media by that ideology. Canadians' support for the kind of Canada built in the post-war period has not changed. But through a relentless assault on that vision, and on government itself, their expectations of what is possible has been radically altered.

They have been altered to such an extent that each next step in the erosion of our collective self seems to be met with resignation. The spectacle earlier this fall of the Harper government gleefully using every cent of a $13 billion surplus to pay down the debt, while cutting $2 billion in programs that enhanced the nation, was sickening.

But it was only a little worse than the Liberals and Progressive Conservatives before him.

Between 1984 under Brian Mulroney, through seven years of the Liberals guided by finance minister Paul Martin, federal governments, through tax cuts, voluntarily disposed of $250 billion in government revenue and the things that revenue could have accomplished. That this fact can stand almost unremarked upon, beside stories of bridges collapsing or about to collapse, of $60 to $120 billion in needed infrastructure replacement, of tens of thousands of our fellow citizens sleeping in the streets every night, of tuition fees more than doubling and international condemnation for our parsimonious foreign aid, is mind-boggling.

Voluntary impoverishment

And it was not just Ottawa. The provinces, for all their whining about the "fiscal imbalance" were just as bad. According to Marc Lee of the Canadian Centre for Policy Alternatives, the provinces between 1995 and 2005 voluntarily relieved themselves of between $19 and $24 billion in revenue through tax cuts. And this combined, voluntary impoverishment does not even take account of the fact that federal surpluses -- a string of them starting in 1997 -- have been spent overwhelmingly on debt repayment. Mr. Martin deliberately low-balled the surplus estimates so that they would have to be applied to debt rather than be spent on things the country needed.

Finance Minister Jim Flaherty and Harper are following in his footsteps: using the debt as a useful excuse not to spend the surplus. Yet there is no need to take such a radical approach to paying down the debt. Economists assess debt based on a country's ability to pay. We are already number one in the G7 in terms of our debt-to-GDP ratio, and the ratio goes down every year as the economy grows. Conservatives like to frame the debt question by using the handy household metaphor. But a family doesn't radically increase its mortgage payments if it means it can't send the kids to university, fix the leak in the roof or put good food on the table. Canada, like a family, needs to take a balanced approach with its surpluses, paying some towards the debt but also spending on needs.

In fact, deficit cutting and debt repayment have been used for nearly 15 years as an excuse to downsize the social role of government.

Indeed, Paul Martin's 1995 cuts ($23 billion over three years) were not motivated by the deficit. The deficit disappeared in 1997 but according to an analysis by economist Jim Stanford, would have done so anyway by 1998, one year later, through economic growth had Martin simply frozen spending. The cuts were inspired by a wilful dedication to diminish the role of government. In his famous 1995 budget speech, Martin boasted: "Relative to the size of our economy, program spending will be lower in 1996-97 than at any time since 1951." A more perverse pride is hard to imagine.

Of course once deficit hysteria no longer worked and the surpluses were rolling in, tax cuts took over, even though Canadians never asked for them. Corporate taxes here are now well below the level in the U.S., but Bay Street continues to demand more cuts. Otherwise Canada will not remain "competitive."

How the truly competitive win

But according to figures from the World Economic Forum, the more we have cut taxes, the less competitive we have become. We are now in 16th place in the competitiveness sweepstakes, down from 13th last year and 5th in 1999 -- the year before Paul Martin's unprecedented corporate tax cuts began to kick in. Those taxes have been cut virtually every year since -- and each year we become less competitive. Nine of the countries ahead of us have higher taxes and the Nordic countries -- which collect half their GDP in taxes every year -- wiped the floor with us. Finland was second, Sweden third, Denmark fourth. Norway and Iceland also beat us.

The explanation for our lack of competitiveness lies elsewhere. Michael E. Porter of the Harvard Business School led studies on Canadian competitiveness in 1991 and 2001. They concluded: "The absence of intense local rivalry combined with customers who were not demanding produced weak pressures for firm productivity and upgrading...Research uncovered key weaknesses in the sophistication of company operations and strategy." Firms that did compete internationally focussed on the U.S. and on "...natural resource advantages or lower labour costs than other G-7 competitors instead of sophisticated products and processes."

There you have it. The blame for our lack of competitiveness is to be laid not at government's door and "excessive taxes" but at the door of business for inherent weakness, persistent aversion to risk, refusal to upgrade technology or to modernize management systems. Ordinary Canadians are paying for Canadian corporate incompetence through an ever-increasing share of the tax burden and in eroding social programs.

But Bay Street has nothing to fear. Stephen Harper knows it is not about competitiveness. It is about diminishing the social role of government and enriching his friends. In that spirit, his government's announcement of another $22 billion in tax cuts is consistent with the past 20 years. Get rid of revenue anyway you can, otherwise you will have to build the nation. That is to be avoided at all costs.

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