Do Canada’s governments spend too much? Or tax too little?
There is so much in Canada that needs fixing.
The health care system, once our national pride, now comes in various shades of broken.
In Toronto, an underfunded Toronto Transit Commission, once North America’s model transit agency, has reduced service, and a growing hole in the city’s budget means more cuts are likely coming.
The city’s homeless shelters are beyond capacity and facing cutbacks.
And across Canada, random stranger attacks are suddenly a worry. Those charged are often deeply troubled people who have spent a lifetime cycling through the justice system, with little of the support, supervision and continuing addiction and mental-health treatment needed to break the cycle.
Why? Because we don’t fund things like that.
And as The New York Times helpfully informed its readers, you can blame global warming for all that Canadian wildfire smoke, but maybe you also blame Canada for being unprepared, including gutting the budget of the federal forest service.
We can do better. Can’t we?
The thing is, getting better public services generally involves spending more on public services. You tend to get what you pay for. And what you don’t pay for, you don’t get.
If you have ever been to Vienna or Copenhagen, and marvelled at how everything just seems to work, take a look at the accompanying chart. It shows general government revenues – that’s all levels of government, not just federal – in the world’s richest countries. Europeans tend to have more extensive social services, and the social payoffs they provide, because their taxes – which pay for everything from poverty reduction to public transit – are higher.
On the flip side, the USA has a low tax burden, and more limited low-income supports and public services. It also has relatively high levels of poverty, millions without health care, and the rich world’s lowest life expectancy.
You get what you pay for. And what you don’t pay for, you don’t get.
Canada sits somewhere in the middle. We are a low-tax country with weak social services compared with Western Europe, and a high-tax/more-government country compared with our neighbours.
So, back to where I started: the feeling that so much in Canada is broken, and so much needs fixing. Where to find the money for those fixes?
There are a couple of options.
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We can identify other areas of spending to cut, and use the savings to fund higher priorities.
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We can raise taxes, to pay for the things that need to be paid for.
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Or we can do a bit of both.
Higher taxes are the third rail of Canadian politics. But if some brave politician decided there was something that needed paying for, one obvious option would be to raise the GST or related provincial taxes.
The Harper government cut the GST from 7 per cent to 5 per cent more than a decade ago. The cut was popular, but nothing in life is free. It costs the federal government $20-billion a year. That’s about three-quarters of a percentage point of GDP – or roughly 4 times what the federal government plans to spend this year on its signature child-care and early learning program.
Again: You get what you pay for. And what you don’t pay for, you don’t get.
On the flip side, federal and provincial governments also spend money in areas where they ought to cut back.
For example, there are questions about whether the unprecedented subsidies for electric-vehicle manufacturers – Volkswagen is in line for as much as $13-billion from Ottawa – are going to deliver big bangs for all those bucks.
But there are other areas where there’s no question that cuts are clearly warranted. Consider Old Age Security. The federal government expects to spend $76-billion this year on elderly benefits – OAS and the related Guaranteed Income Supplement (GIS) – rising to more than $93-billion by 2027.
These programs are unfunded pensions, meaning that current taxpayers are writing cheques to current retirees. Old Age Security and Guaranteed Income Supplement are supposed to be about preventing senior poverty, which is a very good objective.
But OAS goes to all seniors – and the Trudeau government even gave a permanent 10-per-cent bonus to everyone 75 years and up. The money only begins to be gradually clawed back once a senior’s income reaches roughly $87,000, and is only fully clawed back once income hits $142,000 – and nearly $148,000 for those 75 and over.
A couple in their late 70s with a combined income of nearly $300,000 will still be receiving some OAS.
We could save billions of dollars by lowering the clawback threshold to $60,000 or $70,000, and increasing the speed of the clawback.
Or how about this idea, which is the norm in much of the rest of the world: Stop using billions of taxpayer dollars to build and maintain “free” highways. Have users pay for them. Toll highways are widespread in Europe. In Canada, we have moved in the opposite direction.
We have chosen to spend scarce taxpayer dollars - billions of dollars worth every year - on free roads. But that has a price. The price is all those other broken things we can’t afford to fix
- Tony Keller
