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CAUT Bulletin Archives

January 1999

We Don't Need a General Tax Cut - Just a Fair System

Murray Dobbin

Exploding the Tax-Cut Myths

It is almost impossible these days to pick up a newspaper or listen to a newscast without reading or hearing the corporate mantra that Canada must lower its taxes to become more competitive. Yet for all the propaganda, the claim that our taxes make us uncompetitive is just dead wrong.

Figures from the Organization for Economic Co-operation and Development for the 29 industrialized countries for 1996 show that Canada is below the OECD average in terms of total tax revenues as a percentage of GDP, with a ranking of 18.

With respect to almost all the taxes that are commonly identified as making Canadian business uncompetitive, we are virtually equal to the United States or lower. Our corporate income taxes are competitive with those in the U.S. and elsewhere. Canadian payroll taxes are about two-thirds of the U.S. rate, and our property taxes are also lower. Only in consumption taxes are we significantly higher.

But Canada's strong competitiveness goes beyond taxation. For three years running, the Canadian accounting firm KPMG has compared cities in the U.S. with those in Canada to determine where it is cheapest to do business. In all these surveys, the cheapest American city was still more costly than the most expensive Canadian location, particularly in labour, electricity and borrowing costs. Canada's competitive advantage would disappear if our dollar rose to 87 cents U.S.

Another KPMG study compared Canada with six other industrialized countries - the U.S., France, Germany, Italy, Sweden and the United Kingdom. Again, Canada was the cheapest location in which to do business.

It's Just Ideology

The call for tax cuts is simply another front in the ideological war on government. Ultimately, slashing taxes means that we will have less revenue for public education, universal medicare, and a modern infrastructure - the very things that make us competitive.

The OECD's figures also demonstrate that Canada has one of the most regressive tax systems. While our highest tax rate is equivalent to the European Union average and slightly higher than the OECD average, our lowest tax rate is much higher than either the EU or OECD average. In other words, our tax system favours the wealthy, who invest their extra income, while it penalizes working Canadians, who spend virtually every extra dollar they earn.

This suggests that what Canada really needs is not an across-the-board tax cut, but genuine reform -- a shifting of the tax burden from poor and modest-income Canadians to those who have been getting more than their fair share of Canada's collective wealth.

The issue of tax reform relates closely to the financial crisis now facing the global economy. For 15 years, governments have been transforming the Canadian economy and society, gearing both for competition in the global economy -- an economy it was assumed would always continue to grow.

Paying for Permanent Recession

We are now paying the price for that false assumption. To gear up for this global economy, Canadian governments savaged the domestic economy. They implemented a policy of permanent recession -- deliberately high unemployment aimed at dramatically lowering labour costs. This policy, coupled with slashes to UI and welfare rates, declining real minimum wages, and a huge shift in taxes onto working Canadians, has taken billions of dollars out of the domestic economy.

With the global economy severely weakened. Canadian governments must now devise policies aimed at strengthened the domestic economy - the one we can influence. We can do this by implementing policies of full employment, boosting wages, promoting small and medium-sized businesses, strengthening public services and pursuing progressive tax reform.

Murray Dobbin is an author and broadcaster and a research associate with the B.C. office of the Canadian Centre for Policy Alternatives.

© CCPA Monitor/CALM, 1998.