Terence Corcoran: Time for a new National Tax Revolt

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Terence Corcoran | March 23, 2015 | Last Updated: Mar 24 4:30 PM ET
More from Terence Corcoran | @terencecorcoran

Mark van Manen/PNG Staff PhotographerAlberta’s budget, coming Tuesday, is almost certainly going to contain tax increases to offset falling corporate taxes.

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“Barring a dramatic change in thinking, taxpayers of Ontario and most of the provinces face continued high tax rates and the prospect of tax increases. “

Across this fair land spring seeds are being sewn for a tax revolt. In three provinces – Quebec, Alberta and B.C. – increases in sales taxes are on the agenda. Along with Ontario, Canada’s provinces are in various stages of fiscal decrepitude, collectively borrowing billions to stave off the wolves at the door. There is only one way out: spending cuts. But politicians know of few alternatives but maintaining and/or increasing tax collections.

Budgets loom this week in Quebec and Alberta. Ontario comes later, but spending cuts are rarely taken seriously around the province. Even in B.C., where the government claims a surplus, a Vancouver plebiscite is underway to impose a $250-million-a-year “transit tax” on the city. Alberta’s budget, coming this week, is almost certainly going to contain tax increases to offset falling corporate taxes.

It is time – time to go back to the 1990s, to March of 1991 when I called for creation of a National Tax Revolt Week. Back to 1993, when a 25-year-old media-wise whiz kid named Jason Kenney, then head of the Alberta wing of the Canadian Taxpayers Federation, drove the Western-based CTF east into Ontario, where a fledgling tax revolution had developed under the Ontario Taxpayer’s Coalition, founded by a small-town small-business guy named George Lansens.

The 1990s tax revolt met with much success. But the fiscal deterioration in Canada’s provinces since then has taken much of Canada back to spending and debt levels that, while not as gruesome as the federal-provincial operating disasters of the 1990s, are running ahead of the current tax system’s ability to keep up.

The spending levels are best illustrated by the increase in the amount of money provincial governments spend per capita. Measured in constant 2013 inflation-adjusted dollars, the increase in spending across the four major provinces has been dramatic: up 44% to $8,923 in B.C. since 1997; up 54% in Alberta to $10,967; up 23% in Ontario to $8,545; and up 44% in Quebec to $10,343. As they say, that’s about $40,000 in spending per family of four.

To pay for these spending levels that were run up in the boom years before the 2008 financial crisis, the provinces have been borrowing at a collective rate of about $35 billion per year – or, in the case of Alberta, wiping out surpluses.

Instead of moving in to seriously tackle spending excesses, the provincial preference is to play around with the tax system, looking for fresh revenues, asset sales and other measures. Some reductions in expenditures have been talked about in Alberta and Quebec, for example, but the spending fiddles are minor. The major political push is to manipulate the tax system.

The latest in this line is the report last week from Quebec’s Taxation Review Committee, created by the Liberal government with a warped “zero-cost reform” mandate. The reform plan had to be “neutral for public finances,” which means no reduction in total taxes or overall spending. Instead, the review produced a massive complex shuffling of the Quebec tax deck. It proposed an increase in the provincial sales tax rate to 11%, plus assorted new taxes on books, baby diapers, big cars, electricity consumption and a carbon-tax increase of 5 cents per litre.

Raising sales taxes may be good economic policy, but not when the offsets are a hodge-podge of tax cuts that often make little sense. Personal income taxes would be cut, a good idea in principle, but not when it means a major increase in the number of tax brackets from four to nine, including more progressive rates through the range.

The general Quebec corporate tax rate would also be cut from 11.9% to 10%, but a range of micro-managed special provisions will continue to be given to select corporate sectors.