It has been a couple of weeks now since Finance Minister Jim Flaherty rose in the House of Commons to deliver the government's fall economic and fiscal update. The reviews - mostly glowing - have been delivered. The applause has begun to subside and the opposition Liberals have been cowed into supporting the government rather than toppling it in a non-confidence vote.
Flaherty announced what he called meaningful, broad-based measures that would deliver $60 billion worth of tax relief over the next five years. The GST will be cut to five per cent come Jan. 1, fulfilling a Tory election promise to shave two points off the tax during their first term in office.
The basic personal exemption will increase by just over $600 to $9,600, retroactive to Jan. 1, 2007, and the exemption will rise to $10,100 on Jan. 1, 2009. The personal rate on the first $30,000 of taxable income falls to 15 per cent from 15.5 per cent, also retroactive to Jan. 1 of this year, but the rates on higher levels of taxable income remain unchanged.
The third pillar in the package was aimed at incorporated businesses. It will reduce the corporate income tax rate from 21 per cent to 15 per cent by 2012.
Business groups were nearly unanimous in their support for the package. Newspaper columnists and editorial writers were, for the most part, complimentary. Even the Canadian Taxpayers Federation, a steadfast opponent of high taxes and excessive spending, allowed that it was a good start, while arguing that more needs to be done. Most of these opinions were delivered on the spur of the moment to meet the demands of the daily news cycle. Sober second thought should tell us that more can and should be done.
This package deals with the excessive taxation that has contributed to large annual surpluses for most of the past decade. Some elementary math suggests that if the federal government gives up an average of $12 billion revenue in each of the next five years, its budgets should be balanced, and that's how it should be.
But the status quo - in terms of federal programs, services and employment - remains intact. Flaherty's package of tax cuts does nothing to come to grips with the high taxes that have allowed government payrolls and budgets to grow almost yearly since the deficit-induced, fiscal crisis of the mid-1990s.
Figures compiled by the 30-member Organization for Economic Co-operation and Development indicate that the tax burden in Canada is lighter than in most European nations, but significantly heavier than that of our nearest neighbor and largest trading partner, the United States.
Total taxation in 2005, the latest year for which figures are available, stood at 33.5 per cent of gross domestic product compared with the European average of 38.4 per cent. In the U.S., the total tax load stood at 27.3 per cent of GDP.
The other potential problem is this: As Ottawa reduces its take, other levels of government may increase theirs. The Alberta government, purely by coincidence, is preparing to boost its royalties on oilsands developments by some $1.4 billion per year, which will surely wipe out some of the gains made through the lowering of corporate tax rates.
Similarly, the City of Toronto has just been through an excruciating debate over new taxes that ended in victory for the pro-tax side and added fresh burdens to the shoulders of ratepayers. A land-transfer tax - imposed on the sale of property - takes effect Feb. 1 and a vehicle-registration tax will kick in next fall. These measures will cost Torontonians $175 million next year and that figure is expected to grow to $300 million.
We are now hearing a chant from those who believe that the Ontario government should raise the provincial sales tax and re-occupy the ground abandoned by Ottawa. According to Globe and Mail municipal affairs columnist John Barber, the province would net some $400 million by bumping its sales tax to nine per cent from eight - money that could be turned over to municipalities - and he berated politicians for lacking the courage to "take advantage of the opportunity that now dangles so beguilingly in front of their twitching noses."
Likewise, provincial NDP Leader Howard Hampton sent a letter to Premier Dalton McGuinty urging him to do the same and arguing that a one-per-cent addition to the sales tax could raise $2 billion, a figure some experts disputed.
Perhaps there is an alternative to these endless demands for more money. Perhaps it is time for a thorough review of what our governments do, and some consideration given to asking what they should or should not be doing.
The public sector has not been through the restructuring that the private sector has experienced over the past 15 years. Those changes, at times painful, have given us a more efficient and competitive economy, which is now generating the tax windfalls that governments consume.
The same sort of changes, applied to government departments at all levels, might improve the delivery of services and provide taxpayers with better value for their money.
(D'Arcy Jenish can be reached at jenish@businessedge.ca)
