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Tax cuts and free markets: Those pernicious influences

By Steven Martinovich

(January 31, 2000) According to a recent report by the Centre for Social Justice, a Canadian leftist think tank, living standards in Canada have fallen because of government faith in tax cuts and the power of the free market. While the eroding living standards are a reality, I do have to wonder where the faith and tax cuts are.

If you are a Canadian and you watch the news, you know by now that Canadian living standards as measured by income have largely remained stagnant in the go-go 1990s, the same decade which has seen an explosion of wealth creation across the planet. The average Canadian, however, earns the same now as they did in 1990 thanks to a myriad of factors.

Unlike previous reports, the centre's report states that cuts to taxes and social programs have actually pushed families rich and poor alike closer to the bottom of the income scale. Report author Armine Yalnizyan says that not only are there not more rich people, but that the rich are not getting richer.

In 1989, some 30 per cent of families had an after-tax income of less than $35 038 [all figures in Canadian dollars and inflation adjusted], compared with 37 per cent in 1997, the report found. The poorest 10 per cent of families had average after-tax income of $13 806 in 1997, compared with $15 596 eight years earlier.

At the other end of the scale, the top 10 per cent of Canadian earners had average after-tax incomes of $98 746 per household in 1997, compared with $106 963 in 1989.

And who's in the lead when it comes to this? Alberta and Ontario, says Yalnizyan, who are not coincidentally both government by free market conservatives. Both governments have cut spending an in effort to return more of the average person's income. Those who haven't followed their fiscal lead have the narrowest wage gap -- provinces like Saskatchewan, Newfoundland and Nova Scotia.

By most measures, Ontario and Alberta are the economic power houses of Canada, fueled respectively by exports and resources and are both business friendly, while Newfoundland is perennially Canada's poorest province, as reliant on Employment Insurance benefits as it is to its declining fishing industry.

The problem with Canada isn't too much capitalism, but not enough. Although Canada was recently rated the seventh freest economy in the world -- tied with Australia -- by the Cato Institute and the Fraser Institute, it continues to be tied down with a heinous amount of taxation -- highest in the G7 -- and a devotion to socialist style social engineering.

Canadians pay over 50 per cent of their income towards provincial and federal income tax, a percentage which has grown throughout the 1990s because the federal government refuses to index taxation to inflation, meaning if you do earn similar amounts in 1990 and 1999, you are actually paying more in tax thanks to the effects of inflation. That bracket creep is one of primary reasons of wage stagnation, not tax cuts. While Alberta and Ontario may have cut taxes, the federal government has raised taxes six years running, an extra $50 billion since 1993. And much of that from people earning less than $30 000 a year.

Where does that money go? Our federal government enjoys spreading the swag to as many people as possible though every conceivable type of government program, whether handouts to both people and corporations. Even programs with massive surpluses, such as the Employment Insurance program -- continue to take in far more than they need from the average Canadian's pay cheque.

It is that government intervention in the economy which is responsible for people running to stand still, not largely non-existent tax cuts or faith in free markets. That government intervention, since the beginning of the 1980s, has led to Canada's economic growth falling behind that of the United States, an unemployment rate generally five to six per cent higher, and a disposable income which has barely grown while the average American has C$11 500 more to spend compared to 1985.

The federal government, and the rest of Canada's provinces, would do well to follow the lead of Ontario and Alberta. Thanks to cuts in social spending and other government programs, Ontario has been able to reduce provincial income taxes by 30 per cent since June 1995. It is Canada's strongest economy and has the lowest unemployment rate. The average person is more likely to have a job and more likely to have more personal income thanks to that fiscal policy.

That will reduce the levels of Yalnizyan's unfortunates, not more of the same. Yalnizyan's tax hike friendly solutions of a "more even distribution of job growth," better wages, better services to help families meet basic needs and better supports for Canada's poorest families will only bring more of the same.

Thanks for reading,

Steven Martinovich

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