Comment
Argument
A conversation. At last.
Buried in the Sophiasburgh councillor’s desire to shape and civilize the dialogue, there is the kernel of an argument. A basis, perhaps, for debate. (See Letters page 7).
It is surely one of the oldest democratic conundrums— how to tax and pay for the things government do—yet, it is as important a discussion today, in Prince Edward County, as it ever was. Municipal finances are in shambles— not just here, but across rural and remote regions of Ontario. Meanwhile, the province is swimming in debt— ensnared by its own financial mismanagement, of which there is a long and sordid trail.
The challenges in communities such as ours, however, worsen and compound each year while many municipal leaders stick their heads further and deeper into the sand.
Councillor Bill Roberts’s instinct prevents him from doing this. He’s bound to engage, whether it helps or hurts him. But this is a tough issue, one that defies easy solution. One that makes grown men weak in the knees.
I believe the councillor’s prescription is wrong, but that is beside the point. He has made an argument. So, let’s have the debate.
Bill Roberts begins his letter to the editor with a game defence of Mayor Quaiff’s silence after he and fellow Ontario municipal leaders were snubbed by Kathleen Wynne. Collectively, these mayors, wardens and reeves had urged to the premier to raise the Harmonized Sales Tax (HST) by a percentage point and use the proceeds to fund the replacement of many billions of dollars of decaying infrastructure across the province. When Wynne said no, and Mayor Quaiff wrote about a productive meeting, The Times responded with bewilderment and criticism.
Councillor Roberts counters one of this correspondent’s complaint suggesting that he believes the proposal of a one per cent HST hike was brought to council early in the current term of council and rejected. This is odd, because Mayor Quaiff says he and his AMO colleagues were told not to raise the issue with their local council until it was presented to the premier. Leaving this discrepancy aside, let us instead focus on Roberts’ core argument.
The councillor from Sophiasburgh contends that the proposal of an increase to the HST, a form of value-added tax (VAT) levied around the world, should be discarded because a VAT takes proportionately more from lower income families than it does from wealthier ones. It’s true. VAT taxes are, by this narrow definition, regressive. The data are clear. Goods and services taxes are levied on the things we buy, so proportionately, poorer families use a greater portion of their income consuming the basics of life than do richer families.
Yet, all taxation schemes have challenges. Income and wealth taxes discourage saving and investment. Property taxes fail to distinguish ability to pay. The elderly widow on a fixed income may pay the same taxes as the wealthy family of six living next door. It is for this reason that most jurisdictions use a combination of taxing methods.
Roberts wants new taxes on wealth, like those used in Switzerland, Norway and the Netherlands—nations frequently held as beacons of progressivity. Yet he fails to acknowledge that each of these countries impose a hefty VAT tax of its own on consumers. Switzerland’s VAT is 8 per cent. In the Netherlands, it is 21 per cent, while in Norway consumption taxes clock in at a weighty 25 per cent.
Each seeks to dampen the regressive impact of the VAT by lowering the rate on goods such as food, books and education expenses. In Ontario, HST is exempt on many of the same items, for the same reasons. Indeed, the practice of Norway and the Netherlands would suggest we have plenty of room to add to the HST and still keep our liberal credentials.
The reason these jurisdictions—and virtually every other industrialized nation, except the US—levy VAT taxes is because they work. They collect the revenue these governments need in an efficient way that, unlike income taxes, doesn’t discourage investment and productivity.
Exhaustive research indicates that taxes on wealth, in contrast, don’t work very well at all, not past a certain rate. It turns out that those with the resources will find ways to shelter what they perceive as their gains if they believe it is being unfairly confiscated.
When taxation reaches a level deemed unfair and unreasonable by those who hold it, wealth moves. Most economists concede there is a real limit to wealth taxes— beyond which they become uncontrollably leaky.
Closing tax loopholes and cutting back tax evasions are ambitions uttered by every government through the ages—yet never quite happen. There are always jurisdictions willing to provide a safe haven for wealth. (That Councillor Roberts would cite Switzerland as the model of taxation fairness, given its long and continuing history as a protectorate of foreign wealth escaping domestic taxation, is, I think, a self-defeating argument.)
Roberts also contends that the issue is “moot” because all three provincial party leaders have dismissed the proposal to raise the HST to fund infrastructure. This is not an argument. That the three folks seeking election next year are afraid of raising taxes, speaks only about the state of our politics—it says nothing at all about whether it is a good idea or not.
Then there is the moral argument: Who should pay? Is it savers? Or consumers? Wage earners or latte drinkers? Should we ask those who make things or buy things to pay more? Is it Grandma and her savings who must fund our infrastructure crisis or the column of consumers filing out of Costco with oversized carts bulging with electronics, paper towels and flats of licorice nibs and sun chips? Do we really want a tax system that discourages savings but incentivizes running faster on the wheel that chases the latest Apple or Android device?
The councillor ignores the fact that doing nothing, in an of itself, punishes poor and working families disproportionately. Water bills in the County have tripled over the last decade and a half—indiscriminately extracting more money from those in our community whether they can afford it or not.
Finally, Councillor Roberts must, I contend, propose a workable alternative—not a false, feel-good slogan. The infrastructure challenges facing this community and many others across the province are real and getting worse. Individual municipalities, like Prince Edward County can’t fix it on their own. We might borrow a bit more—add to our mountain of debt—but this approach merely pushes the cost onto our children and grandchildren. Further, we can’t borrow enough to fix this problem. The scale is simply too big. Ultimately, this crisis will require fresh revenue sources.
Nudging the HST up a point will put $2.5 billion each year to work. It is a start. According to Mayor Quaiff, it will generate $6 million a year for County roads, bridges and waterworks. It will drive job creation in construction, engineering, materials and transportation.
If Councillor Roberts or Premier Wynne have serious plans to raise this money—let us see them. Let us evaluate them. Just don’t tell us that closing tax loopholes will do it. Because it won’t. Worse, I expect they know this.
So, if not this, what’s your plan?
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