| Montréal,
le 29 août 1998 |
Numéro
19
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(page 6)
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MUSINGS BY MADDOCKS
CANADIAN TAX SYSTEM: HEGEL
WAS RIGHT
by Ralph Maddocks
It must have been a source of considerable contentment to the citizenry
of Quebec to have realized that on July 6th 1998, they were actually beginning
to work for themselves and not for our rapacious government. According
to the Fraser Institute, which publishes such information, Tax Freedom
Day was one day earlier this year when compared to 1997. It was also about
a month later than in 1981 and more than two months later than in 1961
when the date was first calculated and published. Yet one more amazing
fact that the long suffering taxpayers of this province doubtless do not
know and of which their elected representatives will certainly not be reminding
them.
Fraser calculates its Tax Freedom Day by taking into account all the taxes
we pay, including « income taxes, property taxes, sales
taxes, profit taxes, health security and employment taxes, import duties,
sin taxes, natural resource fees, fuel taxes, hospital taxes, amusement
taxes and a host of other levies too numerous to mention ».
It then generates a series of estimates based upon three different
kinds of taxpayer: families and unattached individuals, families with two
or more individuals and families of four (two parents and two children
under the age of 18).
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The average cash income for the second, or middle, group in Quebec was
54,210 $ with total taxes amounting to 27,517 $,
for a total tax rate of 50.7%. The split was roughly 48% federal, 45% provincial
with the remainder being extorted by municipalities. This is made all the
more interesting when one discovers that Quebec receives transfers from
the federal government equal to 15% of its provincial revenue. Not something
that the oleaginous Finance Minister dares to mention.
Comparing peaches with oranges
It is difficult to compare Quebec to other provinces because their average
cash incomes are, in general, higher. Where they are lower, such as in
Nova Scotia, the comparable income is 52,486 $, the tax rate
42.3% and Tax Freedom Day is June 5th. Alberta, which has an average cash
income for that group of 65,897 $ and a tax rate of 44.5%
celebrated it’s Tax Freedom Day on June 13th. Whether this is the beginning
of an overall downward trend or not is hard to say since Saskatchewan’s
Tax Freedom day actually went from June 22th to July 2nd due to an unusual
event in 1997.
The high rates of tax at both federal and provincial levels are driving
out the more mobile and better educated citizens. Even for an ordinary
wage earner there are nine better places to live than Quebec, at least
from a tax point of view. If you are a high income earner, then Alberta
with its top rate of 46% may suddenly seem appealing. Lotus land has the
highest combined federal-provincial top marginal tax rate, a staggering
54%. Perhaps not surprising for a province whose left-wing NDP government
is ruining the provincial economy and driving investors and businesses
eastward to Alberta. In all fairness to them though, it should be admitted
that within three years their top marginal tax rate is supposed to fall
from the present 53% to 49.9%.
Analysis of the economics of imposing high marginal tax rates on people
shows that for each extra dollar of tax revenue it receives, BC loses 65
$ in economic activity. In Quebec, this is estimated to be over
70 $. It is often surprising to see how little politicians,
especially those with an egalitarian bent, seem to understand such simple
facts. People reduce their efforts to earn more if it will be taxed at
higher rates and begin to look for ways to receive their compensation in
untaxable forms. People spend their energies on finding ways to evade taxes,
they look for tax shelters, they put off the sale of appreciated assets
and so on. Bernard Landry seems to understand this latter concept quite
well since he is always showing us TV clips of people working under tables.
He seems to think that hiring more tax inspectors and encouraging snitches
is the answer to improving the moral climate. Reducing taxes doesn’t seem
to occur to him as a possible starter for the economic motor. One could
well ask why this province has such high unemployment rates and so little
serious investment. Assuming that you were a simple investor living outside
this country and you have an idea and a few millions to invest, would you
bring it to Quebec or take it to Alberta?
Equality vs. Equity
The egalitarian philosophy which seems to dominate the minds of most of
our politicians impels them to indulge in rhetoric about tax equity, by
which they mean that the more you earn the higher the rate of tax you should
pay in order to be equitable. That this may cause you to leave for another
jurisdiction, that higher rates may not be producing greater revenues or
that such actions may even impose heavy costs on society is rarely if ever
considered.
The top marginal rates in other countries are: 40% in the UK, 33% in New
Zealand and even in that preview of socialist heaven, Sweden, they have
brought their top rates down to 51% on earnings and 30% on capital incomes.
Our neighbours to the south have a top marginal tax rate of 39.6% on taxable
incomes of 264,000 $ (approximately 400,000 $
Can.). Canada’s top rate starts at almost one seventh of that amount, nearly
60,000 $. Is it so very surprising that people leave this
province and this country?
Hegel remarked in his Philosophy of History, « What
experience and history teach is this, that people and governments never
have learned anything from history, or acted on principles deduced from
it. » Quite so.
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