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Target tariffs that inflate dairy prices

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CALGARY -- In the recent throne speech, the federal government announced a variety of initiatives but the one that drew much attention was its ostensible consumer-friendly tack.

On some consumer issues, the Conservative government has the right instincts, promoting competition within the cellphone sector for example, even if its approach to the upcoming wireless spectrum auction is flawed.

In other places, the Harper government's predisposition is counter-productive: For instance, ponder the federal government's desire to micromanage how airlines double-book seats.

This government desire to direct is daft. Consumers who don't like the risk of an overbooked flight can choose airlines which don't engage in the practice; others might well be fine with the chance they will be bumped. Those consumers will happily take the flight vouchers offered, usually worth several hundred dollars, in exchange for the inconvenience. This is not a matter Ottawa needs to regulate.

More critically, the throne speech will do little to put downward pressure on the costs of the basic necessities of life -- dairy and poultry products, for example. Those are still "protected" by both a government-created cartel system and by extremely high tariffs (i.e., taxes). When applied to basic foodstuffs, it means above-market prices result. That hurts poorer Canadians the most.

Before detailing the federal government's blind spot, however, let's put some matters in perspective, starting with consumer reactions to visible taxes: Consumers hate them.

Examples abound. In 1991, taxpayers became ornery over the introduction of the goods and services tax, even though, as a tax, the then-seven per cent GST was far superior to the 13.5 per cent hidden manufacturers' export tax it replaced. (The older tax acted as a tax on Canadian exports, rather counterproductive if you were trying to sell Canadian-made items to foreign buyers.)

More recently in British Columbia, 881,198 voters, or almost 55 per cent of those who cast a ballot, turfed the harmonized sales tax in a 2011 provincial referendum, despite the fact the HST was superior in design and function to the two taxes it replaced.

But compared to the battles over the GST and HST, whopping import tariffs (i.e., taxes) designed to keep competition low and food prices high rarely garner much public ire because, unlike the GST or HST, tariffs are not visible on your bill at the till.

Just look at some hidden tariffs on imported dairy products: yogurt, 238 per cent; milk, 241 per cent; cheese, 246 per cent; skim milk powder, 270 per cent; ice cream, 277 per cent; butter, 299 per cent.

As part of the planned Canada-European Union free-trade agreement, the government signalled its intent to let in more tariff-free cheese from Europe, but this is hardly a dramatic reform; poorer consumers are not likely to buy imported French specialty cheese, though this could change if the doors to imports were thrown wideopen and dairy prices dropped.

A more necessary, but ignored, reform in the dairy sector would allow open competition across the Canada-U.S. border and even between provinces. Right now, even internal entry into the dairy market is restricted and quotas on supply are imposed through the Canadian Dairy Commission, a Crown corporation which chairs the Canadian milk supply management committee. The latter body has the power to set restrictive quotas on dairy production.

Federal legislation to allow such cartel-like powers was only passed in 1966, so it is not as if there is some constitutional right to a cartel in cheese and milk.

To help consumers, especially those with the lowest incomes, the federal government doesn't need to micro-manage airline tickets. Nor does it need to concern itself with whether a cellphone company charges two bucks for a paper bill. It could, instead, focus on the big picture and repeal legislation and policies that block new entrants into a market and thus restrict the supply of products and services to consumers, the effect of which is usually above-market higher prices.

The Harper government may well intend to help consumers, but the best way would be to start killing the triple-digit taxes on imported dairy products, whether from the European Union, the United States or anywhere else.


Mark Milke is a senior fellow at the Fraser Institute and author of Tax Me, I'm Canadian: A Taxpayer's Guide to Your Money and How Politicians Spend It.


Republished from the Winnipeg Free Press print edition October 22, 2013 A9

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