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Taxes reduce inequality, provide vital public services

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I went to a recent public hearing into Bill 20, which proposes to increase the provincial sales tax a further one percentage point, and I heard some of the opposition but I also heard some support, which didn't seem to get much media coverage.

I was there not specifically to support raising the PST, but to defend the concept of taxation -- and the government's ability to raise taxes -- and the benefits it provides to the community.

Taxes can reduce undesirable degrees of inequality. The goal of minimizing inequality is supported by a number of studies which show the more equitable Nordic regimes as being healthier on a number of key indices. Its importance cannot be overstated.

Taxes also support vital public services. Expenditures on flood protection and compensation, health care, ensuring safe food and drugs, schools, universities, roads, parks, sanitation and a host of other things we value don't seem such a bad idea to me.

There is a contrary position that argues for low taxes so governments can be smaller with the corporate sector stepping up to the plate. The claim is the marketplace can perform most of these services and do them better than government. There is only space to challenge that claim with a couple of examples.

There are a good number of functions in which the private sector is not much interested. Has anybody noticed the absence of the private insurance industry during the 1997 and 2011 floods in Manitoba and today in Alberta? It has been government that responded with infrastructure work, such as the floodway expansion, and to claims for compensation. It is further interesting to note most of the criticisms of the government in 2011 was that compensation was too miserly. Where did the critics think the cash was going to come from? Dare I say taxes?

People protesting Bill 20 ignore the relationship between taxes and the services they pay for.

Bill 20 is not without problems. Dodging the referendum requirement of the balanced-budget legislation is one. The government lacked the courage to chuck the whole ill-conceived law. It puts the government in a straight jacket. It can't run a deficit, but makes it almost impossible to raise taxes. It is lopsided in that referenda are required to raise taxes but not to cut them even though cutting can have negative consequences.

For example, last year the government claimed to have reduced taxation by $1.2 billion. This is the estimated cost of the 2011 flood. There you go! Flood costs would have been met and no deficit. Besides, referenda are about who can spend the most money, with the truth as the first victim.

My second problem with Bill 20 returns to my earlier point about inequality and the ability to pay principle of taxation. There are likely fairer ways to raise revenues than an increase in the PST. There is some element of equity in the PST in that the more you have the more you consume, but there are limitations. Everyone, rich or poor, pays the same for the same goods with the less affluent thereby paying greater percentages of income. Moreover, the more affluent can often buy elsewhere.

There are other ways of raising the estimated $274 million from the increase in the PST, while advancing the ability-to-pay principle. Budget 2013 announces a further reduction of $41.3 million in personal income tax -- a tax generally considered to be fairer than consumption taxes. The addition of two marginal tax rates at the top end of the PIT would yield nearly $50 million. Next add in the $50-million loss of revenues from the seniors school-tax rebate. This is also antithetical to the ability-to-pay principle because it substitutes age as a criterion instead of need. Finally, restore a mere 11 per cent of the earlier $1.2-billion cuts and bingo! We have raised $274 million.

And we haven't asked yet if the small proportion of taxes paid by corporations, which also benefit from tax-supported services, is based on ability to pay.

In the end this debate is about choices. We can choose to buy into the low-tax, small-government, trust-the-marketplace ideology. Or we can choose a vision of a level of public services of which we can be proud. It would include a capability for governments to work toward reducing the risk of catastrophic events and respond with timely aid for the victims. And here is the rub for some; it would include a recognition of the need for a variety of taxes.


Peter Hudson is a professor emeritus at the University of Manitoba and a research associate of the Canadian Centre for Policy Alternatives, Manitoba. This is based on his presentation at hearing on the Bill 20, legislation to increase the PST.

Republished from the Winnipeg Free Press print edition July 11, 2013 A15

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