Needs, wants — and taxation

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This article was published 04/01/2025 (287 days ago), so information in it may no longer be current.

Any household that ran itself like the various levels of government would soon face financial ruin. Simply, government doesn’t earn enough to pay the bills.

So it borrows, and yet it’s painfully obvious to anyone who has used health care lately it’s still insufficient

The solution seems simple, though not in reality: raise taxes.

Most politicians know raising taxes is poisonous to their ability to hold onto power. Still, some do — like Winnipeg city council, recently unveiling a 5.95 per cent property tax increase for 2025.

That’s partly because it had no choice. Manitoba provincial legislation won’t allow the city to run operating deficits. It faced one this coming year, so its hand was forced or council faced cutting services (like road repair).

By the same token, the provincial government reinstated the gasoline tax, after a year-long holiday that cost it about $340 million in revenue, helping fuel an estimated $1.3 billion deficit.

Even ending a tax holiday was likely hard for a politician because voters don’t like tax hikes, even to levels they had previously had been paying.

But maybe we should embrace higher taxes?

A question akin to passing wind — loudly — at a party, its answer is also a political Rorschach test. The right and the left agree there’s a revenue/spending problem, but they see different roots of and solutions to the problem.

“It’s in the public discourse a lot these days,” says Molly McCracken, Manitoba director of the Canadian Centre for Policy Alternatives. She recently authored an op-ed in the Free Press, arguing against further tax cuts.

Cutting taxes, she argues, usually requires cutting services. “After 40 years of that approach, with many bureaucracies cut to the bone, there is no more fat to trim.”

What’s more, once taxes are cut, it’s hard to raise them back to where they were.

The alternatives to higher taxes are not much better. Borrowing adds to the public debt. Debt erodes the ability to pay for services. And cutting services is unlikely to satisfy a public wanting better services.

McCraken suggests more revenues could come from a Manitoba higher tax bracket for income. As well, taxes on corporations could be raised.

“We have among the lowest corporate tax rates of all provinces,” she says.

Accountant and financial columnist Kim Moody agrees governments are in a financial pinch, but he is not fond of raising taxes on the wealthy and corporations. “The rich already pay a lot.”

Moody should know; his tax practice works with wealthy Canadians to reduce their taxes. “Tax tends to be a very significant response trigger … to making decisions about where to place capital.”

Wealthy Canadians will and do take their capital to other jurisdictions to reduce taxes.

“It’s not the No. 1 driver, but it’s a contributing one,” says the founder for Moody’s Private Client in Calgary.

Corporations are even more likely to make such a move, he adds. “Capital goes to friendly gardens.”

One suggestion that rarely gets much traction is raising taxes on the middle class, says Katrina Miller, executive director for Canadians for Tax Fairness. “That’s because the middle class is the most burdened.”

The tax system is intended to be progressive. The more you earn; the more tax you pay. That’s how income tax works.

However, Miller says the system stops being progressive for wealthier Canadians benefiting from lower taxes on capital gains (even with the recent hike) and corporations, along with related tax breaks.

“When we talk about, ‘Should we all pay more taxes?’ we have to recognize the burden really unfairly spread,” she says. “The people who have the least burden are in fact the top one per cent.”

That’s true, partially.

They do benefit from lower tax rates on capital gains, even with the recent proposed federal increase. Yet, this group also pays commensurately more income tax relative to their share of total earned income in Canada.

Consisting of about 300,000 tax filers, this demographic earns 10 per cent of all wage and salaried income and pays 22 per cent of all income taxes, Statistics Canada data shows.

And the top 10 per cent — about three million individuals — account for about 34 per cent of all wage and salaried income and pay 55 per cent of all income taxes.

Income tax, by the way, accounts for about 46 per cent of federal and about a quarter of provincial revenues.

So hiking income tax is obviously not going to fix the spending-revenue problem alone. But it would help. Even experts like Miller and Moody aren’t against the idea.

“But first you need to make the tax system more fair,” Miller says.

Of course, what’s ‘fair’ is likely to change depending on your tax bracket. Still, it’s a discussion we should have soon.

“People generally know the price for a stable society with good public services and ensuring the vulnerable are taken care of is tax — at least reasonable people do,” Moody says.

In turn, “reasonable people” from both sides of the political/economic spectrum need to “find a mushy middle,” he adds, which should include reducing spending on non-essential services.

We need to find a compromise. Otherwise, the alternative is more of the same.

And that seems to satisfy no one.

Joel Schlesinger is a Winnipeg-based freelance journalist

joelschles@gmail.com