2013-05-26T04:42:15-04:00 Mark Milke http://www.huffingtonpost.ca/author/index.php?author=mark-milke Copyright 2008, HuffingtonPost.com, Inc. HuffingtonPost Blogger Feed for Mark Milke Good old fashioned elbow grease. tag:www.huffingtonpost.com,2013:/theblog//3.3319800 2013-05-22T12:08:28-04:00 2013-05-22T12:11:39-04:00

Mark Milke http://www.huffingtonpost.com/mark-milke/
We would wager citizens of every country think health care could be improved. However, we would also bet a plane ticket to someone's favourite summer getaway that Canadians will find countries with universal health care, such as Australia, Japan, or favourite tourist destinations in Europe, have far better health care than we do.

That's because their citizens and their governments have no hang-ups about the three boogeymen of upfront fees, "private" insurance, and private delivery. In developed countries around the world that cover every citizen (so, exclude the United States at present), competition, user fees, and the private sector help get citizens the health care they need, and importantly, when they need it.

For example, consider Australia, where Australians have a choice of public hospital care or private hospital care, the former fully funded with tax dollars and the latter partially funded with tax dollars. Not to mention taxpayer financing for private parallel health insurance.

Australia's goal is to ensure fair and affordable choice with vibrant, competitive public and private systems. The benefit is better cost management. And it must be mentioned Australians don't wait anywhere near as long as we do for health care; they also receive excellent care for fewer dollars.

Or ponder Japan. There, private hospitals and clinics compete with one another to supply patient care. Patients in Japan are responsible for a big part of the final bill however, with insurance picking up only part (but more than half) of the tab until a monthly cap on user fees is reached. The result of competition and upfront user fees is prompt high-quality health care, delivered very cost effectively.

Like Europe? So do we, and not only for its great architecture, fine food and pleasant cities. On the continent, a variety of countries best Canada's record on health care. They do so with approaches that would have status-quo health care types set their hair on fire.

Consider Sweden. There, you might hear how patients were treated under the universal insurance scheme in a private for-profit hospital with a reputation as one of Sweden's most efficient. You'll likely also hear that going to the doctor is not 'free' in Sweden, and generally costs patients $15 or more per visit. Then again, the Swedes get world-class health care delivered much more efficiently than ours.

While you're in Europe, chat with someone from Switzerland: Swiss patients not only get to choose who provides their health care, they can also pick their private, universal insurance company. You might also hear interesting stories of how people select different deductible levels, or self-limit their choice of providers to reduce their insurance premiums. What you won't hear are complaints about health care waiting times. The Swiss do not have problems with queues for treatment. Instead, they have some of the best health care in the developed world.

Finally, let's not forget the Netherlands. In the past decade, this is the only developed nation with universal health care to have eliminated concerns about waiting. How? As with Switzerland, talk to a local, and you'll likely hear about insurance deductibles and choices about insurers. You may also hear about insurance programs that aim to speed up care for patients. Some even guarantee treatment within days. In addition, you'll discover that private hospitals in the Netherlands compete for patients under the universal scheme, one key policy that helped eliminate line-ups for health care.

The above are but a selection of some favourite tourist destinations. They are also nations with progressive, sensible health care practices that could help improve Canada's health care system. Travel can be enlightening.

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Mark Milke http://www.huffingtonpost.com/mark-milke/
Crony capitalism is problematic all on its own. Addiction to it only reinforces the perception that businesses can't be bothered to compete on merit in an open market, but prefer to plead for political favours and protection at taxpayers' expense.

Before highlighting the cost of corporate welfare, it helps to understand what it is (and is not). Reduced tax rates (when neutrally applied across the economy) are not subsidies. To assert they are is akin to a claim that where personal taxes are reduced, that means individual taxpayers are subsidized.

Not only is that fallacious, it is philosophically challenged: that notion presumes money first belongs to governments -- not individuals, and that anything less than a 100 per cent tax rate constitutes a "subsidy." It is the view of the serf: governments generously allow us to keep some money, which by rights is first theirs.

In the context of resources, be it royalty rates on oil, gas, or minerals -- or stumpage rates set on the cutting of timber -- another mistaken subsidy definition often crops up: that anything less than some theoretical higher rate is a subsidy.

However, resource rents are just that: rents. As with any property owner, governments should set resource rents at a level that extracts the maximum market rent available. However, just as it's unwise to get greedy and risk losing tenants, governments risk losing those who might otherwise mine and drill but will exit a province or country when rents are exorbitant. In other words, getting the balance right matters and for everyone's interest.

If neutrally applied tax rates and revenue-maximizing resource rents are not subsidies, what then is a useful definition? Here are some clearly identifiable subsidies: When a government cuts a cheque to an individual business and not for the purchase of some good or service but simply to give away taxpayer cash.

Government loans to businesses also count as a subsidy, given that such loans are often interest-free, and in some cases, not repaid. The 2009 bailout of General Motors and Chrysler is a good example. The last time I did a net calculation here, even after repayments and the value of the shares held by the federal and Ontario governments, and even if those shares were cashed in, taxpayers will still be out $5.5 billion.

Over 16 years I've looked at many files on crony capitalism and dug through numbers provided by federal and provincial governments and Statistics Canada. The level of subsidies to business is astonishing: between 1994 and 2007, more than $202 billion was disbursed by the federal and provincial governments alone.

It appears businesses of every size and in every sector are in the crony capitalism game. Tax dollars loaned or given away range from thousands of dollars for everything from ice cream shops and muffler shops, to billions for selected automotive and aerospace companies. No sector is exempt -- and that includes energy companies.

Most companies don't take cash from taxpayers. But enough do to make some Canadians think free markets and wealth creation are a sham and only benefit the very rich or only the very well connected. That's plenty dangerous for entrepreneurs. It also harms businesses that do not seek government aid but would be affected by higher taxes or higher levies on their industries.

A dynamic business environment is essential for jobs and higher living standards. So too privately funded research and subsequent inventions widely applied that improve our lives -- think Steve Jobs and his efforts, or researchers who patent a new drug to combat some illness that would otherwise require surgery. But the quickest way to dissipate any sympathy for brilliant entrepreneurial activity is to engage in crony capitalism.

So here's some free advice for thoughtful leaders in business: For those not on the dole, great -- stay off it, and stand up publicly for the principle of neutrality vis-à-vis those who do engage in crony capitalism. The latter damage the public view of capitalism more than a thousand Occupy Wall Street movements could ever do.
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Mark Milke is a Senior Fellow at the Fraser Institute and author of several reports on corporate welfare.]]> tag:www.huffingtonpost.com,2013:/theblog//3.3267832 2013-05-13T14:18:29-04:00 2013-05-15T17:40:24-04:00

Mark Milke http://www.huffingtonpost.com/mark-milke/ National Post many Albertans might have missed, two economists, Rhys Kesselman from Simon Fraser University and Jack Mintz from the University of Calgary sparred over the most desirable tax mix for Alberta. Kesselman wanted Alberta's single income tax rate replaced with cascading tax brackets, and structured to ensure higher overall taxes. Mintz advocated a sales tax but with the caveat that it be revenue neutral, i.e. some other tax should be lowered in exchange.

The tax tussle reminded me of a quip from the Minister of Finance under Louis XIV, Jean Baptiste Colbert: "The art of taxation consists in plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing."

On the question of an Alberta sales tax, such an impost is indeed preferable to other taxes. Properly designed, consumption taxes are more efficient and less damaging to the economy. Such advantages have been pointed out by my colleagues at the Fraser Institute since at least the 1970s.

Problem is, all this tax talk is cemented in the notion Alberta is short revenue, or at the least, must find a more "stable" tax source.

Fact is, Alberta's red-ink budgets have much more to do with real per-capita program spending being near historic highs. This also explains why so many Albertans "hiss" at the notion of a sales tax.

To understand why the spending side of the government ledger deserves more attention, consider some statistics about Alberta's program spending, ones that take into account Alberta's population growth and inflation rate.

Based on hard numbers from past government documents, here's what we know: Back in 2005/06, the height of Alberta's last energy boom (when resource revenues hit their peak), the Alberta government spent $9,465 per person. As of 2011/12, program spending was $10,377 per capita. (I will deliberately exclude the year just ended, 2012/13. Alberta's last provincial budget completely changed how it accounts for spending and revenues, making historical comparisons difficult.)

Neither year set a record. In 1985/86, per-person program spending peaked at $11,905 and then declined to $6,733 by 1996/97. In other words, by 2005, Alberta's government was already spending closer to the all-time high than to the all-time low.

Had the Alberta government increased program spending beginning in 2005 until 2012, based solely on inflation and population growth instead of zooming past those factors, the province would have spent a cumulative total of $18.2 billion less during that period. Albertans would have seen balanced budgets in every single year, including during the recession.

Granted, Alberta's own-source revenues are volatile and down from their highs in the past decade. Point is, even with that reality, had spending been better managed, Alberta's budgets would have been written in black ink, not red. Who except the financially reckless spends up to the limit of their income every year? Someone who is self-employed and earns $90,000 one year and $70,000 in another will not run into a problem if their annual spending is kept to $60,000.

The precise amount of revenues flowing into Alberta's coffers every year is less important than if the province spends more prudently.

There is precedent for such prudence. Right at the end of the 1990s, Alberta suffered a 37 per cent drop in resource revenues in just one year (between the 1997 and 1998 fiscal years). The province stayed in the black because it had better managed the growth in spending.

Since at least 2005, the province budgeted and spent as if exceptional years were the norm. So the Alberta government did a number of unwise things. Some examples: The province signed a contract with teachers between 2007 and 2012 that awarded raises double the inflation rate, indicative of its general approach to the public sector. The province also took over billions in unfunded liabilities for the Teachers' Pension Plan. In addition, as my colleagues have shown, public-sector compensation in Alberta is on average 10 per cent higher than in the private sector.

Add to this spending on corporate welfare (the province spent $1.3 billion in carbon capture over several years) and a clear picture of fiscal profligacy develops.

Over the years, polls repeatedly show Albertans opposed to a sales tax. I suspect that is because while many Albertans may not understand the economic intricacies of various taxes, they quite clearly and intuitively get this fact: Alberta has a serious spending problem and the politicians have barely begun to address it.

That is why, whenever talk of tax reform arises, even on justifiable grounds of efficiency and proposed as revenue neutral, much of the Alberta public reacts a la Colbert's plucked goose. They suspect that unless one tax ends in exchange for a sales tax, taxpayers will simply see more of their feathers plucked by a high-spending provincial government.
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Mark Milke is a Senior Fellow with the Fraser Institute.]]> tag:www.huffingtonpost.com,2013:/theblog//3.3188732 2013-05-01T12:23:31-04:00 2013-05-01T13:18:54-04:00

Mark Milke http://www.huffingtonpost.com/mark-milke/
Some background: To find the origins of tax, one has to travel back to the ancient world and to a fertile plain between the Tigris and Euphrates rivers, now modern Iraq. History's first recorded tax was brought to mankind in Sumer, six thousand years ago. It is there, inscribed on clay stones excavated at Lagash that we learn of the first taxes, instituted to fight a ferocious war.

But as is often the case in history, when the battles ceased, the taxes stayed -- a cause of no small discontent on the part of the locals. Local Sumerians apparently complained that taxes filled up the land from one end to the other.

Charles Adams detailed such history in his 1982 book, For Good and Evil: The Impact of Taxes on the Course of Civilization. As his title implies, taxes have been both useful and a scourge.

In Canada, taxes pay for items any sensible person would regard as desirable. One could point to the most basic functions you'd hope taxes would undergird. A few examples: governments that (in theory) protect your property and person from interference; courts to enforce such desirable laws; for cops and others to protect kids.

On the flip side, it wouldn't take long for anyone to identify useless government spending. Think corporate welfare, or taxpayer-financing for professional sports and their stadiums, or above-market compensation in the public sector. Think of absurdly high salaries for some native chiefs, or the Harper government's endless stream of taxpayer-financed commercials that tout the Ottawa's "economic action plan," at a cost of $78-million in 2012 alone.

Anyway, in Canada, the first known instance of taxation was an export duty on beaver pelts (at 50 per cent) and moose pelts (at 10 per cent) in what was then New France, in 1650.

While the tax on beaver furs was soon reduced to 25 per cent three years hence, by 1662, every import was subject to a 10 percent tax for six years, necessary to help pay off colonial debt.

That was then. Ever since, the number of taxes has of course multiplied, not just since the 17th century but even over the past five decades.

Two colleagues recently found that since 1961, tax increases have outpaced the growth in the cost of clothing (up by 607 per cent) food (higher by 578 per cent) and shelter costs (up by 1,290 per cent).

In fact, Statistics Canada's Consumer Price Index, which measures the prices Canadians pay for a wide variety of goods and services, rose by 675 per cent from 1961 until 2012. But taxes? They're up by 1,787 per cent! So in other words, tax hikes since 1961 have outpaced inflation and the necessities of life, thus squeezing family budgets.

And taxes are heading up again, most recently in British Columbia, Manitoba, Ontario, Quebec and in New Brunswick.

The response to such tax facts is usually this cliché: "Taxes are what we pay for a civilized society," this from the American Supreme Court Justice, Oliver Wendell Holmes Jr., in a 1927 case.

Right, but as a percentage of the economy, government spending was much lower in 1927 compared to 2013. One cannot endlessly extrapolate that "taxes are good for you." Not any more than it is useful to overdose on pharmaceutical drugs just because one pill helps kill some pain. Or to propose that because one glass of wine has healthful effects, then a dozen drinks must be even better.

Perhaps a better perspective on taxes comes from a 19th -century gentleman, who made clear how he thought politicians had a duty to exercise restraint in matters of taxation and spending: "All taxation is a loss per se," he said. "It is the sacred duty of the government to take only from the people what is necessary to the proper discharge of the public service; and that taxation in any other mode, is simply in one shape or another, legalized robbery."

It may come as a surprise to some, but the speaker of such words was not some supposed ideologue. It was Richard Cartwright, the Dominion Minister of Finance in the Liberal government of the day, in his 1878 budget speech.

Cartwright had the spirit of it right. Moderation in government and taxes, as in all areas of life, is a virtue.

]]> tag:www.huffingtonpost.com,2013:/theblog//3.3142758 2013-04-24T16:09:25-04:00 2013-04-24T16:11:58-04:00

Mark Milke http://www.huffingtonpost.com/mark-milke/
Glenda Jackson, a British actor who later became a Labour Member of Parliament, is perhaps symbolic of the detractors. In her take on Thatcher in a recent parliamentary speech, Jackson asserted that the Iron Lady wreaked "'heinous social, economic, and spiritual damage" on Britain. She argued that Thatcher's legacy was to turn vices into virtues, that "greed, selfishness, [and] no care for the weaker" were now admired because of Thatcher's time in office.

It is quite a charge, one often leveled at governments that do not reflexively increase spending, taxes and debt. It is thrown at politicians who oppose the notion that every private or pressing social problem is solvable so long as governments gather enough smart people and tax dollars in one room (the assumption being that somehow, an elixir will then be produced that can magically banish all human ill).

The Jackson accusation has wider relevance than just British politics. It touches on core arguments about how to create better countries -- better in every sense.

Consider one example of Thatcher's supposed meanness: her refusal to have taxpayers subsidize money-losing coal mines any longer. Thatcher's refusal provoked a bitter strike in 1983 but the government refused to budge. Or ponder her determination to end inflation, which was in the double-digits when she took power. (Rampant inflation always threatens the savings of the poor and middle class the most. The rich will always find ways to get their money to safer jurisdictions.)

Consider what the United Kingdom would look like today absent Thatcher's reforms. Great Britain would look like Greece, which in fact it did in the 1970s: regular and lengthy strikes, IMF bailouts, crony capitalism and poor public services. (And it would look like Argentina on inflation, with 26 per cent inflation this year.)

To use just one recent example, look at Greece, where pensioners have faced significant reductions in their pensions. That is directly tied to how the government spent wildly beyond its means for decades, borrowed excessively, never balanced its books, and is now broke. (And it wasn't because of "too-low taxes;" Greek tax rates were in line with much of Europe.)

Critics like Jackson equate compassion with government spending. As it happened, British government spending barely dropped, from 43.2 per cent of GDP in 1979 to 41.2 per cent in 1990. That is hardly evidence of a Scrooge-like approach to government, if one believes that metric is the best definition of compassion.

But large government is not a defensible nor sensible definition of compassion. While the delivery of some services via government makes sense, the devil is in the details. A government that tries to do everything will end up doing nothing particularly well.

The British Labour MP was wrong. It wasn't and isn't greedy, selfish or a sign of unconcern for the poor to demand that governments live within their means; to assert that unions indeed have their role but that union leaders not be allowed to choke up an entire country; that wealth creation and aspiration matter.

In fact, one sign of both smarts and compassion is to grasp that ensuring the potential for job creation is one of the most useful things a government can do.

Here, Thatcher succeeded. Her attack on inflation, her reform of spending and taxes, of labour laws, the exiting of government businesses, and the re-creation of a Britain that worked, worked.

In 1979, 25.2 million people were at work in the United Kingdom according to the OECD. That dropped to a low of 23.8 million in 1983 before rising once again. By 1990, when Thatcher left office, 26.9 million people had jobs, or 1.7 million more than when she first entered 10 Downing Street. Those who demand evidence of Thatcher's compassion should look for it in such numbers.

In contrast, in France, where policies prescribed by Thatcher's critics were in play, employment was 22.3 million in 1979 and just 22.9 million in 1990--an increase of just 600,000 employed people over the same eleven years.

A recent British poll about Thatcher revealed that a good chunk of the British public understands all of this. Tellingly, the poll showed that a plurality of blue-collar workers respected Thatcher's ability to "get things done," that in an economic crisis, most people would trust Thatcher over any other recent prime minister.

That should be an unsurprising result. Thatcher's reforms helped millions more Britons, of every class and creed, to prosper. They recognize a compassion that worked.

]]> tag:www.huffingtonpost.com,2013:/theblog//3.3087664 2013-04-17T07:53:15-04:00 2013-04-17T08:26:40-04:00

Mark Milke http://www.huffingtonpost.com/mark-milke/
The latest starry-eyed politician is the British Columbia opposition leader, Adrian Dix. In his run-up to that province's May election, the B.C. NDP leader has promised to up the film tax credit for labour costs to 40 per cent, up from 35 per cent.

Dix is hardly the first politician to swoon over starlets. In Ontario, after a tax credit fight with British Columbia in the middle of the last decade, Ontario sweetened various incentives for film. At present, its film and television tax credit covers 35 per cent of labour costs; the Quebec credit is set at 45 per cent. Both provinces, as well as B.C. also offer a plethora of additional film tax credits for total production costs.

Meanwhile, in Alberta, the film industry has pressed the provincial and federal governments to pony up $13 million and $5 million respectively for a proposed $32-million film studio in Calgary. The city has already committed $10 million in property taxes for the studio. Do the math and taxpayers would pay for most of $32-million cost.

Such corporate welfare games, whether direct or in tax credit drag, are costly for taxpayers. But you wouldn't know it from the politicians and industry proponents.

In Alberta, the film industry claims that for every buck in direct taxpayer subsidies, a 10-fold return in economic activity will result. Such crony capitalism for film is then akin to miraculous manna from heaven.

In British Columbia, the NDP claims an upped tax credit will cost the provincial treasury $45 million but reap $93 million in extra tax revenue. Perhaps Adrian Dix should propose a credit that costs an extra $450 million. If the NDP leader's math is correct, that should result in an extra $930 million in tax revenues.

Indefensible numbers aside, let's clear away the fog of misinformation.

Many of the film tax credits available are refundable. That means film companies can wipe away their tax payable and then receive a cheque from the public treasury for the remaining value of the credit. That's why, as the Ontario government wrote in its 2012 budget, "such expenditures made through the tax system are, in substance, transfers or grants."

Such tax credits/grants are costly. Back in 2008, Louisiana taxpayers ended up financing more than $27 million worth of incentives for a Brad Pitt film. In British Columbia, the existing film tax credit hit the provincial treasury for $331 million in the last year alone. Rhys Kesselman, an economist at Simon Fraser University, recently wrote that B.C.'s subsidies amount to a taxpayer cost of $125,000 per film job.

Lower taxes on businesses can and do create additional economic activity because incentives matter. Plenty of evidence exists on how overall lower business taxes can spur economic growth. But the key is lower marginal rates for everyone, since that influences decisions to save, invest, and be entrepreneurial, not cherry-picked tax credits for this or that sector. Such favouritism actually hobbles overall economic growth, it doesn't help it.

Besides, in a deficit environment which most governments are in, juicier film tax credits mean tax rates for other people and businesses must be kept higher to cover the lost revenue.

Blog continues after slideshow



As for the claim that taxpayer subsidies for film drive economic growth and more than pay for themselves, a comprehensive 2012 report from the Washington D.C.-based Tax Foundation found just the opposite: "The best evidence shows that film incentives cost the treasury more than they recoup from taxes on induced economic activity" wrote the Foundation.

The Tax Foundation pointed out that "aside from studies paid for by economic development authorities and the Motion Picture Association of America, an industry trade association, almost every other study has found film tax credits generate less than 30 cents for every $1 of spending."

Perhaps American and Canadian politicians could reach some sort of détente and kill their film subsidies all at once. That way, no politician could be accused of chasing away the film industry because incentives are more lucrative somewhere else.

In that world, we'd finally find out where the film industry really cares to shoot. And if that means a film gets shot in Vancouver over Calgary, or in Tuktoyaktuk instead of Toronto, or even back in Hollywood where the film industry was born, so be it.

As for the psychic need of politicians to be near Hollywood film stars, perhaps they should just ask for an autograph from celebrities. That would be cheaper for taxpayers than financing another Brad Pitt film.]]> tag:www.huffingtonpost.com,2013:/theblog//3.3087589 2013-04-15T17:42:49-04:00 2013-04-16T17:32:53-04:00

Mark Milke http://www.huffingtonpost.com/mark-milke/

Margaret Thatcher, Great Britain's prime minister between 1979 and 1990, understood perhaps better than any other leader in the modern world why governments ought not to have day-to-day control over the economic aspects of citizens' lives.

The reason for that limited approach to government is simple: governments already have 100 per cent of the political power. By necessity, a national government also has 100 per cent of a nation's military power. Thus, it is a grand mistake to also allow government involvement in the economic lives of citizens. Such involvement has often meant that citizens have nothing left -- not only figuratively, but often literally.

In Thatcher's lifetime, the most extreme example of the concentration of political, military and economic power was the Soviet Union. There, poverty was rampant and freedoms were non-existent.

In the West, less extreme forms of concentrated power existed but they nevertheless also produced disastrous consequences.

For example, pre-Thatcher, the United Kingdom's Labour party had long advocated state ownership of "the commanding heights of the economy." That was a 1918 phrase and program of action from Vladimir Lenin; in Canada, it was adopted by the Waffle wing of the New Democratic Party in the 1970s.

In practice in the United Kingdom, this meant government ownership of major sectors and industries: those in the production of coal, iron and steel and which ran the railroads, utilities, and international telecommunications.

In the 1970s, much of the British economy was tied to government and thus to politicians' decisions. That, and laws that gave labour leaders extreme leverage over state companies, meant regular and lengthy strikes. Strikers included miners, train staff, hospital workers, garbage collectors, truck drivers and even grave-diggers who refused to bury the dead.

The result was economic paralysis, stagnation and weakened prosperity. In 1976, the economy was so poor that Britain, once a world-spanning power, borrowed money from the International Monetary Fund to support the British pound.

Margaret Thatcher changed all that. After her 1979 election win, she set about freeing Britain's economy. That included an attack on inflation (reduced to 2.4 per cent by 1986 from 22 per cent six years before); getting public finances under control; and cuts to high marginal tax rates (down to 25 per cent from a pre-Thatcher high of 83 per cent).

The Iron Lady also promoted private enterprise. That meant privatizing state ownership of companies in the aerospace and shipbuilding sectors. It later included returning British Telecom, British Airways, Rolls-Royce, parts of British Steel, Leyland, the airports, and later, gas, water and electric utilities to the private sector where they belonged.

Thatcher attacked over-regulation and labour agreements that dampened the creation of new businesses, more jobs and a wider prosperity. Trade union members were given more power over union leaders (thanks to the introduction of the secret ballot, among other reforms). The British Prime Minister also cut off taxpayer subsidies to failing industries such as money-losing coal mines; she sold government housing to the (often poor) inhabitants so they could finally have property of their own and a real stake in Britain's future.

All of it worked to restore Britain to prosperity. While Britain is currently in recession (as is much of Europe), it is better off relative to many European countries, despite past attempts by the previous Labour government to undo some Thatcher policies on deficits and taxes.

Thatcher's influence was profound. It resulted from her clear understanding about what works in the real world. That understanding had its genesis in youthful observances of how her father ran his small grocery store.

As Lady Thatcher wrote in her 1993 book, The Downing Street Years: "I knew from my father's accounts that the free market system was like a vast sensitive nervous system." That system, wrote Thatcher, was able to respond to events and signals all over the world. Thus, the system could "meet the ever-changing needs of peoples in different countries, different classes, of different religions, with a kind of benign indifference to their status."

That open system, Thatcher rightly asserted, was much preferable to top-down attempts where "governments acted on a much smaller store of conscious information and, by contrast, were themselves 'blind forces' blundering about in the dark, and obstructing the operations of markets rather than improving them."

As Thatcher concluded, "the [negative] economic history of Britain for the next 40 years confirmed and amplified almost every item of my father's practical economics." Indeed--until Margaret Thatcher redirected and transformed Great Britain.

]]> tag:www.huffingtonpost.com,2013:/theblog//3.3024768 2013-04-05T20:04:00-04:00 2013-04-06T14:44:57-04:00

Mark Milke http://www.huffingtonpost.com/mark-milke/
The explanation is not complicated: once the bills come due, even a populist politician will change course when the public sours on policy gimmicks, when they demand a government focus on the basics. That includes not bankrupting public finances or assuming taxpayers can be increasingly gouged to pay for political vote buying.

In late 1992 when Klein assumed the Alberta premier's chair, here's what he faced: the province hadn't balanced its books since the budget year that ended in March 1985. Also, since the mid-1980s, interest rates set by the Bank of Canada ranged from a high of 14 per cent to a "low" of just over five per cent. In other words, looking forward, more government borrowing was reasonably thought to be fiscal suicide.

In 1993, Klein's first full year as premier, interest on the provincial debt hit $1.4 billion. To put that in context, let's contrast debt interest with program spending. That year, $1.4 billion in debt interest was equivalent to 33 per cent of Alberta's health care expenses or 75 per cent of the cost of social services.

That reality is why Klein's government cut spending as its first priority; interest payments increasingly prevented other options, be it on programs beyond just the immediate years, or on the opportunity for tax relief.

The last Klein-era deficit was in fiscal 1994, the reduction in debt started in 1995, and the resulting decline in interest payments (beginning in 1996) allowed Klein, his Finance Minister Jim Dinning and their colleagues, to create what the government tagged as the "Alberta Advantage." It included a reduction in business and personal taxes and a move away from punishing multi-bracket personal tax rates to a single tax rate on Albertans.

Also useful in the creation of the Alberta Advantage was how the Klein government exited the business of being in business. Starting in 1993, the Klein government privatized all government liquor stores. In 1994, every single vehicle licence registry was turned over to the private sector. In 1996, the past practice of government loan guarantees to corporations started under Peter Lougheed and which cost taxpayers $2.2 billion by the early 1990s, was mostly stopped.

Fast forward to the year Klein retired from politics, 2006; Alberta's books were in tremendous shape. In Klein's first budget year (1993/94), Alberta's net financial debt stood at $8.3 billion. When the final numbers were in on Klein's last budget, the 2006/07 budget, Alberta possessed net financial assets of $36 billion, a $44.3-billion turnaround in Alberta's finances in 14 years.

By the end of the Klein era, Albertans thrived. This was not what the critics expected. They thought when governments withdrew from parts of the economy--from borrowing, from public spending as the presumed remedy to every private problem, from corporate welfare--that Alberta's economy would crater.

But Alberta's didn't. In the 1990s, in the years immediately following the budget cuts, Alberta's economic growth was stronger than the Canadian average with in every year but one. Also, in 1992, the year Klein became premier, Alberta's unemployment rate was 9.5 per cent; that dropped to 3.4 per cent by the time Klein left office in 2006.

No person or politician is perfect. The late premier never took on the vested interests that have a quasi-monopoly grip on health care delivery. In education, the province did allow for experiments in charter schools but enacted few substantial reforms beyond that. That left a problem for future governments given how those two sectors represent two-thirds of provincial program spending.

Some argue Klein and his colleagues were lucky, that oil and gas allows any politician to look good. Not so. Plenty of politicians in other resource-rich economies from Russia to Argentina and from California to Quebec can and do torpedo prosperity. They do so with ill-advised policies, ones that hinder people from getting a job and which prevent families from building a prosperous life.

In Alberta, Klein was a memorable premier because he had the humility to recognize that government cannot do everything. Governments can and should set the basic "rules of the game," enact sensible and not punishing regulations and tax rates, and then allow everyone to prosper.

So what was Klein's legacy? No debt, moderate taxes, neutrality in the marketplace and thus policies that benefit families most of all. That is why so many of them moved to Alberta, found work, and prospered.]]> tag:www.huffingtonpost.com,2013:/theblog//3.2957640 2013-03-27T15:01:36-04:00 2013-03-27T15:21:05-04:00

Mark Milke http://www.huffingtonpost.com/mark-milke/
For example, early on in Budget 2013, it is clear that crony capitalism is scattered throughout the budget. On page six, Ottawa promises $1-billion to the aerospace sector over five years through the Strategic Aerospace and Defence Initiative; that's the main government program for disbursing taxpayer cash to the aerospace sector.

In addition, the federal government promises a new program for aerospace companies with an initial cost to taxpayers of $110 million over four years and then $55-million every year after that. So, over the next five years, Canada's aerospace sector will receive almost $1.2 billion in new corporate welfare money.

That's only the start of the corporate welfare list. Ottawa will deposit $920 million into the Federal Economic Development Agency for Southern Ontario, a corporate welfare slush fund, and spend $92 million on forestry businesses (page seven).

Page nine lists $60 million for the Venture Capital Action Plan (in addition to $400-million announced in January), $37-million for granting councils to help business commercialize their products, and $325 million will go to so-called green technologies.

Buried more deeply in the budget, Ottawa announced it will "partner" with the provinces to deliver $3-billion to the agricultural sector (page 92). It's not clear how much will come from the federal government and how much from the provinces but all such money originates with taxpayers anyway (or future taxpayers, given Ottawa still runs red ink budgets).

On page 117, the federal Conservatives re-announce earlier plans to give $250 million to the automotive sector through the Automotive Innovation Fund. One page later, another $145-million is promised for the Automotive Partnership Canada fund.

Add it all up and Budget 2013 in conjunction with a few announcements earlier this year provides $6.4 billion in new corporate welfare, courtesy of Canadian families. That number doesn't include corporate welfare announced in previous budgets.

Bizarrely, in a related example of picking winners and losers, the government announced an extension of the accelerated capital cost allowance to manufacturing companies investing in equipment.

While the ability to write off equipment more swiftly is not corporate welfare per se, the sector-specific picking is curious. After all, Budget 2013 notes how investment in machinery and equipment in the Canadian manufacturing sector has seen stronger growth than similar investment in that sector in the United States (page 41).

The government also notes how research and development by sector is already strongest in manufacturing, with over $7-billion invested in 2012 (page 97). That compares to the category of mining, oil and gas extraction, at less than a billion dollars last year.

Favouritism aside--and neither sector should be favoured--such accelerated write-offs are at least not a transfer of tax dollars. That is unlike crony capitalism where corporate welfare is a political act that promotes the illusion of "doing something" for the economy but at the expense of taxpayers in general.

Budget 2013 makes the usual defences for crony capitalism: jobs are created with the help of a micromanaging federal government. Thus, in his budget speech, the finance minister asserted the Conservative budget reflects a belief of Canadians that "their government will be a benign and silent partner in their enterprise."

Three questions for the finance minister: How do you know Canadians want you to use their tax dollars to be a "silent partner" with business? And why must government be a "partner" in any business enterprise through loans and grants? Lastly: Why not just let corporations compete without dragging taxpayers into the ring?

Corporate welfare is a politically created illusion with no visible means of support. Economists who study crony capitalism are clear about why it fails: money is taken from taxpayers and productive businesses. In the case of businesses, such money is sometimes transferred to businesses in the same sector at the expense of the "giving" business.

This is why the "we're-creating-jobs" argument from the federal Conservatives as it concerns business subsidies is wrong: if that money were left with individuals and businesses, it would have been spent elsewhere or saved and invested. Instead, the federal Tories are addicted to the political picking of corporate welfare winners and losers.

The official title of Budget 2013 was "Jobs, Growth, and Long-Term Prosperity." It should have been "Grants, Subsidies and Eternal Business Handouts." It should also have had a price tag attached for taxpayers on the front cover: $6.4 billion in new corporate welfare.]]> tag:www.huffingtonpost.com,2013:/theblog//3.2903795 2013-03-18T19:49:17-04:00 2013-05-18T05:12:01-04:00

Mark Milke http://www.huffingtonpost.com/mark-milke/ Jim Dinning introduced in 1993.

Some history for those too young or too new to Alberta: Dinning, the province's finance minister between 1992 and 1997, was the chief architect of budget pruning and budget reforms. Such reforms came on the heels of a previous decade's worth of budgets where the numbers were so politicized as to make them untrustworthy and often unclear.

Post-1993, the Dinning reforms laid out the bare facts, for good or ill, whether flattering to a government or ugly in the light of day.

On a go-forward basis, regardless of whether one wanted higher taxes, less spending, more borrowing or some combination, the books would at least make clear the state of the province's finances.

Post-1993, anyone with rudimentary mathematical skills could glance at a one-page summary, the Historical Fiscal Summary, in the back of the budget and get a clear sense of provincial finances over the past several decades.

All that was chucked overboard in Budget 2013; the government of which Jim Dinning was once a part has just made his sensible budget reforms walk the proverbial plank.

The provincial government has now made blurry what was once clear, and made confusing what was once straightforward. Dinning's reforms and budgets--ones copied in budgets ever since and until this year--were designed so that one didn't need to be an economist, an accountant or a finance department official to understand how the government spent, taxed and got the province in or out of debt.

No more. And for those who think I exaggerate, pick up the new budget and try and figure out how much money the province is short versus what it plans to spend. You have to thrash through operating spending and then capital spending; you must then look at revenues and expenses in both categories, figure out cash adjustments and then start number-crunching.

The province and some of its apologists argue this is good accounting, that it mimics private sector norms.

That misses this salient point: Imagine a homeowner who earns $50,000 a year but spends $60,000, and yet informs his spouse--"Don't worry; $15,000 of our spending is for the mortgage. Our 'operational' spending is only $45,000 and the rest is in an investment in our collective future."

Even if a bank lends more money to that couple on the justification they possesses substantial collateral (as Alberta does), the bank will still demand a clear bottom line number after expenses are subtracted from income.

That clarity is now AWOL from Alberta's books. That Alberta can "afford" to borrow for capital or operating (it can and is doing both) is a separate issue from a clear, red ink bottom-line number.

The result, likely intended, is that Budget 2013 allows the province to put off any serious reforms and even though the province is hemorrhaging red ink overall.

So, little attention will be given to rein in public sector benefits out of whack with private sector realities. In Alberta, that includes how eight in 10 public sector workers have a defined benefits pension plan, this when fewer than one in ten private sector workers have such guaranteed retirement benefits.

Nor will the province feel much pressure to fix how the public sector has a 10 per cent wage premium over the private sector. (For the record, that figure includes all public sector employees in Alberta, even federal, but the latter account for only one in ten such workers. The rest are employed by provincial or municipal governments or funded via the province in some fashion.)

If the operating and capital budgets were kept together, there would be pressure to address such disparities. While the public sector is an integral part of any well-functioning province, governments must represent all citizens and all taxpayers, not just those in the public sector. Governments must, if they are to keep costs in line, drive total compensation in the public sector towards comparable private sector norms.

But by tossing clear budgeting overboard, the Alberta government has delayed such overdue reform.

Alberta's public sector unions were unhappy with frozen operational spending this year. Truth be told, they don't realize they were thrown a lucky lifeline, this because the present government threw Jim Dinning's budget reforms into the deep blue sea.]]> tag:www.huffingtonpost.com,2013:/theblog//3.2707650 2013-02-19T12:11:20-05:00 2013-04-21T05:12:02-04:00

Mark Milke http://www.huffingtonpost.com/mark-milke/ bargains abound south of the 49th parallel.

The Canadian Senate has just done a bang-up job of adding hard data to anecdotal observations on this issue. In a recent report, the Standing Senate Committee on National Finance found several reasons for higher Canadian prices, including higher regulations in Canada and higher taxes. (The latter explains the difference in gasoline and diesel prices at the pump, for example.)

Other factors that explain the price discrepancies include the relatively small size of the Canadian market. However, one submission to the Senate noted that prices in Montreal (pop. 2 million) are substantially higher than in neighbouring Plattsburgh, USA (pop. 20,000). So the size of the market doesn't explain everything.

However, there is another reason that helps explain part of the price differences: $3.6 billion in customs tariffs.

For example, ice hockey gloves are subject to a duty of 16.5 per cent while ice hockey pants are subject to an 18 per cent duty. This is why it is helpful to think of a tariff on imported goods as a tax. After all, imagine if Ottawa imposed a visible 18 per cent sales tax on all your kids' hockey equipment. But that tax is there; it's just not visible on your receipt.

One caveat: As the Senate report notes, 90 per cent of goods that entered Canada in 2010 came duty-free. However, of the $3.6 billion the federal government collects in tariffs every year, 60 per cent of that comes from tariffs applied to apparel and textile products, automobiles, auto parts and footwear. And as the Senate committee observed, such tariffs have a much more dramatic effect upon prices because of what I dub the "cascade effect." The Senate report explains how "wholesalers and retailers also apply their respective gross margin on the cost of the imported product including the tariff." That, the Senate found, magnifies the effect of that tariff on the final price.

In one example, almost 76 per cent of the price discrepancy between Canada and the United States was due to the tariff and the additional margins cascaded on top. (The rest was due to differences in demand for the product between the two countries and the cost of doing business.)

So what is the remedy to eliminate much of the price difference between Canada and the U.S.? One Senate recommendation included a review of the $3.6 billion tariff bill to consumers. But here the Senate committee fudged a clear call for the complete abolishment of tariffs; it asked the government to keep in mind "the impact on domestic manufacturing." The Senate was also concerned that businesses might not always pass on the full benefits of tariff reductions to consumers.

That $3.6 billion is a tax on consumers. The Senate committee's fear could be assuaged if the federal government allowed more competition, which in some cases, an abolishment of tariffs would provoke.

For instance, vehicles not assembled in NAFTA countries are subject to a 2.5 per cent tariff in the United States but a 6.1 per cent tariff in Canada. If Ottawa removed our tariff, NAFTA-based auto manufacturers would be forced to drop prices for consumers in order to compete with vehicles imported from elsewhere.

Here's another example and one the Senate report ignored completely: federal tariffs in the dairy and poultry sector. There, tariffs on foreign imports range from 202 per cent (skim milk) to 298 per cent (butter); cheese, yogurt, ice cream and regular milk fall within that range. If Ottawa dropped the tariffs and ended the government-protected dairy and poultry cartels where supply is restricted and new competitors banned, consumers would see real drops in prices.

All consumers would benefit from more competition and an end to anti-consumer tariffs. But more importantly, low-income Canadians would benefit the most. That's because what little money such families do have is spent on the necessities of life. Those are often the items subject to tariffs.

Abolishing tariffs -- whether on automobiles, necessary for most people to earn a living and to transport kids around, or on the basic necessities of life -- would positively affect poorest Canadians the most. That's why Ottawa should end $3.6 billion in tariffs: because tariffs are a tax on the poor.

]]> tag:www.huffingtonpost.com,2013:/theblog//3.2707657 2013-02-17T16:16:52-05:00 2013-04-19T05:12:02-04:00

Mark Milke http://www.huffingtonpost.com/mark-milke/
All that noted, a provincial sales tax makes sense. But before anyone writes in to wonder if I've suddenly become a giddy convert to tax happiness, let me be clear: limited, moderate government is desirable for empirical and common sense reasons: Governments that try to do too much often do little well.

Also, in conjunction, taxes should be moderate and sensible--the latter of which I'll shortly explain.

On government, its proper role is one that is narrow for the politicians and civil servants we hire, and focused.

That means, for instance, governments don't need to be involved in picking winners and losers in the marketplace through corporate welfare and other forms of crony capitalism. They do need be more focused on the protection of property and persons.

To wit, it makes a lot of sense and is compassionate to protect people and their property; to rescue kids from awful situations; to protect borders. It makes little sense to sacrifice tax proceeds up to some politician's latest silly idea on how to diversify the economy.

However, even more modest and limited governments still need tax dollars. That leaves the issue of how to fund the "Leviathan," as the philosopher Hobbes once labeled the state.

Here, one doesn't need to reinvent the wheel. Long before pundits and professors across Alberta started discussing whether a provincial sales tax makes sense, my colleagues at the Fraser Institute studied and published on this exact topic. That includes Michael Walker, the founding executive director of the Institute who as far back as the 1970s discussed such matters with Nobel laureates such as Milton Friedman.

I mention Friedman because he once stated that while he was in favour of any tax cut, he noted that "some tax cuts are better than others."

To gain insight as to why Friedman thought this, let me reference some 2007 work by three colleagues who looked at what types of tax are more or less damaging. Admittedly the title was dry--'Tax efficiency" but the subtitle makes the point: "Not all taxes are created equal."

By "damaging," they and others mean that some taxes greatly hinder the ability of an economy to prosper, while other taxes are less of a hindrance. That matters, because jobs and great living standards don't appear like magic; they result from millions of individual decisions. Those decisions can be negatively impacted by taxes that are more harmful than others.

So for example, in Alberta, you could tax the daylights out of business with higher corporate taxes and then see them flee to Saskatchewan or Texas. You could tax high-income earners as does Quebec, and then make it difficult to attract physicians with a needed specialty to Alberta. That's unhelpful.

Blog continues after slideshow




Here's the point: the wrong types of taxes and at the wrong levels are economy-wrecking, job-killers. A society gets the best bang for the buck when those taxes are lower. Like it or not, a sales tax is the least damaging tax that exists.

Here's another reason why a sales tax makes economic sense: when people visit Alberta, a sales tax would ensure visitors help contribute to the tax coffers, to the "upkeep," of the province. That would help lighten the burden on the rest of us. Also, as long as sales taxes come with government refund cheques to the poorest, they are workable.

But several caveats: First, any talk of a sales tax in Alberta should be accompanied by this ironclad requirement: it must be revenue neutral, or forget it. Any sales tax must be completely offset by the abolition of some other, more harmful tax, such as personal income tax.

Second, any tax reform premised on the notion Alberta has a revenue problem is misguided. Adjusted for inflation, Alberta's per capita program spending jumped to $10,526 per person this year from a mid-1990s low of $6,825; that's a 54 per cent jump in real terms. Alberta's biggest problem has always been that it lets spending get out of control. The exact tax mix is secondary to that issue.

Until Alberta deals with its high spending problem, it won't matter what kind of taxes the provincial government levies--unless of course, the provincial government hopes to turn Alberta into another high-tax, economy-wrecking, job-killing Western version of Quebec.]]> tag:www.huffingtonpost.com,2013:/theblog//3.2641432 2013-02-07T19:05:10-05:00 2013-04-09T05:12:01-04:00

Mark Milke http://www.huffingtonpost.com/mark-milke/
For one thing, any fantasy that a tax hike will solve Alberta's fiscal woes is the preserve of people who dream in tax-happy Technicolor.

Sure, tax reform is desirable. A provincial sales tax would be smart economic policy since sales taxes are some of the least harmful imposts.

However, that would be a smart move only if other, more damaging taxes, were reduced or scrapped to offset the new sales tax revenue, i.e., if it were revenue neutral.

But many sales tax proponents like it not because of its efficiency, but because they want higher overall taxes, this rather than deal with Alberta's spending problem.

Some history: Back in the last red-ink era, the government did raise taxes. In particular, in 1987 the province introduced new taxes and raised others by $1-billion. That was equivalent to 12.5 per cent of then-existing (own-source) revenues.

If the province upped taxes by 12.5 per cent today, the tax hike would amount to $4.4 billion. (I'm crunching the numbers based on the 2012/13 budget. The province no longer updates its revenue projections every quarter.)

To put that in terms the average person might care about, a $4.4 billion tax increase would mean one of the following: A 39 per cent hike in resource royalties; or a 47 per cent hike in provincial personal income taxes; or a doubling of corporate income tax; or a 250 per cent hike in the provincial portion of your property tax.

So pick your poison.

The Alberta tax talk, and dreams -- for politicians -- of new revenue, is based on some flawed assumptions. One is that behaviour doesn't change if new and higher taxes come into play.

But recall when then Premier Ed Stelmach tried to raise resource royalty rates. That didn't bring in the intended extra cash. That's because when you make some wells uneconomic to drill, any higher percentage of an undrilled well amounts to zero in actual dollars.

That doesn't mean royalty rates can never be revisited; it does mean a government cannot impose a "rent" that defies the economic reality of a necessary return on investment. That return must trump what might result from putting cash in a bank, or from exploring outside of Alberta.

Another errant assumption is that because new Albertans create a demand for new infrastructure, higher taxes are a necessity.

Objection: new Albertans also pay taxes; it's not as if they are freeloading.

The need for new schools and hospitals could more easily be serviced if the province was prudent on program spending (and thus created room for capital expenses).

For example, program expenditures are the largest portion of the provincial budget. In the 2011/12 fiscal year, the province spent $45.1 billion (program, capital and interest payments combined). Of that, one per cent was spent on debt interest with 13 per cent for capital expenditures; fully 86 per cent went to programs.

More capital spending could be afforded with current tax levels if the government didn't continually overspend on the operating side of things.

To illustrate, imagine, if over the past five years the province awarded inflation-only raises to teachers instead of raises that were double the rate of inflation. Or on the corporate side, imagine if the government chose not to subsidize carbon capture to the tune of $682 million between 2011 and 2015. Money would have been freed up for infrastructure.

But such moderation has not been a hallmark of Alberta's government for some time. After accounting for inflation and population growth, per capita program spending rose to $10,526 in this current budget year. That's up almost 10 per cent from 2005 levels ($9,594 per person).

Look back a bit further to 2000, and program spending is up by 26 per cent (from $7,808 per capita). Again, that's the increase after inflation and population are factored in.

Those who seek higher and new taxes might recall this basic truth about human beings: people do not naturally flock to a place where the temperature can plunge to minus 30, or where it can snow in June. People come to Alberta, historically, because it provides opportunities.

If Alberta's overall tax burden shifts to the level of British Columbia or Ontario, (where four seasons exist), the province might find itself in a nasty pickle: less economic activity and less revenue than expected but higher taxes--and an irritated population.

After all, if you're going to be heavily taxed by a profligate government, you might as well stay, or move to, where the weather is better.]]> tag:www.huffingtonpost.com,2013:/theblog//3.2575711 2013-01-29T15:05:02-05:00 2013-03-31T05:12:01-04:00

Mark Milke http://www.huffingtonpost.com/mark-milke/
Nothing was whispered about past sweetheart deals with public sector unions. So for example, nothing about the education sector, where in 2011 the province itself described the five-year salary increases as "nearly double the rate of inflation." Nor did the Premier mention soaring public sector pension costs.

Perhaps the provincial government should see a credit counsellor. They might tell Premier Redford that balanced books are not just about the money coming in, but the money going out--how much you spend.

If someone who normally earns $50,000 per year is awarded a one-time $20,000 performance-bonus, they would be foolish to expect the same again, to spend $70,000 in the following year in anticipation of another year-end windfall.

But that's exactly what consecutive Alberta government have done for years.

Per capita program spending rose to $10,526 in this current budget year from $6,825 in 1996/97. Those figures account for inflation and population growth, and are a 56 per cent jump in real terms.

A good chunk of the new spending has gone to the public sector. This time last year, a University of Calgary report found that 95 per cent of the increases in provincial revenues in the previous decade were swallowed up by Alberta's public sector.

Is all that extra spending justified? Not really. To understand why, consider a report from my colleagues Amela Karabegovic and Jason Clemens. Based on Statistics Canada labour force data, they discovered the average public sector worker in Alberta earns a 10.3 per cent wage premium compared to their private sector counterpart.

That 10.3 per cent premium was calculated after accounting for private and public sector differences in terms of career length, tenure, higher average education levels in the public sector, and other relevant factors. (Studies that don't account for such factors show much larger public sector wage premiums.)

The report also found that public sector workers in Alberta will retire, on average, two years earlier than those in the private sector. In addition, such workers have much better pension benefits.

In 2011, 81.4 per cent of Alberta's public-sector workers were covered by a registered pension plan (and 97.2 per cent of them possessed a defined benefit plan).

In the private sector, just 21.5 per cent of workers were even covered by a registered pension plan; less than half of them (just 43.5 per cent) were in a defined benefit plan.

Or expressed another way: In the private sector, fewer than one in 10 private sector workers have a defined benefit plan; that compares to (roughly) eight in 10 workers in the public sector who have guaranteed retirement benefits. But the former pay for the latter.

At this point, some will argue that because public sector employees also pay taxes, none of this matters. Wrong. That's akin to an employee telling their employer that if he is awarded a 10 per cent raise, but contributes back one percent, he has in fact "contributed" to his raise.

That illogic ignores the significant extra cost to the employer, or in the case of the provincial treasury, to taxpayers.

There's a reason for the above disparities. In the private sector, businesses pay market salaries and benefits: Pay above-market and you quickly become cost uncompetitive and ultimately flirt with bankruptcy; conversely, go cheap and you lose workers.

On pensions for example, many companies rightly fear the "GM legacy" effect. That's where a company promises a certain level of benefits decades from now but which can bankrupt companies. (That just happened to Hostess, the maker of "Twinkies").

That's why ever-fewer companies offer defined benefit plans. Instead, the private sector trend is to defined contribution plans where benefits are based on what's affordable for everyone and pension benefits are (realistically) based on investment returns.

In work paid for by taxpayers, there is no natural check on pay or pensions because politicians too often think taxpayers can be shanghaied into paying even more tax, and governments as an entity rarely face the threat of bankruptcy.

To be fair, the deal between taxpayers and the broad public sector should go both ways. When total compensation (whatever the mix of pay and pension benefits) is higher than the private sector, politicians have a duty to get such costs in line with private sector realities and what taxpayers can afford.

Similarly, where public sector work is underpaid relative to the private sector, public sector unions are on solid ground to ask for increases. At present though, and on average, that's not the reality in Alberta.]]> tag:www.huffingtonpost.com,2013:/theblog//3.2535919 2013-01-24T17:03:24-05:00 2013-03-26T05:12:01-04:00

Mark Milke http://www.huffingtonpost.com/mark-milke/ since 2008 and will add another $21 billion by the end of March, might be shy about unnecessary expenditures. Alas, that's not the case, as it appears Prime Minister Stephen Harper and his colleagues would rather hand out cash to corporate Canada instead.

In just the first two weeks of January, the prime minister announced another $250 million for the Automotive Innovation Fund -- a federal subsidy program that provides the auto sector with taxpayer cash for research and development.

Then the prime minister announced $400 million for venture capital, mystifying those of us who thought it was fine to let private-sector angel investors risk their own cash, not that of taxpayers, on high-risk start-ups.

The recent taxpayer gifts are but the tip of the corporate welfare iceberg. Between 1994 and 2007, $202 billion was disbursed by all governments across Canada through subsidies to business.

Whenever politicians wish to shower taxpayer money around, predictable excuses are offered up in defence of crony capitalism.

One is that corporate welfare creates new economic activity, and thus extra jobs and new tax revenues. The prime minister trotted out a variant of this claim when he asserted that the previous $250 million dollop of taxpayer cash into the automotive fund "returned six times what the government has invested [into] the Canadian economy."

But if the prime minister actually believes that, then why stop at $250 million? Why not drop another $1 billion or more into that fund, given such supposed multiplier effects?

The claim of magical multiplication effects is akin to dropping $250 million in taxpayer cash from the top of the CN Tower onto pedestrians below.

Of course such soon-collected money will be pocketed and later spent; that cash might create temporary one-time increases in economic activity and spin-off benefits. And no doubt, some politician somewhere would point to the ensuing spending as evidence such economic development strategies work.

BLOG CONTINUES AFTER SLIDESHOW



But the relevant question is where the money originated in the first place and whether such a "helicopter" approach to economic development is the best use of tax dollars.

Such scattering of tax dollars to the wind ignores the substitution effect. That is where tax dollars must be taken from others (i.e. through personal and business taxes) to finance the new round of crony capitalism.

The economic literature on subsidies and the substitution effect is clear: had such dollars been left with individuals and businesses (or un-borrowed), that money would have been spent elsewhere or saved and invested.

That too would have created economic activity, jobs, and eventually tax revenues for governments. It would have occurred without the inefficient recycling of tax dollars through the political picking of corporate welfare winners -- and losers.

As one American expert on corporate welfare, Terry Buss, described it, the hidden victims of crony capitalism are businesses not on the take and taxpayers in general. Problematically, wrote Buss, "Potential losers are always in other cities or states, and few people concern themselves with the national interest."

Sometimes politicians will admit that crony capitalism is an economic shell game. Still, they and others will defend it on the grounds that other governments subsidize business, so Canadian politicians play the same subsidy game.

Except that not everyone does it. Sometimes, politicians choose differently.

In 1996 under then Premier Ralph Klein, the Alberta government passed the Business Financial Assistance Limitation Act to stop most loans, loan guarantees and outright subsidies to business (the exception being small businesses). That came after $2.2 billion in government loan guarantees to various businesses went sour.

In New Zealand, the government long ago stopped subsidizing farmers.

More recently, the Saskatchewan government ended the lucrative film tax credit (which cost the province $100 million over the years).

Saskatchewan did so over the wrong-headed objections of some business organizations, such as the Saskatchewan Chamber of Commerce. (The Chamber should prefer more neutral business taxation as opposed to having government pick winners and losers, whether through tax credits or through direct subsidies.)

Where pressure exists to subsidize companies or to engage in unproductive tax credit schemes, one antidote is to toughen up existing free-trade agreements to end such abuses of taxpayers and their money. The very point of free-trade agreements is the pursuit of a level playing field and more economic growth for all.

After all, why should taxpayers (and their money) from any city, province or country be dragged into the competition between corporations? Let companies duke it out without taxpayers being forced into the ring.]]>