June 12, 2002

Myths 101: Refuting the Taxpayers Federation

Seth Klein of the Canadian Centre for Policy Alternatives must have hit a nerve with his June 6th column that argued "government has choices". Not only did Finance Minister Gary Collins respond with a letter to the editor, but Mark Milke of the Canadian Taxpayers Federation did an Op Ed piece in which he dragged out a bunch of straw men and then attempted to knock each down as if he were refuting Klein.

One foot in a bucket of ice and the other in a bucket of coals does not make for a pleasing average temperature. Averages are like that. They hide a lot of information about what is happening to individuals. When one looks at taxation, it is misleading to use the right wing's "tax freedom day". That was Milke's first myth when he attempted to argue against BC's tax regime in the 1990s.

Milke would be well advised to recall his own record of criticizing the Campbell government. That doesn't happen very often so he should be able to remember the handful of cases. On February 7, 2002, Milke issued a news release saying:

Paying 50% more for the MSP premium costs a family with a $40,000 income just as much as it does a family with a $150,000 income but the lower income family will have to work longer to pay that tax. Milke's use of a so called "tax freedom day" to argue about the incidence of taxation overlooks that kind of inequity.

The Ministry of Finance includes examples of taxes paid by families with varying circumstances as part of the background tables in budget documents. Those tables also compare taxes for families in each province. In the last NDP budget, those tables H2-H4 were found on pages 129-132 of the budget documents. In one example, those tables compare a two income family of four with $60,000 combined income. After considering provincial income tax, net child benefits, gross and net property tax, sales tax, fuel tax, health care premiums/taxes, federal income tax, and net GST, in BC the family was estimated to pay a total of $14,478 compared to $13,394 in Alberta and $15,465 in Ontario. Changes in BC taxes since 2001 do not change BC's position in that comparison.

Milke's second myth looked at spending in BC relative to other provinces. He argued that, by his numbers, BC ranked fourth when comparing provincial spending relative to the size of the provincial economy. He then tried to rank BC lower because of equalization payments. Equalization payments are made by the Federal government to provinces that have less revenue generating capacity than a hypothetical province. Ontario is the only province that has never received such payments. There is no basis for pretending that provinces that do not receive such payments are in fact spending more by financing those that do, and even if such an argument could be made it has nothing to do with Klein's simple statement that "governments have choices". They can choose to provide cancer drugs or not. They can choose to separate elderly couples or not. They can provide one third of one percent of taxpayers with 14% of the benefits from tax cuts or not.

Milke's third myth was to say that more government spending will not help the B.C. economy. He argued that there is no connection between capital spending by government and per capita real incomes. People who use the Island Highway, the Coquihalla or any other transportation system would beg to differ with Milke. Even Gordon Campbell's 2010 bid committee put improved transportation systems at the top of their list of essential requirements.

Finally, Milke claimed it was a myth that B.C.'s job creation record was superb in the 1990s. He argued that inter-provincial migration, particularly to Alberta, somehow made BC's unemployment look better than it would otherwise. He thereby moved from the question of jobs to the question of unemployment rates (determined by both the size of the labour force and the number of jobs). BC's labour force and population did increase during the 1990s despite movements to and from Alberta. On the job front BC's economy created 374,200 jobs during those years while so far in the first full year of the New Era the BC economy lost almost 25,000 jobs.

Milke concluded that BC should follow the example of Hong Kong and Singapore if it wants to achieve economic success. According to Milke those economies moved from shantytowns to first world status over the course of 40 years through moderate tax levels and limited government intervention. It doesn't take much research to discover that the government is heavily involved in Singapore's economy with 60% of the GDP coming from government linked companies.

BC has a resourced based economy that has been in transition for over 20 years. Commodity prices have been in decline relative to other goods and services for decades. Resource based economies need to diversify. BC achieved some success in diversification over the past 20 years and it needs to achieve more. BC need look no farther than Oregon to see an example of an economy that has gone through the same kind of change.

Economic success depends on understanding the changing structure of the BC economy. Not understanding how BC's economy is changing will contribute to bad public policy choices.