Citizenship: We get what we pay for

This web feature is part one in a series that CPJ will be writing on taxation and spending issues. Check back for future web features on this topic in the fall!

The recession is over, and while our recovery is still shaky, attention has turned to the federal deficit. The G20 meetings in Toronto committed G20 countries to fiscal austerity, halving their deficits by 2013. In 2009-2010, the federal deficit in Canada was $53.8 billion.

To eliminate this deficit, attention has focused on spending cuts. Prime Minister Stephen Harper has explicitly ruled out raising taxes, despite the fact that even unusual suspects such as CEOs have said that Canada will likely need to raise taxes in order to deal with the deficit. Liberal leader Michael Ignatieff has suggested a freeze on further corporate tax cuts, while the New Democratic Party has consistently called for the repeal of recent corporate tax cuts.

There is good reason for looking at the option of tax increases, however. Tax cuts implemented since 2006 cost Canadians $33.9 billion in lost government revenues in 2009-2010. This amounts to 63% of the deficit. In other words, our deficit would only be one-third the size if these most recent tax cuts had not been implemented.

The OECD also estimates that tax cuts between 1995 and 2005 cut government revenue by $50 billion a year.

So while taxes have contributed heavily to our deficit, it appears they won’t be part of the solution. Hugh Mackenzie summarizes the situation, “When it is said that tax increases are out of the question and the claim is made that spending cuts are inevitable, what is effectively being said is that tax increases cost Canadians something, but spending cuts don’t cost us anything.” 

Instead, the reality is that spending cuts do cost us. They cost us as individuals, who lose valuable programs and services, and as a society, which suffers from greater inequality, poorer health and educational outcomes, and lower social trust. 

Essentially, we are saying that we can afford greater poverty and inequality, more private procurement of basic goods and services, and crumbling physical infrastructure, but we cannot possibly afford to pay a slightly greater percentage of our income in taxes.

What kind of country we want

This absence of policy options and debate about taxes can only take place when we disregard the context of taxes. Alex Himelfarb, former Clerk of the Privy Council, asks “How in the world did we get to the point that taxes are only seen as a burden from which to be relieved rather than a responsibility, a duty of citizenship – to safeguard our country and its values, manage the social and environmental commons, ensure that all citizens have access to essential services, and try as best we can to pass on to future generations a country at least as strong and healthy as the one we inherited?”

Taxes are about citizenship – deciding what kind of country we want to live in, and what kind of contribution is necessary from citizens in order to achieve that vision.

Over the past decade, that vision has been extremely limited. Tax cuts between 2000 and 2006 mainly benefited high income earners and contributed to growing income inequality in Canada. The benefits of strong economic growth have not been equitably shared. Crucial investments have not been made in social infrastructure, leaving us with a broken income security system, no national childcare system, and broken promises to Aboriginal Canadians.

Meanwhile, evidence suggests that high tax countries like the Nordic countries have higher social benefits, including lower poverty and inequality, better health and educational outcomes, greater life satisfaction and more social trust, while maintaining strong economies.

Rather than focus solely on our fiscal deficit, Canada should also aim to reduce our social deficit. This will require higher taxes, but tax increases will be a sacrifice in the service of a better country, a contribution to the common good.

The federal government should start by rolling back the recent corporate tax cuts and the GST cuts and investing the money in social security. In 2010-2011, these two tax cuts are projected to cost us $20 billion. That would go a long way towards fixing our broken Employment Insurance system and instituting a national childcare program.

Then, we need an honest and open debate about what mix and level of taxes is appropriate and necessary. This may include higher personal income taxes, a carbon tax, or a financial transactions tax.

With citizenship and taxes, we get what we pay for. If we want a strong, democratic country characterized by economic security, opportunity for all, and strong social ties, then we need to be prepared to pay for it with our taxes.