The BIGGER Picture

The BIGGER Picture

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The BIGGER Picture

Nowadays, the national media are full of chatter and dismay over taxes, our inefficient government health care monopoly, the flood of illegal immigrants, the social breakdown of our aboriginal community, and the ever-rising accumulation of government debt. But never mentioned in all of this furor is a far more serious underlying issue, and that is the issue of Canada’s competitiveness.

If you ignore the ideological rhetoric and the party politics and dig beneath the surface, the truth is Canada is steadily losing its once robust ability to compete in the global economy. As a major resource nation, this is a most serious issue and one that we should be concerned about.

This paper proposes that in order to reach our full potential and to make us fully competitive in the global economy of the future we should:

•    Reduce the size and cost of government
•    Eliminate the mass of unnecessary government regulations
•    Reduce our sovereign debt until we are back in fiscal balance
•    Reduce taxes on individuals and Canadian corporations.

This fact is clear from an analysis of the important measures of a nation’s competitiveness. Measures such as Productivity, trade balance, investment growth, GDP per capita and government spending as a % of the GDP, all show our steady decline as a competitive society.

Take productivity as an example. Productivity growth in output per hour worked is the single most important determinant of a country’s per capita income and its standard of living.

According to a recent report by the Conference Board of Canada, Canada’s productivity growth has been declining since the 1970’s. Worse still Canada’s productivity level has fallen to 80% of the US level from a high of 91% in the mid-1980’s. The gap with the US is widening, not narrowing.

In a recent international survey, Canada’s productivity ranked 13th among the 16 peer countries studied.

Added to this is the finding that private investment so critical to productivity and innovation has declined 15% in the last decade.

Again an example of our failure to maintain our competitiveness is the decline of our once important manufacturing sector. In the last decade alone, employment in this big once a competitive sector has declined 22% and further decline is forecast.

As our competitiveness declines, the cost of government and our taxes are steadily increasing while our competitors like the US and Great Britain, and many others are reducing theirs.

I believe that increasing taxes now is precisely the wrong thing to do. To deal with our situation we should be actively reducing the costs of producing goods, natural resources, and services where we can.

This is because for the first time in Canada’s history, taxes on an average Canadian family of four’s income is larger than the combined cost of food, clothing, and shelter. There was a time when housing and a mortgage on the family home accounted for the biggest slice of the average family’s income. Not anymore, while housing still accounts for 22%, both visible and hidden taxes now account for 42.5% of the average family’s income. This is outrageous and shows a certain myopia of our political class.

But proposals from Ottawa indicate new taxes are being planned. According to the National Citizens Coalition, one of these taxes is a Carbon Tax.

To quote the Coalition;
“The misguided carbon tax will have the effect of increasing taxes for all Canadians, with businesses and consumers alike forced to pay higher prices for all goods and services across the country. This will impact every sector of the Canadian economy, from manufacturing and transportation to retail and resource extraction. The worst part about the carbon tax is that this tax will do nothing to help improve the environment. Canada currently emits 1.6% of the world’s greenhouse gasses and the oil sands are only 5% of that total. It is time for an environmental plan that balances stewardship of the environment combined with a firm hand on job creation, not job destruction.”

Another new tax being proposed by the Federal government called The Canadian Controlled Private Corporation Tax, will affect over 300,000 private corporations across Canada made up of fishermen, farmers, small business owners, and a wide range of self-employed professionals. These are the drivers of employment opportunity for millions.

Most farmers, small business owners, and professionals of all sorts who have difficulty in accessing social benefits such as unemployment insurance, try to set up a cash reserve in their business in case of a bad crop year, a personal illness, a serious disruption of some kind or a wish to retire. When they set up a reserve, they pay the appropriate tax on this income. This new law (the C.C.P.C.) proposes that when the owner goes to use this reserve which has already been taxed, they will be forced to pay tax on this same income again. This will mean that they will be taxed a total of 73% on these funds.

This new law will have a very negative impact on new business creation and is especially harmful to employment and economic growth because small business are the principal source of job creation in Canada. This will also have a negative impact on foreign investment which is vital for increased productivity and economic growth.

And where is all of this tax money going? A vast amount is a waste.  A recent review of the Auditor Generals Report to Parliament reveals massive waste in the Billions of Dollars at the Federal level alone. This includes the highest cost age-adjusted health care monopoly in the world, and a growing aboriginal crisis which is becoming a sinkhole for taxpayers funds to say nothing of countless other government boondoggles such as pouring billions of taxpayers dollars into a failed aerospace manufacturer (3 Billion in the last two years) called Bombardier.

If we stand back for a moment and look at the bigger picture, and ignore day to day events, we can observe that as we lose our ability to compete in the world market as noted above the cost of government and, our taxes often, for purely political reasons, are increasing.

This makes no sense!

Statscan reported this month that in the last 10 years (2006-2016) the median annual real income for private households at $70,336.00 grew only 1% per year. This lack of income growth helps to explain why, as people try to meet rising costs, household debt is at a record high.

Suffering stagnant income is bad enough but when the average family is also faced with rising expenses and higher and higher taxes the situation is untenable. I think these tax dollars instead of going to the government, should be funneled back to the pockets of the working families of Canada who earned those dollars, and who knows best how to spend them on their priorities.

It is little wonder that so many Canadian families tread a thin-line living paycheck to paycheck.

And on our infrastructure Project front, the Federal Government, by raising the costs of the already approved massive Canada East Pipeline project, has stalled and likely killed for political reasons, this vitally important project and its enormous benefits to Canada.

Petronas has also just recently pulled the plug in British Columbia because of government-imposed excessive project cost and taken its massive investment capital for this giant LNG project to a more friendly government in Australia.

Today the Nexus Energy Corporation of Calgary announced it has canceled the Aurora LNG project which was to be started in 2020. All of these projects are essential for our growth and all of them blocked or canceled by raising taxes, masses of unnecessary regulations, and a perceived unfriendly business climate.

In the last three years the news media has reported a number of quite large private companies including General Motors, who have quietly closed up shop and moved out of Canada. Several thousands of jobs have been lost in Ontario alone and in the face of the highest energy costs in North America, this exodus will likely continue to erode employment.

These project cancellations and company close-ups are not a surprising response to our situation.

As our productivity has declined, the cost and size of government has grown at a rapid pace. In the last twenty years alone, the year over year growth of government has been 22% in comparison to the private sector which has grown at half that rate. Part of this growth has included the employment of over 3.7 Million civil servants or 23% of our workforce at wages and salaries 10% higher than they are for the same work in the private sector and with enormous unfunded gold-plated pensions.

In the 1970’s Canada’s government consumed 15% of GDP. This important ratio is now over 41% of Canada’s GDP and rising.

Government debt has also risen steadily until last year, it has reached the unheard of level of 31.5% of GDP. This increasing amount of Canada’s income consumed by the government and its rising debt cannot be sustained.

After such a wealth-producing vibrant and successful past, it seems to me that we are now going in the wrong direction. Perhaps its time we conducted a top to bottom reassessment of our economic path to the future.

As a knowledgable friend recently pointed out to me “Canada’s resources are finite. What one body, the government, consumes, the private sector cannot.”

In my opinion, the government already consumes far too much of our resources and its enormous cost must be scaled back and brought into a more favorable balance.

Desirable reforms would mean smaller government, lower taxes, balanced budgets, debt reduction and strictly controlled spending. It would mean more pragmatism and living within our means.

I think that we can all agree that as one of the most successful and wealthiest nations in the world, our main focus now should be to develop policies that are designed to preserve, maintain, and build upon our past success, and above all, to regain our competitiveness in the markets of the world.

George S MacDonell
September 2017
George MacDonell served seven years in
The Canadian Army in World War II,
as a CEO in Canadian industry, and as a
Deputy Minister of Industry Trade &
Technology in The Government of Ontario

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