Home › Policy Articles: Fiscal & Budgetary: Tax Policy: 2002

In this Frontier Centre paper Peter Holle and Daniel Klymchuk compare property tax levels in major Canadian cities, using the data to evaluate the relative residential tax burden in Winnipeg. Any comparison of taxation levels between jurisdictions is troublesome, the authors note, because differing economic conditions may distort the effects of taxation. To overcome this problem Holle and Klymchuk use effective property tax rates (rates relative to market value) and absolute tax burdens (utility charges, taxes relative to income and taxation per square foot) to make their comparisons.

This Communiqué includes a look at the Table of Contents, Foreword, and Introduction to the book Canadian Conundrums, edited by Robert Brown. In his introduction, Brown explains that the purpose of the book is to bring the insights of past Clifford Clark Visiting Economists to a broader audience. Topics included in the volume range from fiscal balance to taxation.

As Sylvia Fuller and Lindsay Stephens describe in Cost Shift: How British Columbians are Paying for Their Tax Cut, the first order of business for the newly elected Liberal government in BC was a massive tax cut. According to Fuller and Stephens, the cuts have left a massive gap in government revenue. The authors argue this revenue gap, in tandem with the Liberals’ campaign promise to produce a balanced budget by 2004-05, has necessitated spending cuts to a number of programs. In addition to these cuts, Fuller and Stephens claim the government has engaged in ‘cost-shifting,’ transferring the expense of various services and programs from the public to individuals, families and employers.

According to Peter Holle and Dennis Owens, authors of the Frontier Centre report Fixing Winnipeg’s Downtown, Winnipeg has never lived up to its economic potential. Dismissing evolving geographical and historical forces as the reason for this fact, the authors blame provincial and municipal economic policies they say have restricted Winnipeg’s economic growth. If, Holle and Owens assert, these policies can be addressed and reformed, then the City of Winnipeg can revive its downtown, experience increased economic growth, and attract the quality human capital that is necessary in today’s knowledge economy.

This article by Grant L. Reuber and Finn Poschmann analyzes the costs of public health care in Canada and the means of reform. The authors believe incorporating direct financial incentives into the system would “temper growth in demand for health services and place market pressure on providers to improve their efficiency and reduce costs” while still respecting the Canada Health Act. Reuber and Poschmann believe the best way of operationalizing the aforementioned financial incentives is through a provincial tax credit which would be tied to usage of the health care system.

This article, by Shay Aba, Wolfe D. Goodman and Jack M. Mintz, builds the case for a new outlook regarding the funding for public health care in Canada – an outlook based on a “user-pay” system. The authors propose that payments be made based on the level of service use, using the existing income tax system as a model. In this vein, the more a citizen uses the health care system, the higher his or her contributions would be.

In this article Jenna Robbins and Michael R. Veall attempt to evaluate the revenues the Canadian government can expect to gain as a result of investors choosing to withdraw funds from their Registered Retirement Savings Plans (RRSPs) and Registered Pension Plans (RPPs). The authors point out that much of the debate about fiscal policy is framed by the debt, and too little attention given to rising assets. To “the asset side,” Veall and Robbins add what they estimate is around $200 billion of RRSP and RPP accumulations, which are rarely accounted for (as of 1999).

This Backgrounder by Shay Aba follows a seminar convened by the C.D. Howe Institute on February 1, 2002 pertaining to the themes of Canada’s “current and future economic conditions,” as well as “the roles of fiscal and monetary policy.” Those who attended the seminar called for moderate to average rates of growth, in concert with the downturn (at the time) in the global economy, and its anticipated recovery. With demand for stocks, and therefore stock prices, expected to rise, most attendees agreed that monetary policy, rather than fiscal policy, should be used to smooth out the business cycle.

This article by Thomas J. Courchene analyzes Canada’s fiscal turnaround from its dire situation in the early 1990s (with the Wall Street Journal suggesting the Canadian dollar might “go the way” of the Mexican Peso, for example) to budgetary surplus.

Steve Kerstetter’s report Rags and Riches: Wealth Inequality in Canada analyzes Statistics Canada data on the net worth (total assets minus total debts) of Canadians. Kerstetter’s report concludes that Canada has a deeply unequal distribution of personal wealth. His analysis compares personal wealth according to a number of different factors, including region, age, housing status, and education. Kerstetter finds that in 1999 the wealthiest 10 percent of Canadian family units had a combined 53 percent of the wealth, while the poorest 10 percent had negative average wealth. Perhaps more shocking, Kerstetter maintains, in the same year the wealthiest 50 percent of family units had 94.4 percent of Canadian personal wealth.

This article by Jack M. Mintz and Thomas A. Wilson offers a plethora of suggestions meant to improve the Canadian retirement tax system, which they believe is outdated. Accordingly, they suggest some of the steps that should be taken include: raising the maximum annual Registered Retirement Savings Plan (RRSP) contributions allowance, and indexing RRSP contributions to inflation; giving all citizens access to the averaging of income over lifetimes; a change in the allowable age ceiling for RRSP contributions; a raise in annual percentage limits; and the ability to split Registered Retirement Plans (RRPs) between spouses.

Kevin Milligan argues the Canadian federal government’s Registered Education Savings Plan (RESP) system is largely ineffective in meeting its primary goal – namely, subsidizing education-related savings. In Milligan’s view, the program needlessly complicates the Canadian tax system, especially considering the existence of the Registered Retirement Savings Plan option. (RRSPs are another means of tax-exempt accrual of income).

Bev Dahlby’s paper The Incentive Effects of Fiscal Equalization Grants contends that the inclusion of taxation and expenditures in Canada’s equalization funding formula can distort the fiscal policies of provincial governments that receive equalization funds. Dahlby uses a generic equalization grant funding formula to determine whether the tax and expenditure choices of governments are affected by equalization funds. He finds recipient governments change their fiscal policies to receive higher equalization grants. Most notably, Dahlby asserts that grants (based on his formula) result in higher taxes, excessive spending on consumptive public services, and an under-provision of tax base-enhancing expenditures such as education and infrastructure. Drawing upon his results, Dahlby concludes that equalization builds an inherent bias into provincial fiscal decisions.

In Toronto's Revenue Crisis: A Made at Queen's Park Problem That's Only Going to Get Worse, Hugh Mackenzie, of the Canadian Centre for Policy Alternatives, argues that Toronto’s budget problems are a direct result of actions taken by the Ontario government. According to Mackenzie, the provincial government’s municipal tax policy essentially freezes Toronto’s revenue, causing the City to lose access to 63 percent of its available tax base. The problem, as detailed by Mackenzie, is Bill 140, which defines a ‘tax ratio’ for municipal properties, in turn affecting the tax returns of municipalities. Cities such as Toronto, Mackenzie concludes, must fight the issue vociferously with the Government of Ontario in order to regain their revenue powers and avoid cutting crucial programs and services.