A ripe target: Tax-and-spend
liberalism
National Post
Tue 27 Sep 2005

Page: A22
Section: Issues & Ideas
Byline: Terence Corcoran

Column: Terence Corcoran
Source: National Post
Series: Is
Conservatism Dead?

We must start with an acknowledgement that the old Reform
party never had a solid, principled approach to tax policy and government
spending. Populism trumped principle, from its war on the GST to its fixation on
debt reduction to its careful overemphasis on tax cuts for lower-income
Canadians. No guts, no results.

The old Progressive Conservatives, who helped the Liberals create a tax
regime that repelled new investment, were worse than Reform. It's not
surprising, then, that a blend of the old Reform and PC traditions should
produce the soggy fiscal waffle that today passes for policy within the new
Conservative Party of Canada.

It may be too late to rescue the Tories with a brave new tax policy and a
bold plan for spending reform. They have let the tax agenda pass them by, to the
point where some Liberals are brazenly on the brink of positioning themselves as
defenders of tax cuts and tax reform. Industry Minister David Emerson said last
week he firmly stands behind a sweeping tax reform agenda proposed by the C.D. Howe Institute -- as
if the current tax mess were the creation of some unknown force. The next
Liberal budget is certain to contain tax programs that could blow the Tory
fiscal plan into follow-the-leader status.

How could the Tories have fumbled this rock-solid policy agenda, with its
promise of a stronger economy, great wealth generation and more jobs? What can
they do to reclaim this fiscal policy as their own?

This is, after all, the single Big Policy Idea that the Tories could have,
and should have, owned outright, the idea has the power to override all the
bickering among social conservatives, libertarians, centrists and even some
leftists. Not everybody on the left is totally committed to a tax system that
kills work and investment incentives. The party may not get a radical reform
platform past the Toronto Star's columnist brigade, or even The Globe and Mail.
But a tax cut agenda, properly presented to voters and consistently defended on
principle, is the only hope for a truly national Tory party.

The benefits of getting taxes down and reducing the size of government are
grounded in some of the most profound economic thought of our time. The role of
high taxes and soaring government spending in reducing Canada to a slow-growth
nation, with dwindling rates of productivity, has been documented, analyzed and
regressioned beyond doubt. As taxes on Canadians have grown over the decades,
rising last year to over $16,000 per person -- and still climbing -- real growth
in the Canadian economy has been falling to dismal levels.

Once upon a time, the normal long-term growth rate in Canada was thought to
be about 5% a year on average. Look at the 1950s and 1960s, even the 1970s -- in
good years, growth hit 8.6% (1956), 7.1% (1962) and 7.7% (1973). It was natural
and expected. Today, 3% is considered a good year. High, market-distorting taxes
and government spending are not the only causes of decline. But the mess in the
tax system, its size and its scope, is beyond doubt the greatest obstacle to
higher growth and productivity gains in Canada.

Back in 1993, I wrote a column on a paper by two University of Montreal
professors, Leonard Dudley and Claude Montmarquette. Prepared for the now
defunct Queen's Government and Competitiveness Project, the paper concluded: "If
Canada attempts to maintain the current size of its public sector, it must be
prepared to pay a price in terms of economic growth." Since then, the size of
the public sector has grown larger. Canada continues to pay the price.

The economic success of countries that cut back on the size of government --
Ireland, Denmark, the United States -- was well known throughout the 1990s. Tory
Leader Stephen Harper, then a Reform MP, seemed well aware of the need for
change. He liked to critique the old Progressive Conservatives, from Joe Clark
to Brian Mulroney, as a band of policy yokels who killed Canada's chances at
reform. "The federal Progressive Conservative Party was ideologically centrist
and ideologically anti-conservative," he said in 1994. "They suppressed the
emergence of this movement, much to the ultimate detriment of the country.
Canada failed to adopt the political pressure we needed for economic and fiscal
reform at a critical time. That's why Canada is 10 years behind most of its
competitor nations."

Too true. But through Mr. Harper's time as Tory leader so far, it can also be
said that Canada has failed to develop pressure for real reform. The party's
main approach to tax cuts and spending reduction has been to retreat and waffle.
Signs of weakness were scattered through the first Tory election platform. It
was, on the whole, a passable document that contained what by Canadian standards
were bold initiatives: a 25% income tax cut for middle-income families and a
$2,000 per child deduction for families. The Tories also promised to end
corporate welfare, and cut taxes on capital.

Since the 2004 election, the guts of these relatively modest initiatives have
been removed as the party floated deeper into the anti-conservative ideological
centre. The last Liberal budget was all but endorsed. Party officials say they
plan to keep the Liberal daycare spending program and then apparently add on
their $2,000 deduction, thus increasing the density of Canada's muddled tax and
spending system. The party's stand on corporate welfare has disappeared. No
doubt the platform for the next agenda will contain calls for tax cuts and
spending reductions, but it may all be for naught in the absence of a consistent
policy past.

Further hampering current Tory fiscal policy is the party's fascination with
"devolution" of power and the transfer of money to the provinces and cities.
Aside from being duplicative of Liberal policy, pandering to local governments
does nothing to curb those governments. Sending gasoline tax revenues down to
lower levels of government only gives local governments more cash to spend, on
top of their own rising tax collections.

Canada's fiscal fiasco is one big national system. Reducing Ottawa's share of
the national economy will accomplish nothing if the money is simply trucked out
to cities and provinces. With some provincial exceptions, the problem is the
overall bite of government on a national basis, now at about 41% of GDP. It's a
problem that requires a truly national vision and a national program -- and that
means more than fiddling with transfers and devolving powers and revenue
sources. It means more than tax cuts for lower income Canadians.

If the Tories and Mr. Harper are going to take on this challenge of tax and
spending reform, it's going to require a grand definition of the problem and a
bold outline of solutions. So far, they haven't even come close, leaving an
opening for the Liberals to finesse their way through a tax cut agenda that will
rip what little there is that's solid from under the Tories.

A Tory agenda to cut taxes and government spending requires boldness,
consistency, leadership, courage and a deep understanding of underlying economic
principles. It means hammering home the link between lower taxes and smaller
government to stronger growth and greater wealth for all Canadians -- whether
they are married gays or devout Muslims. It means marshalling clear and
principled responses to the inevitable hysteria of critics and opponents. It
means resisting the polls that seem to show Canadians are wary of
small-government policies and ignoring advisors who believe compromises are the
road to power. We already have a party that does that. No guts, no results.

Illustration:
• Graphic/Diagram: Statistics Canada,
National Post / The Rise and Rise of Taxes and Spending: (See print copy for
complete graphic/diagram.)

Edition: National
Story Type: Business; Series;
Column
Note: Part three of a six-part series.; [email-masked]

Length: 1268 words