Raising Ontario’s taxes without being trusted

Trapped by bad timing and intolerable traffic congestion from one end of its political base to the other, Kathleen Wynne’s government is agonizing over how to sell higher fuel taxes to pay for infrastructure and to encourage greater use of public transit.

Doing something brave like this isn’t entirely out of the question.

The need to make expensive new transportation investments is accepted. Historically, Ontarians have accepted higher taxes and Ontario Liberals certainly have no woolly ideological objections to raising them. Indeed, serious people think it’s possible that a broad, visible tax increase by this particular government now could survive, if necessary, an election next spring.

A blue-ribbon report authored by policy entrepreneur Anne Golden has made the case for new revenues and has found, allegedly, a plausible way to make a substantial tax increase palatable. Taxpayers won’t actually have to trust their politicians with their money: presto, the extra hundreds of millions of dollars will flow obediently into a separate, pristine trust account.

The Globe and Mail editorial board isn’t easily excited. But, dedicated revenue streams arouse their support:

“A dedicated fund would manage these revenues. Without such a stand-alone fund, new money runs the risk of disappearing into general revenues, and being co-opted by other needs.”

The weird thing about Golden’s gambit is that it’s so business-as-usual.

The Wynne government is being pummelled by financial messes in stand-alone government authorities — in energy and in health delivery, especially. And now it's being advised to restore trust in creative government by creating another stand-alone pot of public monies to spend on another high-profile, virtuous public cause.

The government opposes any "privatization" of government assets or services and, of course, will campaign for positive government as a problem-solver. And, at the same time, it should promise to further distance its own Cabinet from the tax dollars it raises for its greatest new priority?   

Deputy ministers in line ministries, of course, dream of not having to fight for new resources or defend ministry expenditures in Cabinet meetings — in competition with other ministries and other priorities. But only exceptionally lucky crown agencies — like power authorities and airport operators, for instance — enjoy the privilege of pocketing directly special taxes (with businesslike names like rates, fees, and charges) that are rounded, by the full force of government legislation, for their exclusive purposes.

Consistent delegation and professional public service doesn’t require, let alone excuse, the "micro management" of program spending by the Premier’s office or by central agencies. Wynne won’t put the scandals of the past behind her government by promising to do everything herself.

However, turning tax-raising power over to another tax-spending public body will neither discourage petty politics nor prevent extravagant spending.

(Would former Premier Dalton McGuinty have pushed electricity authorities to waste over a $billion on two paper power plants if he’d known that he’d have to go into the legislature and raise the money directly?)

Before going down that path once again, the Wynne government would be better advised to: (1) reduce the cost of new investments by reducing its vast storehouse of old assets that no longer need to be owned by the government and (2) spell out how the Wynne Cabinet will better manage rather than delegate the deployment of any new monies.

Wynne has been quoted as saying that the latest agency in trouble — Ontario Power Generation — needs a new “culture.” This is, at worst, pure evasion, at best naïve.

Ontario Liberals have been in power too long to play the ingénue. The public needs evidence of a new culture of zealous accountability around the Cabinet table, not amongst distant technocrats, before being asked to pay higher taxes.

Who to tax in Corporate Canada: the largest and richest, or the plain old corporations?

Six months ago, Michael Ignatieff set the Liberal Party against another 1.5% reduction in federal corporate taxes. He and his caucus have decided to oppose the March budget unless the tax cut is reversed. Every day, their opposition escalates. Each statement becomes more extreme. It sounds like they not only want to force an election, but they also want to make a new corporate tax rate of 15% a ballot issue. Their growing confidence in their position, strangely, isn’t making their position clearer—only less so.

These corporations are “rich,” and more of their vast profits is needed by the more deserving. This is understandable, rhetorically. A “corporation” is a mere abstraction. To go shoulder-to-shoulder with the social democrats, Ignatieff will have to appeal to the little guy in flesh-and-blood terms. Yet, his finance critic Scott Brison’s attempt to explain the issue in writing both undermines its credibility and punch:

“In the face of this [mass unemployment, an historic deficit, unmet social needs, and an imminent decline in the workforce] Stephen Harper is reducing taxes for Canada's largest corporations by $6-billion. Canadian families would be justified in wondering why Canada's biggest businesses are getting a $6-billion tax cut when they are finding it difficult just to make ends meet.”

http://www.nationalpost.com/news/canada/wrong+time+corporate+taxes/4344345/story.html

Later, Brison complains that the government has provided no similar break for small businesses that now pay 11% and can deduct the first $500,000 of annual income.

His decisive argument, however, is that the federal government simply can’t afford to lose another $6 billion. (After all, the Liberals voted for the scheduled tax cut in last year’s budget before the deficit became their concern.) Their continuing use of the adjectives “biggest” and “richest” corporations directly contradicts this. They can’t be serious about saving the $6 billion if their eyes are only on the profits of the biggest. They’ll need to stop the tax cut on all profitable corporations, not just the richest and biggest—by definition, not even most, only a portion of them.

Conceivably, they are testing out a refinement of the policy: keep saying they’ll save $6 billion but only go for the profits of the largest corporations, usually defined as those with more than 500 employees. If that’s the case, please drop the $6 billion or tell us what new taxes you have in mind.

Of course, the probable reason for howling about the “biggest” and the “richest” is to wink: Liberals are still real business’s true friend. That excess is the target, not corporate Canada. With the dollar above par and escalating international competition, they will have a difficult time explaining to smaller corporations that the profitability and investment intentions of their community’s largest employers, their largest customers, and clients is of little concern.

With the U.S. election over, what next?

Here are post-election statements by three powerful Republicans about how the winners should conduct themselves in Washington. These comments were not shouted out at rallies but expressed with care, after a good night’s sleep:

“If the administration wants cooperation, it will have to begin to move in our direction.”

—Mitch McConnell, Republican Senate Minority Leader

“President Obama must decide whether he will heed the will of the people and work with us to address their concerns, or continue on a path the people have rejected.”

—John Boehner, next Speaker of the House of Representatives

“Tea Party Republicans were elected to go to Washington and save the country—not be co-opted by the club. So put on your boxing gloves. The fight begins today.”

—Jim De Mint, Republican senator from South Carolina

Before the super-rich and affluent pensioners discovered that influencing elections was more fun than buying lobbyists to seduce the winners, elections were, in large part, amateur affairs. Elections cleared the air, punished failure, and attracted new talent. When the elections were over, government got back to making decisions, with the influential assistance of professional policy advisors.

Pollsters and party organizers were invited in, from time to time, and would draw attention to the electoral consequences of actions taken in the self-important climate of the modern super state. But, after elections, Washington steadily returned to its core business—a center of government overseen by representatives of the people.

Politicians who got up every morning claiming to speak for and be bound hand-and-foot by “the will of the people” were dismissed as either unqualified to make decisions or shirkers more interested in the next election than the task of governing.

Two years ago, it was palpable that President–elect Barack Obama wanted to restore that traditional style of government. Certainly, for him, it would have been a pretty good fit. He’s not a backroom backslapper, but he’s very smart, and traditional government is far more disciplined and demanding than the so-called “permanent campaign” waged in Washington today.

After a $4 billion election, however, it doesn’t look very likely that electoral politics’ vast consulting beehive will defer to the more cerebral concerns of good government. Most pundits in Canada and in the United States anticipate at least two more years of legislative gridlock and, at best, small gestures to avoid both sides looking completely inept.

This prediction could turn out to be wrong. Not because today’s observers unfairly underestimate the motives of Washington politicians but because events may not let them get away with it. Benign circumstances allow for unimaginable mediocrity. But America is again approaching bracing times. There is no international mechanism to bail it out, and every day fresh questions are asked about its financial integrity and strategic prospects. So, American leaders may again have to act with the audacity—without paralyzing regard for partisan interests—they demonstrated only two years ago. Saving the banking industry, staving off depression, and stabilizing the world trading system deserved bipartisan attention and, fortunately, for a while, got it.

As just happened in Great Britain, America’s executive and legislative leaders may have no choice but to agree on a fiscal policy consistent with economic growth, social peace, and a trustworthy currency.  As with Britain’s Chancellor of the Exchequer, George Osborne, Republicans and Democrats in position of responsibility may have to sign on to their own “unavoidable budget.” As in other democracies with deficits over 10% of GNP, American leaders may have to make decisions on taxes and spending that were not been preapproved in the last election.