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William Watson: Here’s how big and gross Canada’s own ‘swamp north’ has become


We Canadians look down our noses at the goings-on in Washington. Not just the president’s bizarreness, but the oily operations of the 24/7 Bazaar on the Potomac that is Congress and its associated lobbying industry. “They sell their votes,” Jean Chrétien once said, horrified, to an open mic at a NATO meeting, though he himself was not unacquainted with fiscal/electoral trade-offs.

One of the few Trump platform planks Canadians probably do agree with — one of the few things people on the left and right can agree on, at least in principle — was his proposal to “drain the swamp,” his pet name for the congressional-industrial system. (This metaphorical swamp is not to be confused with the literal swamp that moldered at the foot of Capitol Hill until 19th-century developers drained it.)

It seems the draining hasn’t yet started. The recent tax reform removed several truckloads of goop but, no less an authority than Golf Digest magazine tells us that “In the chaotic final hours of negotiations — almost all behind closed doors — dozens of revisions, deletions and amendments were made to the (Senate version of the tax) bill, many of them highly significant,” including removal of a provision that would have ended the PGA Tour’s — and the NHL’s — tax-exempt status.

At least the Americans know they have a swamp. Canadians smiling smugly at the persistence of Washington log-rolling, back-scratching and horse-trading despite the arrival of a president supposedly dedicated to eliminating them should read a new research paper from the University of Calgary’s School of Public Policy. Written by John Lester, a former Department of Finance economist, it provides comprehensive estimates of business subsidies from Ottawa and the four biggest provinces.

The report is not exactly a page-turner. Lester first walks us through how the five governments he studies each reports its assistance differently. Where they don’t report at all he’s had to use access to information requests to pry the information from them. And he does a lot of very useful taxonomy setting up categories of assistance according to whether it aims at fixing externalities and other market failures, pursuing industrial policies that will provide (as our leaders say) “good, well-paying” jobs, or simply transferring income to approved social actors, such as farmers and small businesses.

When Lester finally adds it all he finds the numbers are big: $14 billion from Ottawa in 2014–15, the last year for which complete data are available, and $14.6 billion from the four provinces. That translates to $390 per person at the federal level and $480 in the four provinces. (First time I looked at those per person numbers I couldn’t understand why a mere $600-million difference would make such a big difference per capita. But of course the population of the four provinces is not the same as the population of Canada as a whole. Hold on: Did I really just write “mere $600 million”?)

Let’s think about the per capita numbers for a second. If you live on your own, they’re a good measure of how much you’re giving business via government. If you’re in a family, however, you need to multiply by two or three or however many people are in your family. And to control for the fact that lots of Canadians don’t pay tax, at least not income tax, you want to adjust that product upward to gauge the hit on taxpaying families. If you’re a taxpaying family of four living in Alberta, you’re on the hook for $390 to the feds, times four, plus about $640 to the province, also times four, which is then grossed-up for the fact that not everyone in the province contributes tax dollars to the cause. It wouldn’t be unreasonable to suppose your total bill for helping out business was several thousand dollars a year. And of course people facing a 50-per-cent top rate have to earn twice that in order to pay those taxes.

Is it a good investment? Is it better than you could do investing your own money according to your own likes? We all have our own presumptions on that one. Lester works through the different kinds of assistance according to whether they even aim at economically justifiable purposes rather than simply random reallocation. Citing his own earlier work, he concludes, for instance, that subsidies to filmmaking — which all five jurisdictions offer — don’t achieve their declared purpose of creating good, high-salary jobs. Why not? Because it turns out wages for Canadian workers in film production are actually about average.

No doubt Canada’s politico-industrial swamp is different from America’s. Our defence complex sometimes behaves as if industrial development were its sole mission, while the Pentagon at least still does think about being able to use its equipment to fight. Maybe our problem is distinctive: more muskeg than swamp. Even so, we’re also wading in muck.

Source: Financial Post; Author: William Watson

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