June 2005 Archives

Where your tax dollars go

The Government of Canada's Department of Finance has a multimedia presentation on its web site that illustrates the main sources of government revenue and how federal revenues were spent in the most recent fiscal year available. (Most recent data is for 2003-04.)

For the presentation, see:
http://www.fin.gc.ca/TaxDollar/taxdollar_e.html

Live 8 – A Solution that is Simple, Direct and Wrong

What is the best way for developed nations to help Third World countries rescue themselves from poverty? For rock stars it is to organize a series of international concerts – dubbed Live 8 – in advance of the G-8 meeting of the world’s most powerful nations. Nine concerts – including one in Barrie, north of Toronto – will be held on July 2 to pressure G-8 leaders to boost foreign aid budgets to 0.7 per cent of gross domestic product, and cancel debt owed by the poorest nations. For a country like Canada this means nearly tripling the foreign aid budget and spending some $42-billion more over the next decade.

But will spending such vast sums improve the conditions of people living in squalor? If taxpayers could be assured it would, most would gladly contribute. But given the abysmal record of government aid agencies to improve living conditions in Africa, and elsewhere, Ottawa should resist calls from entertainers to spend more. Providing more foreign aid – without fundamental governance reforms – is a costly proposition for taxpayers and one that will not help the world’s poor.

Developed nations today contribute approximately US$70-billion a year in official development aid to the Third World. And what has such generosity achieved? Most experts would say, not much. While volunteer aid agencies do good work feeding and healing the sick, government attempts to improve economic conditions have largely failed.

For answers why this is so, taxpayers – and policy makers – need only pick up a copy of Lords of Poverty.

Published in 1991, the book exposes the many failures of the multibillion dollar government aid business. Lords of Poverty is an indictment of the international aid industry, and as a New York Times book review noted, "If books had hands, this one would be reaching out to strangle the United Nations officials who will no doubt be reading it at their desks in brown paper wrappers." (Voluntary agencies are spared criticism because they tend to be funded by charitable contributions and are pressured to spend money more wisely than government agencies.)

Author Graham Hancock became disillusioned with the aid industry after working in developed nations. He asserts – with examples of waste and corruption – government aid programs more often than not worsen the conditions of those they are meant to help. Aid organizations, like the Canadian International Development Agency, serve to keep western consultants employed but do little to develop poor economies. Government programs are ill conceived because they rest on the premise that developed nations must save the Third World – precisely what taxpayers are being told in advance of Saturday’s Live 8 concerts.

From 1950-55 total government aid seldom exceeded US$1.8-billion per year. By 1962 total world aid hit nearly US$6-billion and a decade later OECD nations (i.e. western countries) gave almost US$10-billion. By 1984 this figure jumped threefold and the Soviet Union was also doling out development assistance. Total world aid in 1987 was over US$50-billion, topped US$60-billion when the Berlin Wall fell, and stands at US$70-billion today.

If foreign aid works shouldn’t the poor be doing better today than before the dollars started flowing? Instead Africa remains an economic basket case whereas millions of people have escaped the poverty trap elsewhere. Improvements in Asia and South America, however, are not attributed to handouts from the West but better governance and trade opportunities.

Africa lacks the basic conditions to better the lives of its citizens, and more money will not change that. The first step is to develop an independent judiciary that can enforce laws and contracts. Developed countries meanwhile should work with nations willing to help themselves by making such changes. This is not to suggest full blown democracy must exist, but progress must be seen. Handing billions more to corrupt governments will drive up Mercedes-Benz sales, but do nothing to help the poor.

The most dramatic improvement in living conditions will result from western nations reducing tariff barriers and liberalizing trade to give Africans greater economic opportunities. And when aid money is to be spent, project outcomes must be defined so results can be measured. This means focusing on combating the AIDS epidemic or providing clean water rather than "developing an economy."

Taxpayers support providing emergency aid when disasters strike, but not funding economic or regional development projects. They know this type of grant-giving will not work any better in Africa than it has in "developing" our Atlantic Canadian economy or native reserves. Regrettably, this is the type of foreign aid championed by government aid agencies with the backing of Live 8.

John Williamson
Canadian Taxpayers Federation

What’s really behind “Tax Freedom Day”

According to the Fraser Institute, an independent public policy organization in Canada, Sunday June 26, 2005 is "Tax Freedom Day", the day when Canadians allegedly have earned the amount of their income that will go to taxes. For the remainder of the calendar year, Canadians are working to put money in their own pockets.

According to the Institute, the tax rate remains unchanged from last year but the day falls one day later due to the leap year in 2004. The Fraser Institute's news release reads:

"Since 2001, Tax Freedom Day for the average Canadian family has steadily advanced. Tax Freedom Day fell on June 19 in 2001, June 23 in 2002, June 24 in 2003, and June 25 in 2004. This year, Tax Freedom Day falls on the same day as it did in 2000, the latest Tax Freedom Day in Canadian history."

Yet, in a news release issued by the Canadian Centre for Policy Alternatives, entitled Don’t believe the hype: What’s really behind the Fraser Institute’s "Tax Freedom Day" a study by the CCPA's Neil Brooks claims that the Institute's reported date understates the income of Canadians, overstates their taxes, and misuses the concept of averages.

Brooks states:

"The concept of Tax Freedom Day is a gimmick designed to suggest that Canadians derive no benefit from the taxes they pay when nothing could be further from the truth. With their taxes, Canadian citizens buy their most valued goods and services: high-quality public schools, world-class universities, excellent medical services, public parks and libraries, safe streets, and livable cities."

While reinforcing the notion that the goods and services we receive through our taxes do not enlarge our freedoms or enrich our lives, the author does indicate that the methods used by the Fraser Institute to calculate Tax Freedom Day are flawed.

For more information on the Brooks study, see the CCPA news release on the CCPA web site. Brooks' study appears to be a more indepth analysis of an editorial previously prepared by the CCPA's Marc Lee in 2002 entitlted The tax freedom daze.

Refer to the Fraser Institute web site for its news release Canadians Celebrate Tax Freedom Day on June 26th.

CTF Comments on Tax Freedom Day

Tax Freedom Day Arrives Sunday – Finally a Weekend to Celebrate

Calgary: The Canadian Taxpayers Federation (CTF) today responded to news from the Fraser Institute that Tax Freedom Day for Canada will occur on Sunday, June 26th.

Each year, the Fraser Institute calculates Tax Freedom Day as the day of the year when taxpayers finally start working for themselves after paying the total tax bill imposed on them by governments. Prior to the Tax Freedom Day, the equivalent of all money earned by taxpayers is required to pay the numerous taxes, fees and levies imposed by federal, provincial and municipal governments. The original release and calculations is available at: www.fraserinstitute.ca

"Canadians this year will work 177 days to feed the appetite of all three orders of government, chewing up 48 per cent of average annual household income," stated CTF federal director John Williamson.

"From New Year’s Day until noon on April 14th, taxpayers worked for the Canada Revenue Agency. After lunch on April 14th until the lunch break on June 17th, we toiled away for the provincial tax collectors. And from noon on June 17th until close of business Saturday, we worked for City Hall," added Williamson. "This year Tax Freedom Day falls on Sunday, the day of rest for weary taxpayers."

John Williamson
Canadian Taxpayers Federation
www.taxpayer.com

Defend patient rights, not a broken system

The Wrong Question in the Wrong Town

Reaction varied widely to the Supreme Court's ruling that it is unconstitutional for the state to disallow Canadians who are suffering – and at times even dying – while they wait for "non-urgent" health care to seek treatment outside of the medicare system. This is because the decision – which applies only to Quebec – will have a profound impact on Canadian health care. Over time the government monopoly will be truncated and accessibility to private care will grow.

But what are Canadians to make of the teetering reply in our nation's capital? The government is asked what will be done to save medicare. This is the wrong question since it implies Ottawa’s chief concern should be to retain the single-tier health system. Yet the court struck down the law forbidding Quebec residents from purchasing private medical services and private medical insurance. Medicare's monopoly status and state restrictions on constitutional freedoms is unacceptable. Elected officials instead should be questioned on how they will ensure individual rights are respected, not eroded by the state.

A point of comparison is when lower courts ruled in favour of gay marriage. The federal government did not appeal these rulings. Rather Ottawa vowed to entrench the right to same-sex marriage in legislation, even though the Supreme Court had never explicitly ruled that such a right existed. "Saving" traditional marriage took a backseat.

Ottawa should ensure the medicare ruling is respected and not blunt the decision. A bigger health care bureaucracy cannot shorten wait times. Respecting patients' rights means removing barriers to private health care erected by government.

Far from killing medicare this path will improve it. As the Supreme Court found, "many western democracies that do not impose a monopoly on the delivery of health care have successfully delivered to their citizens medical services that are superior to and more affordable than the services that are presently available in Canada. This demonstrates that a monopoly is not necessary or even related to the provision of quality public health care." Saving medicare means permitting private service. Ottawa should loosen its grip and allow provinces the flexibility to experiment with various reform measures.

The focal point will be how provincial legislatures answer the court's ruling. Provinces have the constitutional obligation to deliver health care. The Supreme Court has handed them the tools to sidestep those who want to keep the system closed to competition and simply pump more money into government-run health care.

What do taxpayers receive for the $90-billion their governments' budget annually for health care? A system that is good, but not anywhere near "the best" as is claimed. The World Health Organization (WHO) recently ranked our system 30th out of 196 surveyed countries. With health care funding rising twice as fast as the growth rate of provincial revenues, governments need to develop solutions that save money and provide quality health care.

Rather than wait for patients to petition the courts for the same rights granted Quebec residents, it is hoped that provinces will now become laboratories of social policy experimentation, whereby different mixes of private and public health care are provided. Successful reforms tested in other jurisdiction should be copied.

With the exception of Cuba and North Korea, Canada stands alone in outlawing the freedom to spend one’s after-tax income on one’s own health. With 29 nations ranked ahead of Canada there is no shortage of jurisdictions to emulate. Allowing a parallel, private system to co-exist along side the public system is essential to improving Canada's medicare system. Hopefully, this decision will make genuine health care reform a reality.

John Williamson
Canadian Taxpayers Federation
www.taxpayer.com

Calling all tax writers

Taxes.ca is looking for contributors and writers on all accounting, taxation, and financial planning topics from all regions of Canada.

Given that many tax industry professionals are overloaded during the winter months leading up to the personal tax filing deadline, now that the warmer weather is here, now is the time to concentrate on preparing a few articles to post to our blog.

Increase exposure to your target markets

All articles are posted with attribution to the author and a link to the author's web site. We're especially interested in developing a network of regional specialists to provide ongoing commentary on tax topics pertaining to the provinces and territories as well as Canada's larger municipalities.

Those interested in becoming contributors to Taxes.ca should contact us at info@taxes.ca and review the Taxes.ca Terms of Use.

CRA Tax Tip: self-employed filing deadline

The Canada Revenue Agency has released a reminder to self-employed individuals regarding the June 15, 2005 tax filing deadline:

"If you or your spouse or common-law partner operated a business in 2004, you have until midnight on June 15, 2005 to file your income tax return. If you had a balance owing for 2004, it had to have been paid on or before May 2, 2005 to avoid interest. A late-filing penalty on amounts owing will apply to returns received or postmarked after June 15, 2005. You have the choice of filing either electronically or on paper."

For more information, see the CRA web site at:
http://www.cra-arc.gc.ca/newsroom/taxtips/2005/tt050609-e.html

The "Do Anything, Say Anything" Conservative Party

Deputy Conservative leader Peter MacKay this week accused the Liberal government of having a "do anything, say anything" strategy to cling to power. Conservative MPs believe – along with a good number of Canadians – the Liberals are guilty of trying to bribe voters with tax money. But Mr. Mackay might have been describing his own party.

The Official Opposition has been busy jettisoning and twisting policies they fear the ruling Liberals might suggest are controversial. Conservative members, it seems, pull policy from a hat to win applause with no concern for contradictions or inconsistencies.

Last month, for example, the Canadian Taxpayers Federation (CTF) launched its 7th annual Gas Tax Honesty Campaign to inform Canadians of the high gasoline taxes they pay at the pumps – it is currently 38% – and ensure fuel taxes are dedicated toward road construction. Rahim Jaffer, a Tory MP, issued a news release entitled, CTF Report Mirrors Suggestions Put Forward by Conservatives. It read, "Many of the recommendations put forward by the CTF are similar to those made by the Conservative Party of Canada over the past several years. These include reducing the excise tax on gasoline, eliminating the GST on the excise tax and putting more money into infrastructure." According to his release these ideas were outlined in a June 2003 motion advanced by the party in Parliament.

But who is mirroring who here? The motion Mr. Jaffer cites was based, in large, part on the CTF’s 2003 gas tax report.

Imitation is the greatest form of flattery. If, however, the party is going to crib good policy it should trumpet it during election campaigns, not only when it is convenient. And here Mr. Jaffer’s statement falls short. In the last election the Conservative party vowed to "axe the tax on the tax" and "remove the GST on gas prices above 85 cents per litre." Missing was any promise to lower the excise tax. And what is the Conservative policy on a gas tax transfer today? That’s another story. Ottawa has already promised $5-billion over five years, but little will be spent on roadways. Yet the Opposition will not alter any federal-provincial deals and the party, says Mr. Jaffer, "has made the commitment to not only match but possibly even exceed the amount of spending the federal government does on infrastructure."

The Conservative position on daycare is also mind-boggling. Not so long ago, the Opposition favoured treating all parents with young children equally; if elected to government, they would not discriminate against parents who decide to stay home to raise their kids or choose other care options outside of the home. The Liberal proposal will provide financial support only to families that put their kids in a government-run daycare program.

Yet this spring – with all politicians in pre-election mode – Conservative MP Rona Ambrose announced a policy U-turn. Her party, she told the Commons, "will honour the child care agreements with the provinces." If the Conservatives are now committed to honouring the Liberal’s child care agreements, which will cost $5-billion over five years, how much more will they spend on stay-at-home parents?

Things are no better on the Kyoto file. When Ottawa tabled its $10-billion Kyoto implementation plan in April, Environment critic Bob Mills retreated. "We can’t get out of Kyoto," he concluded (incorrectly), but the Conservatives "would achieve those targets in a realistic fashion." Yet only days later he claimed, "Canada’s emission reduction targets under the Kyoto Accord are unattainable," and more to the point, "The Conservative Party does not support the Kyoto Accord." So which is it? Will the party spend billions on Kyoto implementation?

Opposition to corporate welfare and supply management were once bedrock policy issues for the party. Yet when Ottawa announced it would hand $350-million to Bombardier a spokesman for Conservative leader Stephen Harper outlined the party’s latest thinking on government handouts: "We are Conservatives and we respect contracts." Subsidies will flow whichever party forms government. And a Bloc Québécois motion supporting Canada’s marketing-boards backed by Conservative MPs marked another policy breach.

To date, the Conservative Party has tabulated Liberal pre-election spending at over $26-billion. Yet the Opposition has matched Liberal spending promises, and, in some areas, the government-in-waiting is willing to push the spending envelop further still. Mr. Harper it is time for a timeout and some clarity. A party willing do anything and say anything will not have much success: Look at Mr. Martin’s performance as prime minister.

John Williamson
Federal Director
Canadian Taxpayers Federation
www.taxpayer.com

Municipal GST/HST Rebate Information

Information is now available on the Canada Revenue Agency web site regarding Goods and Services/Harmonized Sales Tax (GST/HST) rebate amounts for municipalities.

"As part of the New Deal for Cities and Communities, the Government of Canada is committed to help all communities secure stable, predictable, long-term funding," stated Minister Godfrey. "Municipalities across this country are benefiting from the GST/HST rebate, which they are using for their most pressing needs. The rebate, delivered in Budget 2004, is providing $7 billion over 10 years. Budget 2005 builds on this commitment to municipalities by providing $5 billion in gas tax funds over the next five years, and committing to renewing and extending programs such as the Canadian Strategic Infrastructure Fund, the Municipal Rural Infrastructure fund, and the Border Infrastructure Fund as they expire."

More information is available on the CRA web site at:
http://www.cra-arc.gc.ca/newsroom/releases/2005/may/0526gst-e.html