August 2007 Archives

Kyoto Update – Nothing the Taxpayers Federation Hasn’t Said, Twice Before

* Federal government report on Kyoto costs mirror earlier CTF predictions.

St. Andrews, New Brunswick: The Canadian Taxpayers Federation (CTF) responded today to the federal government’s Climate Change Plan for the Purpose of the Kyoto Protocol Implementation Act 2007. The Environment Canada statement is required by law under the Kyoto Implementation Act, which was advanced by Opposition MPs and received Royal Assent on June 22, 2007.

According to today’s release, “To meet its obligations under the Kyoto Protocol, Canada would have to achieve an average 33% reduction in annual emissions for each of the next five years.” This is because implementing the international agreement requires Canada to reduce average carbon dioxide emissions to 6% below 1990 levels by 2008-12. Because the country’s output of greenhouse gases has increased by nearly 33% above its target, draconian cuts in energy output are needed in short order.

“It is an impossible target that if we attempt to hit will cause economic suffering to countless Canadian families,” said CTF federal director John Williamson. “The only way to meet Kyoto targets without spending billions of tax dollars to buy ‘hot air’ from Russia is with strong price incentives to slash energy demand at home. This will require raising the cost of energy by way of higher taxes, which will mean lower economic growth and reduced family incomes.”

Since November 2002, the CTF has repeatedly warned Ottawa about the high cost of implementing the Kyoto Protocol. The CTF’s 2002 study, entitled Counting the Costs: The Effects of the Federal Kyoto Strategy on Canadian Households, authored by noted academic Dr. Ross McKitrick, predicted a 5.5% drop in “real” household incomes – $2,700 for the average family – starting in 2010. That figure was updated by the CTF in February, 2005, to $3,000 per family as a result of Ottawa’s early inaction on the Kyoto file.

Today’s Climate Change Plan for the Purpose of the Kyoto Implementation Act 2007 concludes the “Canadian Gross Domestic Product (GDP) would decline by more than 6.5% relative to current projections in 2008 as a result of strict adherence to the Kyoto Protocol’s emission reduction target for Canada. This would imply a deep recession in 2008, with a one-year net loss of national economic activity in the range of $51-billion relative to 2007 levels.” The impact on Canada’s workforce will also be severe as “employment levels would fall by about 1.7% (or 276,000 jobs) between 2007 and 2009” and per capita income will also decline by “about $1,000 per Canadian in today’s dollars.” In addition, “natural gas prices could potentially more than double in the early years of the 2008-2012 period, while electricity prices could rise by about 50% on average after 2010” and gas prices will rise by “roughly 60%.”

Other key findings from Counting the Costs that share an uncanny similarity to conclusions reported by the federal government include:

* Preferences for energy consumption are stable – changing consumption patterns could require natural gas price hikes of 90% and gasoline price hikes as high as 50%;

* Assumptions of a smoothly-functioning international emissions credit market are flawed;

* A drop in real wages of 5.8% along with a 5.5% drop in real net incomes by 2010; and

* Ottawa has not conducted independent reviews of the science or cost estimates behind Kyoto.

“Give the high economic cost and job losses, the federal government has wisely decided not to fulfill the Kyoto Protocol. If the Liberal Party truly believed in the merits of this United Nations agreement, it would have inflicted the economic pain necessary to reduce greenhouse gases when it was in office,” Williamson concluded. “Implementing Kyoto isn’t nearly as easy or pain free as many environmentalists claim. That the once governing Liberals did not enact Kyoto should tell Canadians something about the high economic and political costs.”

John Williamson
Federal Director
Canadian Taxpayers Federation

AGREEMENT REACHED FOR HARMONIZATION OF ONTARIO CORPORATIONS TAX WITH FEDERAL REGIME

The following news release is avaialable on the Canada Revenue Agency web site:

HUMAN RESOURCES AGREEMENT REACHED FOR HARMONIZATION OF ONTARIO CORPORATIONS TAX WITH FEDERAL REGIME Streamlining will save Ontario businesses up to $190 million a year

Ottawa, Ontario, July 31, 2007…The Canada Revenue Agency (CRA) and the Ontario Ministry of Revenue have signed a Human Resources Agreement that represents a significant step in the move to federal administration of Ontario's corporate taxes.

The agreement outlines employment opportunities at the CRA for Ontario staff currently involved in corporation tax audit, appeals and advisory roles, and describes how the two organizations will manage the movement of employees who accept job offers from the CRA. It provides for these employees to begin working at the Agency on April 3, 2008.

“In Budget 2007, the Government of Canada made a commitment to reduce the federal paper burden and tax compliance costs for small businesses,” said the Honourable Carol Skelton, Minister of National Revenue. “Single administration of Ontario's corporate tax will reduce the compliance burden on the province's businesses by an estimated $100 million a year in administrative costs alone.”

“Ontario's business community will begin to experience the tangible benefits of CRA administration in February of 2008, when they start to remit single instalment payments to the Agency,” added Minister Skelton. “The hiring of the Ontario employees at the CRA means that corporations will see integrated audit and objections processes in April of next year. The single return will follow in 2009 for tax years ending after December 31, 2008.”

“This is a good deal for Ontario and it protects Ontario revenues,” said Ontario Minister of Revenue Michael Chan. “This agreement recognizes that Ontario's corporate tax professionals are skilled and experienced and the CRA has recognized their value.”

“This agreement also demonstrates the ongoing commitment to the partnership between our province and the federal government,” added Minister Chan. “The streamlining of tax administration will improve efficiency and help businesses free up resources that can be invested in new jobs and help build a stronger, more productive economy for all Ontarians.”

The single administration of Ontario's corporate tax by the CRA will lead to one set of rules, one form, one audit, one appeals process and one point of contact. For tax years ending after December 31, 2008, businesses will also save $90 million a year in lower Ontario corporate income taxes as a result of harmonization with the federal corporate income tax base.

For more information, see:
http://www.cra-arc.gc.ca/newsroom/releases/2007/july/nr070731-e.html

Three Policy Proposals for Stephen Harper’s Government

Stephen Harper has all but exhausted his policy agenda and his government is adrift. This week, the Conservative caucus landed on Prince Edward Island for a strategy meeting. The Prime Minister should use these discussions to muster a new agenda before Parliament returns in the fall. Without one, the opposition parties will continue to advance their agendas in spite of the 2006 election results.

When Prime Minister Harper seizes the policy initiative, he governs well. Indeed, credit should be given to the Conservative government for implementing most of its five election promises. Those priorities are enacting the Federal Accountability Act, reducing the GST from 7% to 6% and signalling another point chop by 2011; replacing a planned daycare scheme with a universal child care allowance; developing medical wait-times guarantees with the provinces; and advancing legislation to get tough on criminals (the Senate is obstructing passage of the crime bills).

The federal government has also prepared the legislative ground work to make the Senate democratic and promote accountability on native reserves. Conservative bills will limit Senate terms to eight years and authorize voters to elect their Senate representatives. To improve the plight of natives, another bill will expand Canada’s human rights laws to native Canadians. (Aboriginal reserve governments are currently exempt from the Canadian Human Rights Act.)

Although the opposition is blocking these sensible reforms, the government should not yield – it is one thing to tie a bill up in Parliament and an altogether different ball game to explain in an election why senators ought to remain appointed or that aboriginals are not entitled to the same legal protections other Canadians take for granted. The Conservatives are well positioned here, but it will be a protracted campaign.

Mr. Harper’s immediate challenge is to identify taxpayer-friendly goals that resonate with voters. Initiatives like a national securities regulator might improve market efficiency but will not win many votes. The same is true of selling excess government buildings.

While Canada’s second minority Parliament has been productive, it has not generated the results many taxpayers had hoped for. What is most alarming is the unrelenting rise in spending. The Conservative’s two budgets boosted spending by $24.4-billion over two-years. As a result the size of the federal government has grown by 14%.

Evidence of bureaucratic feather-nesting came in July with a government study examining civil servants’ pay. It reported Canada’s bureaucracy is bloated and the mid-1990s budget cutbacks to the civil service have been undone. Public servants are paid an average salary higher than their private sector counterparts and receive rich benefit packages. Since 1999 the cost of the bureaucracy has increased by an astounding 50%.

Agenda item one for the Conservatives should be to cut spending. Item two should be to dedicate savings to debt reduction. Canada’s debt currently stands at $472-billion. Since 1961, debt interest and service charges have cost taxpayers almost $1-trillion. Canadians would welcome a plan to pay off the debt. It can be achieved if Parliament passes a debt repayment law with annual payments of 5% of total revenues. Each year, Ottawa squanders $34-billion paying interest. As the debt is reduced, significant savings will be realized through lower interest payments.

The third policy item is to cut income taxes, since Finance Minister Jim Flaherty is not taxing to collect money to fund programs, but rather finding ways to spend money government collects. Two years ago the federal surplus totaled $13.2-billion. Last year it was $9.2-billion. The spending of surplus dollars is responsible for Ottawa’s 14% expansion.

To moderate demands for tax relief, the finance minister has again underestimated this year’s surplus figure. In July, the department of finance reported a budgetary surplus of $3.5-billion for the first two months of the fiscal year. Mr. Flaherty’s March budget pegs it at $3.3-billion for the entire year. Mr. Flaherty’s surplus denials, “tax fairness” rhetoric, and nominal tax relief proposals have become tedious. Canadians pay too much tax and all deserve relief.

That makes three new proposals for Prime Minister Harper’s team to consider. Taxpayers are unlikely to be motivated for a political party that they see as being little different than the alternative. The Liberals are seriously considering some sort of tax relief policy, perhaps even income splitting. As such, the Conservative government is in danger of being outflanked where they should not.

John Williamson
Federal Director
Canadian Taxpayers Federation