Letters by a modern St. Ferdinand III about cults

Canadian history has been a struggle to define an identity that separates Canada from both its progenitor – Britain – and its main competitor – the USA. Canadian foreign policy, mercantile economics, industrial strategy and cultural protectionism is roughly premised on state control, anti-Americanism and now post modern dogmatism. In looking to counter act American influence Canadians have turned to the UNO and the EU as exemplars of post modern justice, equality and human rights, and concomitantly the aggrandizement of state power. Redistribution, stability, risk aversion, societal peace and enforced apathy are the hallmarks of Canadian domestic policy. State control with selectively open but still protected and managed markets underpins economic policy.

Canadians need to question the empirical record of such a program. There are 3 areas in which the average citizen can analyze Canadian policy and its effects, namely the 3 areas that determine a nation’s place in the world hierarchy – the strength of domestic politics and democratic institutions, the nation’s economic power, and its foreign policy power including military projection. In Canada all three have suffered as a result of the political elite’s rush to tax, micro-manage, equalize and pacify. Let’s briefly look at one example – the economics of Canada’s socialist federalism.

Over the past 15 years Federal Government spending has doubled in inflation and real adjusted monies to its current level of C$190 Billion or about $5.800 per person. On a per taxpayer basis this is about $11.000 per citizen that is transferred on average to Ottawa. This money is largely spent on redistribution to equalize incomes across income categories and across regions. The incidence of such transfers is remarkably higher than in the US, where personal disposable income is 30 % higher on average and there is far less transfers between the states and Washington.

The system of redistribution between income levels and regions creates perverse incentives for both provinces, companies and individuals. Take the provinces for example. In Canada tax revenues are transferred from have to have-not provinces. This creates two illogical constraints. The first is that Federal taxation to redistribute monies, will constrain provinces from being able to raise revenues in certain areas. For have-not provinces this is not an issue since they will receive money from the have provinces. But for Ontario and Alberta, [and perhaps soon BC], which are the only have provinces, Federal taxation actually reduces their ability to manage their own fiscal affairs and puts another cost burden into their budgets [welfare costs for the rest of country].

Provincial redistribution also creates bizarre economic incentives for the provinces. Let’s imagine that one province reduces taxes, increases its GDP growth, reduces spending, privatizes state owned assets, pays off debt and reforms its bloated public server. This province will actually over time, see a net increase in revenue as economic growth accelerates and spending as a % of provincial revenue is reduced. One would suppose that such a virtuous scenario would be encouraged. But not in Canada. This province would be forced to pay higher transfer payments to have-not provinces, have its tax based worsened as Federal taxation is increased, and suffer economic constraints as the ‘progressivity’ of the Federal tax system reduces its economic growth. For good management a healthy province is sur-taxed and punished.

Conversely a province that mismanages its affairs, has needlessly high spending, high taxes, and a bloated civil service could increase taxes for example, to cover deficits. Federal redistribution in this case would allow a province to keep imperiling its economy by ensuring that inter-provincial transfers mitigate the pain of mismanagement and an increasing tax burden. The citizens of this province will be worse off over the long term and their only recourse will be to try to elect new political masters who initiate reform. Failing that they might be forced to leave the province. If there is no economic reform, or if the bulk of the most productive and innovative workers leave the province, the cycle of mismanagement and dependency on Federal welfare will of course be accelerated. Reforms, which entail political capital and courage, will not be forced onto this badly management province.

Regional subsidies, EI programs and socialized medicine are the outward manifestations of such perverse incentives and the anti-liberal system of dependency.

Let’s turn now to the individual and the corporation. The National Post [Jan 19 2005] ran some excellent articles on the lack of growth in Canadian disposable income over the last 15 years. This is not a surprise for most people who lose 50 % of their gross income to taxation. While taxes, contrary to media propaganda have risen in the past 15 y ears by 33 % or so, incomes have been flat. Federal spending has gone from $100 billion [inflation adj. real $], to $190 billion in 2005. Very few people have seen their disposable incomes double during that time. Program spending is in full throttle with more to come. Tax reduction is not politically correct to discuss [after all Socialised Medicine needs our dollars], but program spending on Kyoto [$4 billion], Gun Registry [$2 billion+], Regional programs, Aboriginals [$10 billion], Corporate Bailouts, Export Development Assistance, CIDA [$3 billion], and assorted other worthies drain money from dynamic regions, companies and individuals, to other less efficient, ineffective regions and firms.

Worse still Canada taxes capital, investment and savings as well as income at higher rates than in the US. Canada’s taxation on income is at least 30 % on average higher than in the US. Corporate rates in Canada at 31.3 % on average, are the 3rd highest in the world after Germany and China, with US rates at 23 %. These rates include all local, state or provincial and franchise taxes [see J. Mintz, National Post, Jan 19th, FP15]. Worse for Canada most OECD nations will cut corporate taxes in the future. Finland, Holland, India, and others will reduce corporate tax levels. The US incredibly will raise its rate to 25.3 % though Bush might roll that back in his tax reform package.

The net effect of high corporate taxation and a weaker C$ [vs. the U$], is a lack of investment in technology and productivity. Workers in Canada have $1600 less in investment in new structures and productivity enhancing equipment than their US counterparts and $650 less than the OECD average. Capital tax reductions, reducing the corporate income tax, increased capital cost allowances to replace capital, and eradication of corporate, and regional subsidies are necessary.

Government mismanagement of the Canadian economy is reflected in the lower standard of living versus the US [30 %], much lower productivity levels than the despised Americans, [which indicates that your living standards will not improve], and static levels of disposable income. Government redistribution is failing Canadians leading to higher aggregate total debts [all levels of government], higher regulation and more off-balance sheet spending [unfounded liabilities for pensions and health care]. All debts considered Canadians owe $174.000 per person in debts. Technically this is close to bankruptcy, as the population ages, productivity remains static and dumb ideas like Kyoto and Regional subsidies, not to mention the sacred cow of Socialised medicine, will only increase program spending while incomes remain static.

Besides the political, military, societal and democratic costs of socialism, there is overwhelming evidence in the EU and Canada that socialist economic management leads to lower growth and lower real incomes.

Time to liberate the Canadian economy.