Who Really Pays?

 

Although I haven't had a great deal of time lately to write, I always have time to think about things that affect our country. One of those things is the immense amount of money the Carney government is committing to, and spending on, defence and nation-building projects.

Given the obvious threat posed by an increasingly belligerent and imperialistic America, a compelling  argument can certainly be made that such expenditures are necessary. I fall into that category, but the question that bedevils me is who will wind up paying the bill? The obvious answer is the taxpayer, but that answer is perhaps too simplistic. Yes, the bill will always come due, but it would seem with Mr. Carney's latest inducements to investors means the corporate sector will be exempt in sharing that bill.

"Our goal is simple — to make Canada the most attractive place in the G7 to invest," Prime Minister Mark Carney said at the summit.

The program is an expansion of the government's earlier productivity super-deduction outlined in last year's budget, which initially extended to a limited selection of investments in things like equipment, machinery and technology. That meant only about 15 per cent of possible investments were covered initially, but the prime minister said the expansion means two-thirds of assets will now be eligible.

That now brings Canada's business marginal effective tax rate down to 6.4%. The G7 average rate, excluding our country, is 26%. This change rate reflects a huge loss in government revenue, one that cannot be replaced unless the government intends to raise tax rates for the rest of us. And that doesn't seem likely, given politicians' aversion to overtly antagonizing the people. One remembers the abandonment of changes to the Capital Gains Inclusion Rate as a useful example. 

No, the much more likely scenario is a cutback in various federal supports and programs. Please check this link to look at some of the things being 'deprioritized'. For additional information, please click here. Clearly, the cuts described will be substantial, all in the service of the government's announced priorities: defence and nation building, as discussed above. And, of course, what is on the cutting block disproportionately affects our most vulnerable. A quick overview of measures relating just to health render a vivid portrait:

The current Liberal government is in the process of making deep cuts to a long series of other federal health initiatives.

Among the health programs on Carney’s chopping block are: 

• the Public Health Agency of Canada (PHAC); 
• the National Strategy for Drugs for Rare Diseases; 
• the Emergency Treatment Fund, which provides assistance to Indigenous communities and municipalities to deal with the opioid crisis; 
• a 10-year $6 billion federal contribution to home and community care; 
• and the Canadian Drugs and Substances Strategy. 

There is, of course, much more involved, as you will see with the above links, but the inevitable conclusion to be drawn is that Mr. Carney's nation-building program leaves little room for the development and maintenance of non-tangibles; concrete, steel and pipelines are the only things that seem to matter here.

So what is the answer to declining government revenues that will mean the gutting of much-needed programs? Unlike The Globe and Mail, which advocates for more income tax cuts and an elevation of the GST to 18%, a move that would, again, disproportionately affect the most vulnerable,  there is an elegant and simple solution to increase government revenues. It would modestly affect those most able to afford it: a 0.25% charge on stock and bond trading. Such financial transaction fees are hardly rare in the world, as this link illustrates.

How much revenue would this raise? Given the Canadian volume of trade in stocks and bonds, in theory it could be as high as $70 billion, but likely less for those who would perhaps move to other jurisdictions to avoid the fee. Nonetheless, it would be a substantial source of revenue for a government spending well beyond its means and also provide cash for people's programs that are being reduced or ended. And the beauty of the measure is that it would apply to those most able to pay it. For example, someone buying $100,000 in stocks would pay a mere $250 for the transaction,.

Sadly, I doubt such a move would be considered by our government, which seems to have mega-project stars in its eyes while being blind to the needs of the people who elected it.

 

Paved With Good Intentions

 

To want Canada to prosper during these tumultuous times is both noble and natural. Federal government leadership to forge that path is something we expect, given that our problems are countywide. However, this is the point at which visions on how to achieve that sought-after prosperity diverge.

For the Carney government, it seems that more privatization is the route to go. He is openly talking about 'unlocking the value' of our airports.

Canada is willing to let foreign investors buy stakes in Canadian airports, Prime Minister Mark Carney suggested Wednesday, as the federal government considers trying to raise money to fuel its economic growth agenda through the privatization of public assets. 

“We are wide open to foreign investment,” Carney said when asked whether the government would allow foreign investment into Canada’s network of publicly owned airports that could be worth billions of dollars. 

Following its spring economic update last month, Carney’s government signalled it is looking at selling off Canadian airports to private owners as part of an effort to improve operations for travellers and raise money. The prime minister said the goal is to make airports “better serve Canadians” and to raise money that is “tied up in those airports” to reinvest in “other ventures that will grow are economy.” 

While those airports' revenue streams would induce salivation in many an investor, there are reasons to be cautious.

Drawing upon Ontario's disastrous experience in the selling of cash cow Highway 407 under Mike Harris, Linda McQuaig suggests the real losers will be consumers.

[S]ince its privatization in 1999, the 407 has cost drivers an estimated $25 billion in tolls. And we’re only getting started! The privatization deal lasts for 99 years, and by the end, Ontario drivers will have paid tolls likely amounting to a gut-wrenching $150 billion. The National Bank of Canada described the 407 as “a value-generating monster.”  

A sale of our airports will not, despite Carney's claim, be good for the flying public. 

Of course, not all privatizations are as disastrous as the 407. But one feature they all seem to share is that they ultimately cost consumers more — even though this higher cost is typically denied at the outset, when the privatizers often maintain consumer costs will actually fall.  

Because Hwy 407 is a monopoly, regular market forces such as competition do not apply. 

Airports are also regulated monopolies, offering lucrative revenue streams that make them highly attractive to private owners who can raise parking rates and charge airlines higher landing fees, which are passed on in higher ticket prices. 

Passengers can’t just switch to another airport any more than Toronto commuters can just move to another highway. In both cases, travellers are captives, even though they paid to build these assets through their tax dollars. 

Sufficient privatization of assets has taken place to draw some pretty solid conclusions: 

A 2022 study published by the U.S. National Bureau of Economic Research examined more than 2,400 airports worldwide; about 20 per cent had been privatized. The study concluded that, while airport privatization can increase efficiency, it often makes flying more expensive for travellers.  

To a hammer, everything is a nail. Given Mark Carney's extensive experience in the private sector, it is not surprising that he is looking at the issue of privatization through a very narrow lens. Unfortunately, that lens means he neither sees nor really cares about the negative effects it will have on those many of us ( i.e., the majority) who live outside his very privileged circle.

 

I Didn't See This Coming

 

Last night I had a brief conversation with my daughter. As a mother of two little ones, she is rightly concerned about the environmental future that awaits them. She expressed special concern about the possible construction of a second Canadian pipeline. I quickly reassured her, saying that since it would have to be built with private funds only, it will never come to fruition.

I may have spoken too soon.

A deeply disturbing article by Althia Raj suggests public money may ultimately be involved.

Federal Liberals, who hoped the government’s pipeline pact with Alberta was a public relations effort that would never see the light of day, should brace for its approval — including, possibly, with public money.

Three Liberals privately suggested to the Star that Prime Minister Mark Carney may put federal money behind a new pipeline to the west coast — despite the memorandum of understanding signed with the province lays only a path for the “construction of one or more private sector constructed and financed pipelines.”

This revelation must come as a shock to many Liberal MPs, who are on record as saying that the MOU signed with Alberta meant little, given the reluctance of private oil to put up the kind of money needed to build such a conduit. 

Last fall, when the prime minister was asked in Calgary if he was prepared to do more to de-risk the project to attract private capital, Carney said he was already “de-risking the project in several ways” through regulatory clarity and setting aside “billions” for financing Indigenous People’s equity ownership in projects.

But sources, who spoke on condition of anonymity, say Carney wants to see the pipeline built, and is realizing it may not happen without more public money behind it.

Environmental waffling on matters related to oil presage Carney's capitulation on the actual pipeline.

[E]arlier this month, Environment and Climate Change Minister Julie Dabrusin referred to the government’s rising industrial carbon price as the “backbone” of the government’s climate plan, key to reducing Canada’s emissions, and providing industry the “right signals to move our economy in that direction.”

But on a briefing call with journalists hours before the MOU announcement, Alberta’s representative suggested $130 was a ceiling not a floor. While it’s higher than the province’s current headline price of $95 a tonne, and much higher than where credits effectively trade, between $20 and $40 a tonne, it’s not high enough to make projects, such as the $16.5-billion Pathways Alliance carbon capture and storage network viable — without even more public funding. (So far, the project has received tax credits worth 62 per cent of its construction costs, and the oil companies behind the massive project — a soft prerequisite for the pipeline — want more public funding.) 

Additionally, when Danielle Smith introduced regulations making the credits easier to obtain, Carney's government said not a word. 

If you do any research on carbon capture technology, you will realize it is more fable than reality. In reality it is not viable either on the scale necessary to make a difference or the amount of energy required to operate it, thus negating the amount of carbon captured.

Canadians have grown used to being stabbed in the back by our former 'friends', the United States. Few, I suspect, are prepared for the knife being wielded by our own government.