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Here is a sure-fire winner of a political platform. Promise to levy a consumption tax on Canadian households. Families with children pay the most. And, to cap it off, the proceeds go to pump up profit margins for producers.

If you’re not convinced, you haven’t been paying attention to supply management of the dairy industry.

As the most recent Decoder made clear, Canadian consumers missed out on the big price decreases for milk in the United States, with its (relatively) free-market approach. Prices were nearly 20 per cent lower in the United States in December, 2018 compared with January, 2015. Meanwhile, prices in Canada for whole milk rose 6 per cent over the same period.

Ironically enough, that gap has closed over the past year, as market forces have pushed U.S. prices higher. Milk is still significantly cheaper south of the border, even with the recent increase. Accounting for currency differences, U.S. consumers paid about 13 per cent less for milk in April.

Advocates of the supply-management system argue that that is a cost well worth paying: more stable supply, higher quality standards and support for local producers being among the benefits. And, some add, the United States props up milk producers through direct subsidies.

However, many of those benefits aren’t tied to supply management. The use of bovine growth hormone could be regulated, for instance, without also regulating prices.

The promise of stable supply has an allure, particularly with the United States struggling to overcome a shortage of infant formula. But that shortage has been made much worse by trade restrictions negotiated by the Trump administration that sharply curtailed Canadian exports of formula to the U.S. In other words, that shortage can be chalked up to over-regulation.

Yes, U.S. dairy subsidies also distort the market. But that’s an argument against subsidies, not one for supply management.

And as for support for local producers: that could not be more true. Supply management is indeed remarkably efficient in transferring cash from the pockets of Canadian households (particularly those with milk-gulping youngsters) to the profit margins of dairy farmers.

Taxing questions

Last week’s Tax and Spend on the challenges facing Ontario’s economy – and how those issues received scant attention during that province’s election campaign – generated lots of online debate, including from one reader who pointed to Ontario’s rising debt levels as a dire threat. Debt-servicing costs could become the province’s biggest expenditure, ahead of health care and education, they contended.

That day, if it ever comes, is very far away. For the current fiscal year, Ontario’s debt-servicing costs are projected to be $13.5-billion, rising to $16.6-billion by fiscal 2027-28 as yearly deficits add to the debt and interest rates increase. That’s a substantial jump, to be sure. But debt-servicing costs would still be much lower than Ontario’s projected outlays that year for health, at $87.8-billion, and education, at $37.2-billion.

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High-interest issue: The fiscal free ride is over, argues the Fraser Institute in a series of essays examining the dangers of deficit financing. During the pandemic, governments in Canada and elsewhere have argued that the ultralow cost of borrowing, triggered by emergency rate cuts by central banks, has made it possible to run large and permanent deficits without the danger of a debt spiral. The institute’s contributors contend that such an approach ignores recent fiscal history – in 1995, interest payments ate up a third of federal revenues.

Follow me on Twitter, @PatrickBrethour or ask your Taxing Question here.

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