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Business Commentary Don’t worry, there’s no ‘race to the bottom’ on taxes

Mark Milke is author of Tax Me I'm Canadian: A Taxpayers' Guide to Your Money and How Politicians Spend It.

Of all the matters about which one may worry in 2018 – North Korean nuclear weapons, terrorism and whether China's government will descend further into nativist nationalism – here's one item that need not keep us awake at night: that governments will soon be starved of tax revenue in some ostensible "race to the bottom," where Dickensian skeletons of states will result.

This though, is apparently what some columnists and analysts worry about. One Canadian writer recently opined in The Atlantic that if only Americans would tax themselves more like Canadians (higher), all would be well in American schools and on their roads. Yet others warn of a "global tax war," you know – Genghis Khan-like finance ministers the world over who pillage each other's treasuries by offering cut-rate tax rates to citizens and businesses.

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The shrieking is overdone. American politicians, as with Canadian counterparts, misspend significant amounts of our money on corporate welfare and unreformed compensation to the public sector. Both misbegotten priorities make government less and not more efficient. Both highlight the need for spending reform and not higher taxes.

Such misdirected government spending explains why some infrastructure is sometimes substandard, why some schools are creaky and class sizes too big, or why the Canadian military survives on decades-old jets and even older helicopters: Because literally billions are redirected away from useful, defensible spending to the priorities of special interests in the private sector and monopoly interests within government.

As a measure of just how unfocused many modern governments are, skip past the usual examples of how they subsidize multiple industries: agriculture, aerospace, automotive, energy (green, and oil and gas), film and professional sports franchises, among others.

Instead consider how the federal government recently announced the newest destination point for your tax dollars: "Minister [Bardish] Chagger announces next step in the development of a Canadian culinary tourism strategy" read the November media release from the Department of Innovation.

The department then waxed on about how "maple syrup to Malpeque oysters" are "essential" for visitors coming to Canada. Right: The federal government must be an adjunct patron at the "foodie" table at a restaurant near you. Perhaps predictably, after that announcement, and lest no sector be left behind, another voice just called on the federal government to be involved in a national architecture strategy.

A rhetorical question: Why can such sectors not, through individual companies, entrepreneurs, chefs and architects, organically design their own "strategies," alone or in partnership with their associations, rather than enlist the federal Leviathan?

A modest proposal: Perhaps we should expand the Pierre Trudeau priority to keep the state out of the bedrooms of the nation to include governments banned from boardrooms, kitchens and drafting tables, this in pursuit of reasonable tax rates and more sensible government spending.

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I digress, but the silliness of ever-more calls for ever-more national strategies is evidence that not only are governments unfocused, but that they already possess too many of our tax dollars. That belies the panic call from some that citizens ought to be worried about tax competition.

Some perspective: In OECD countries in 2015, general government revenue as a percentage of GDP ranged from a low of 23.7 per cent in Mexico to a high of 54.9 per cent in Norway. The figures for the United States and Canada were 33.4 per cent and 39.8 per cent of GDP, respectively.

Other than Mexico, which probably could use higher taxes for some specific needs (higher salaries for police, for example, to help prevent corruption), it is hard to make the case that any other OECD country is starved for revenue.

In fact, if outcomes matter – and they do – in perceptions of well-being, United Nations figures show that citizens in some OECD countries on the lower end of the revenue-to-GDP scale feel rather content.

Norway, revenue-rich over the decades due to oil revenue, sits at the top of perceptions of well-being and is thus an outlier. More revealing are Australia and Switzerland, tied at second place in that UN index.

Australia's size of government as measured by revenue to GDP?: 34.3 per cent, with Switzerland at 34.7 per cent. Meanwhile, Canada with its higher cost of government and the United States with its lower cost, tie at 10th place in the same index.

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Point: If tax competition from Canada's nearest neighbour forces some Canadian rates down, the nervous-Nelly-like voices worried about starved revenue seem not to have noticed Australia and Switzerland do just fine with far less expensive governments. Canadians should be so lucky.

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