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Taxing is easy; government prudence is hard

Saskatchewan's recent budget produced a cottage industry of commentary with praise for Premier Brad Wall's government. Much of it centers on his government's "tough choices." That includes raising the provincial sales tax, broadening its base and cutting government salaries by 3.5 per cent. In addition, the province is shuttering a government-owned bus company.

Some of the praise is deserved. Base-broadening – providing taxpayers receive a reduction somewhere else (only partially achieved in the Saskatchewan budget) – is smart tax policy. It spreads taxes more thinly. That makes the tax burden less burdensome for all. Also, a greater reliance on consumption taxes is preferable to overly high income and business tax; sales and consumption taxes (not the same thing) do less damage to economic growth and job creation.

On the spending side, the provincially owned Saskatchewan Transportation Co. is to be closed. The only other option was to have taxpayers continue to subsidize the bus company for another $85-million over five years. Only a devotee of the 1930s notion that government should own the commanding heights of the economy could object.

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All that is laudable, but the problem with some of the effusive commentary is the implicit notion that Saskatchewan's government, or any others, makes "difficult" budget choices when they raise taxes.

Actually, that appears to be easy for politicians, given how often they take that route over making government more affordable for the public. Also, there is the accompanying myth floating about that higher taxes will lead to balanced budgets.

On the latter, consider that multiple governments have raised taxes in recent years and balanced budgets are yet elusive. The federal government is an example, as are the Ontario and Alberta governments.

Higher taxes from those governments have done little to dent their deficits because the same governments have done little to control expenditures. In fact, all three have accelerated spending.

Alberta is a choice example. Its new carbon tax and higher corporate and income tax measures from last year and this are budgeted for new and higher outlays, not directed at reducing red ink.

Moreover, even in British Columbia, Quebec or Saskatchewan (the first two with claimed balanced budgets already and the latter with a forecast balance as of 2019), such black ink is of the disappearing sort. That's because overall debts will rise. In all three provinces, the "balanced" claim only applies to the operational side of the books.

Here's the larger picture: Initial reductions and continued prudence on the spending side have been critical to later balanced budgets and, if one looks closely, reduced debt. Here are three examples: Saskatchewan's Roy Romanow (NDP) government post-1992; Alberta's Ralph Klein (Conservative) government starting in 1993; and Jean Chrétien's federal (Liberal) government after 1994.

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The Alberta example is particularly instructive given the multitaxing ways of the current government: Previous premiers before Mr. Klein enacted new and higher taxes on Albertans starting in the mid-1980s. That never brought Alberta to balanced books; only a determined effort to prioritize and reduce spending under the Klein government did.

The toughest choices for governments always lay on the spending side and those are rarely acted upon. For example, the elimination of costly government subsidies to businesses would require abandoning the notion taxpayer cash can "juice" specific industries.

Or ponder wholesale public-sector compensation reform that usually constitutes 50 per cent or more of government budgets.

To reform pay, perks and pensions to align with the private sector realities necessitates much tougher bargaining. It often results in a confrontation with a mostly unionized work force. Politicians prefer to pass that problem off to their grandchildren.

Fiscal prudence does not mean that governments can never increase spending – population growth and inflation will always drive spending higher most years in nominal terms. But they can, if they choose, better control real, per capita spending whether applied to operational or capital budgets.

The problem is that latter task is truly tough. It is more difficult than increasing a sales tax (Saskatchewan), introducing a carbon tax (Alberta) or raising taxes on higher income earners (the federal government).

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While Saskatchewan deserves praise for a reduction in government employees' compensation and ending a money-losing bus company, such budget prudence is always a rarer choice for most governments. They find it infinitely easier to raise taxes.

Mark Milke is the author of Tax Me I'm Canadian: A Taxpayer's Guide To Your Money and How Politicians Spend It.

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