By Marco Navarro-Genie
President
Atlantic Institute for Market Studies

HALIFAX, N.S. / Troy Media/ – Budget season prompts us to reflect on basic economic questions. A good life rule is: don’t put all your eggs in one basket.

In public finances, balance is a sign of good management when the objective is a stronger economy and job creation.

The same economic wisdom also teaches there are no silver bullets. This cannot be repeated enough in Atlantic Canada. No single project or government program will miraculously rescue the region from its depressed economic waters.

For the sake of waiting for the next big solution or project to arrive, governments often pass up on smaller opportunities for needed fiscal reforms. The effect of small but bad policy decisions has a high cost.

For instance, continuous but haphazard tax increases keep hurting us. They seem small until you add them up.

In Nova Scotia’s Shameful Tax Facts, the Canadian Federation of Independent Businesses reveals our province to be one of the most uncompetitive jurisdictions in the country. The provincial income tax is the second highest in Canada. Someone earning $50,000 in British Columbia, which boasts the lowest personal income tax rates, contributes $8,633 in tax whereas the same person would pay $11,201 in Nova Scotia. That’s roughly 30 per cent more. Are we getting 30 per cent better services?

In addition, Nova Scotia’s basic personal exemption (the threshold before one begins paying income taxes) is $2,200 below the national average at $8,481. This hits low and modest income earners hardest. Although seven other provinces and the federal government adjust their tax brackets annually for inflation, Nova Scotia’s failure to do so means taxpayers are pushed into higher tax brackets by wage gains intended to offset the cost of living. This silent annual tax increase is called “bracket creep.”

Nova Scotia also features an uncompetitive business environment. The province’s small business threshold is $350,000, the lowest in Canada, and our corporate and HST rates are the highest at 16 per cent and 15 per cent.

The provincial fuel tax of 15.5¢ on each litre of gas, combined with the cost of regulating it plus our high HST, means residents and tourists pay the second-highest price for gasoline in the country. These taxes have an impact on everything transported in our province, from food to clothing.

We compete in a much larger world, so looking better than an Atlantic neighbour or Quebec is insufficient. We should measure ourselves with jurisdictions that are growing and give minimal subsidies to businesses, have lower debt and tax levels, lower gas and energy prices and more stable labour environments. These are among the many little things we need to address in Tuesday’s provincial budget.

The accumulated effect of getting the little things right is predictability. Evidence shows policy-driven uncertainty acts as a drag on economic growth. Beside the uncertainties of economic cycles, macroeconomic trends and world affairs, policy-driven uncertainty adds a detrimental layer to an economy. Such uncertainty, the Organization for Economic Co-operation and Development says, cuts investment and delays projects, reduces consumer confidence, makes it more difficult to find capital, slows down productivity, curtails research and development and reduces overall outputs. High policy uncertainty “coincides” with lower growth.

Focusing on getting budget policies right doesn’t mean big projects should be abandoned. The two are not mutually exclusive. Atlantic Canadians should push hard for the Energy East Pipeline. In fact, the better we take care of the little things, the more we will attract bigger investments.

The point of balancing our books is to diminish policy-induced uncertainty and set the conditions for growth. We should budget as a way to fix the many small things we need to get right in order to get on a robust economic track.

Marco Navarro-Génie is the president of the Atlantic Institute for Market Studies.

© 2016 Distributed by Troy Media

The views, opinions and positions expressed by all Troy Media columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of Troy Media.

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By Charles Lammam
and Hugh MacIntyre
The Fraser Institute

VANCOUVER/ Troy Media: The federal Liberals appear to be considering overhauling Canada’s income support system with the creation of a guaranteed annual income (GAI). Jean-Yves Duclos, the federal minister tasked with the social policy portfolio, mused publically about the benefits of a GAI. In fact, his government has gone so far as to invite experts on GAI to participate in the pre-budget hearings.

There is certainly some merit to the concept of a GAI, and there even seems to be growing public support. The question, however, is what would it take to create an effective GAI? A lot.

A GAI is a cash transfer to individuals or families that ensures a minimum level of income, without conditions such as requiring participants to work or look for work. It’s generally conceived as a single program that would replace all – or at least a significant portion – of the existing income-support system (broadly defined as the complex web of programs and tax measures that increase a recipient’s income through cash or in-kind transfers).

Indeed, this sort of reform appears to be what Duclos has in mind, which is a good sign because being a replacement rather than an add-on is a critical feature of any serious GAI proposal. After all, a main conceptual appeal of the GAI rests on the potential to reduce government administrative costs by simplifying the income support system, which now consists of numerous, often-overlapping programs at the federal, provincial and local government levels.

In theory, the potential for administrative savings is substantial. A non-trivial portion of spending on income support currently goes to administration rather than directly on transfers to people. And many Canadians who need the support often have a hard time getting it due to a complex and potentially overwhelming bureaucracy.

But what would it take to create a GAI in practice?

First, consider the magnitude of a reform that replaces the existing income support system with a single GAI program. In a study published last year, we estimated the cost of the existing system at $185 billion in 2013 or roughly 10 per cent of the economy (this includes spending and tax measures by all levels of government targeting people with low-income, the disabled, the elderly, and parents with young children). By any measure, GAI reform would be a major undertaking, perhaps one of the most fundamental government reforms in Canadian history

Much of that spending is done by the provinces, so a federally administered GAI – as many propose – would require the provincial governments (and local governments to a lesser extent) to agree to relinquish their role in income-support programs such as welfare. Effectively, this means provincial governments would cede some of their powers and responsibilities to the federal government, something that many provinces have traditionally been reluctant to do.

Putting aside the need for federal-provincial agreement, creating a GAI would also require consolidating existing programs, many of which have different specific purposes or target different groups. And there are difficult questions surrounding program design such as the basic benefit amount and whether it should vary depending on people’s circumstances (where they live, how old they are, whether they have kids).

More broadly, a GAI would presumably require the large-scale lay-off of bureaucrats to achieve substantial administrative savings, a move that would obviously face strong internal political opposition.

All that said, there is much to like about the idea of a GAI that would simplify Canada’s income-support system. But in practice, the process would face many hurdles that undermine the case for reform. Perhaps a more realistic path forward is to reform existing income-support programs in ways that improve their functioning and effectivess, with the additional goal of simplifying the system by consolidating existing programs that serve similar purposes.

Charles Lammam and Hugh MacIntyre are co-authors of the Fraser Institute study, The Practical Challenges of Creating a Guaranteed Annual Income in Canada.

© 2016 Distributed by Troy Media

The views, opinions and positions expressed by all Troy Media columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of Ubiq TV/Troy Media.

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