Social Policy in Ontario

Ontario Finance Minister Charles Sousa raised the dreaded T-word this week — as in T for tax. And it was telling that he spent his time publicly saying what his government will not do. “We’re not raising HST,” he insisted. “We’re not going to increase gas taxes.”

It was left to anonymous government officials to let the Star’s Robert Benzie in on the real story: faced with stagnant revenues and a deficit of $11.7 billion, the Liberal government is contemplating a new surtax in its upcoming budget on people earning $150,000 and more.

Conventional wisdom is that raising taxes of any kind is political death. We’ve been drowning for a generation in anti-tax rhetoric, and even left-wing politicians flee any hint that they favour “tax and spend.” NDP Leader Thomas Mulcair, hypersensitive to that charge, has unwisely gone so far asto rule out ever raising personal taxes — “period, full stop.”

But there’s plenty of evidence that Sousa need not be so gun-shy. Ontario’s tax levels are at historic lows and there’s room to increase them without making the province uncompetitive or crippling those earning decent incomes.

Consider: the province’s corporate tax rate, at 11.5 per cent, is just about the lowest in Canada. Its revenue-to-GDP ratio — about 17 per cent — is also one of the lowest.

And the vast majority of Ontarians enjoy some of the lowest personal tax rates in the country. People making a healthy middle-class income in the range of $60,000 to $100,000 a year pay about the same as those in British Columbia. Only people in oil-rich Alberta pay less. We’re hardly overtaxed.

In its last budget, the Wynne government bowed to NDP pressure and put a small surtax on the truly well-paid — those making $500,000 a year and up. That brings in some decent coin — $470 million a year — and we haven’t been reading about rich folks fleeing Ontario to escape the crushing burden.

The tough reality, though, is that taxes on top earners simply won’t bring in the kind of money needed to get Ontario’s budget into balance and pay for the services we value — and need. For that we’re talking billions — for health care, education and vital social services. Not frills and fat.

A recent study by two economists, Kevin Milligan of the University of British Columbia and Michael Smart of the University of Toronto, looked at what would happen if every province raised its top income tax rate on the fabled 1 per cent of top earners by 5 percentage points. For Ontario, they found, it would mean an extra $637 million of revenue per year. Not chump change, but not a fiscal fix either.

For that, a lot more people are going to have to kick in. And since the Wynne government has taken big-revenue items like a higher HST or a bigger gas tax off the table, there’s not much left but raising personal income taxes.

Sousa promises to protect the “middle class” — whatever that is. But he need not fear a backlash if his spring budget increases the burden on those making substantially more than the average, whether that starts at $150,000 or some higher level. Four other provinces — including B.C., whose government leans right — have done that in the past few years without substantial blowback.

Politicians can’t protect citizens — taxpayers — from fiscal realities forever. If we want the services we get from government, we’ve got to pay for them. And if we truly worry about growing inequality, increasing the burden on the (comparatively) well paid is one important way to address it.

Even conservatives, at least those who fear Ontario is flirting with disaster as its debt mounts, should not run from the concept of higher taxes. A newstudy by the right-wing Fraser Institutewarns, in apocalyptic tones, that the province’s debt is more than twice as big as that of California, long considered a fiscal basket case.

One solution would be slashing services beyond recognition. A much better course would be making sure Ontario has the tax revenue to pay for what it provides — and what we value.

< http://www.thestar.com/opinion/editorials/2014/03/21/ontario_has_room_to_raise_taxes_editorial.html >