Tom Kent: Tax reform key to reviving Liberals and social policies

Posted on November 28, 2011 in Governance Debates

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Nov 28, 2011.   Kelly McParland

Before he passed away recently at age 89, Tom Kent wrote a paper for the Broadbent Institute with a number of acerbic comments about current politics and the welfare state he helped create as a policy adviser to Prime Minister Lester Pearson.  He took particular interest in health care (Pearson’s government passed the Medical care Act in 1966), education and  the financing needed for social programs. His remarks re worth noting given the Liberals’ effort to recreate and reinvigorate the party in the wake of its historic defeat in the May election.

Kent suggests one problem undermining federal willingness to finance provincial programs is one of who gets the credit:

[After the 1960s] the problem was to give national scope to services in provincial jurisdiction. To that end, Ottawa undertook to reimburse 50 percent of provincial spending on physician and hospital health care, on postsecondary institutions, on social services and assistance, provided only that the program expenditures conformed to broadly defined principles. Some provinces grumbled about being pressured, but took and used the money. Outstanding social reforms quickly resulted. But the very success of the device was soon its undoing. The popularity of the programs made the cost-sharing device politically flawed.

In the beginning, federal Ministers glowed with pride for their role in making Medicare, especially, nation-wide. But as the programs became familiar, the pre-determined financial transactions behind them became routines without media attention. Federal boasts about it could not prevent federal money fading from public attention. Political credit for the services was increasingly concentrated on the provinces that delivered them. The federal politicians of the 1970s, Prime Minister Trudeau not least among them, turned to strong resentment of having to levy taxes to provide money for provincial politicians to spend.

Ottawa’s reluctance to keep the taps open has produced a never-ending argument with the provinces, he says, but even when the federal government has raised its contribution, the effect has been disappointing:

The original cost-sharing for “welfare”, under the Canada Assistance Plan, did continue through the 1980s, but the plea of financial stringency was used to limit the federal contribution below 50 percent. Finally, in the 1995 budget, all pretence of commitment was abandoned. The federal contribution to provincial programs became whatever Ottawa declared it could afford. In 1996 it was not 50 but 15 percent.

With that, provincial indignation knew no bounds. The rhetoric of conflict became the dominant, indeed almost the only, relationship between the two levels of government. Politicians on both sides are more concerned with blame-shifting than with decision and action. The provinces have rightfully gained the upper hand in public sympathy, driving “the feds” to begin restoration. In 2004, in its last desperate days, the Martin government negotiated the “accord” that has committed Ottawa to ten years of increasing funds, in exchange for much profession of intended improvements in Medicare. The results have been little more than trifling.

Kent suggests no reform of the system is possible until the Liberals and NDP become more realistic about financing.

Indefinitely continuing finance for continuing programs is utterly different politics. For Ottawa its dividend in popularity proved to fade while the cost went on, and for the provinces it consequently turned into a cheat. This does not prevent well-meaning reformers demanding cost-sharing because they know no other way to make their concerns seem realistic. It may not prevent a party in opposition talking of a cost-shared program. But any idea that it can be implemented by politicians in office is idle fantasy.

Nevertheless, cost-sharing was once so successful, particularly for the start of Medicare, that subsequent evidence goes unregarded. Politicians without new ideas still think of it as the natural way to go. Until that idea is finally broken, social democracy will continue not to go at all.

He argues that the left has weakened its own argument by opting for simplistic spending demands. Both the Liberals and NDP campaigned in May for new social spending, to be financed by an increase in corporate taxes, an idea Kent dismisses out of hand.

In total, there is the same scope for social democratic programs in the later 2010s as there was for an earlier stage in the 1960s. The need, again, is political. There is no reason to doubt the popular appeal, subject to one massive if. That is, if its proponents are convincingly realistic about its financing. They have to say how they would make the substantial increase in revenue that social democracy requires.

Unfortunately, many get no further than talk of higher tax rates on corporate profits and incomes from them. The public generally has the common sense to recognise such unrealism. Increases in present taxes, on the scale required, would be disastrous for the economy.

Federal revenues can indeed be much increased, but only by extending the bases from which taxes are effectively collected. How to do so has been widely and convincingly discussed. The indictment of the NDP, as well as such left wing as remains in the Liberal party, is that their politicians have been as yet too timid to embrace and popularise progressive tax reform.

Kent has his own policy proposals, some of which might not strike everyone as workable. But one of the original agitators for social democracy was still seeking innovative ideas in place of impel demands for more taxes and more money from Ottawa.

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