The sad fact about most think tanks in Canada is that they are generally quite boring. The most egregious example of this phenomenon is the Fraser Institute. I’ll admit that I rarely read Fraser Institute reports simply because I’ve found I don’t have to… I already know that they are going to say before I pick them up. No matter what the problem, a downside-free, unregulated, free-market option will always be the perfect solution. However, the real problem isn’t that I know what their reports say before I read them, it’s that the Fraser Institute policy wonks knew what it was going to say before they researched it.
That said, it is important to keep one’s eye out for data that contradicts established conclusions (something the Fraser Institute is good at avoiding). So, I was initially curious when I read this piece in the Vancouver Sun on Wednesday the 10th discussing how a Fraser Institute report, Tax Efficiency: Not All Taxes are Created Equal, argues that while income taxes should be lowered, the forgone revenue should be captured by raising the GST to 8 or 9%.
This is indeed a suggestion worth exploring. Raising the GST would encourage saving and investment and dampen consumption (particularly of imported consumer goods that negatively impact our trade surplus). Indeed as long as a basket of core goods – food, rent, educational materials, healthcare and other essential goods and services – remain tax exempt the GST can serve as quite a progressive tax lever. It could become even more progressive if the new taxes were used to elevate the basic exemption – providing tax relief to everyone, but most of all to those who earn the least. These latter suggestions are, of course, not in the Fraser Institute report and humble additions of my own. Hey, I said they got something right – not everything!
Actually, this suggestion is so sensible, it is precisely the same argument the Liberals (quietly) used during the last election to highlight why the Conservative party was foolish to advocate cutting the GST. (BTW: Am I frightened that the Liberals and the Fraser Institute are on the same page, even on only half an issue? Absolutely.)
For those too bored, or too tired, of predictable reports from Canada’s ideological think tanks, the Fraser Institutes’s tax report will only confirm your worst fears. To be clear, their one interesting recommendation is essentially a happy accident of analysis. Moreover, the usual Fraser Institute shenanigans are in play. For example, in assessing Canada’s tax structure the authors use the OECD countries as a benchmark. For those who think that sounds like a reasonable peer group you would be correct, except that in 1990’s the OECD added Poland, the Czech Republic, the Slovak Republic, and Hungary. Guess which group of countries doesn’t like to levy an income tax on its citizens, in large part because they don’t have an income to tax? Better yet, when calculating the OECD average the authors elected to not weight the countries income tax rates. So the income tax rates of Canada (35.1) or the United States (34.7) have the same impact on the OECD average as, oh, let’s say, the Czech (12.7) or Slovak (9.3) Republics. No big deal – IF we put aside the fact that the Czech Republic has a population 1/30th that of the US and 1/3rd that of Canada, that its real GDP is .9% that of the US and 10% of Canada’s and that its economy is, shall we say, structured somewhat differently than our own. But I’m sure that the Fraser Institute chose this methodology for some sound reason and not because it makes the OECD average income tax appear lower so they can argue Canada’s tax burden is comparatively high.
Ah, the Fraser Institute: where research conforms to conclusions.
[tags]Fraser Institute, canadian politics, think tanks, public policy[/tags]