Stéphane Dion, tax-cutter?
Stranger things have happened in politics. And in an intriguing speech to a business audience by Stéphane Dion, we may have seen the first glimmer of a Liberal comeback strategy....
Certainly the party needs to do something to regain its balance, after several weeks of shrill grandstanding on a number of issues -- on Kyoto, Afghanistan, anti-terrorism, to name just three -- that have positioned the Grits somewhere to the left of Maude Barlow. It takes some doing to make Stephen Harper look like the moderate in the bunch, but the Liberals have managed it: having decided they no longer wished to be the party of soulless pragmatists, they appear to have concluded the only alternative was to drop out and join a commune.
It’s probably too late to reverse those ill-advised stands: you just expose yourself to charges of waffling. If the party is to regain credibility with centrist and centre-right voters -- the people who put it in office, and kept it there, through four elections -- it will have to do something dramatic: not just edge back towards the centre, but reach right across it.
Could taxes be the issue that allows the Liberals to break out of their self-imposed marginalization? Admittedly, it’s unlikely, given their record, but no more unlikely than the Tories as latter-day environmentalists. And taxes are the kind of scaffold issue that other issues can be hung from. If he is skillful, Mr. Dion could use taxes to give concrete form to doubts about the prime minister’s performance, turning what was hitherto viewed as Mr. Harper’s strength into a weakness.
Because Mr. Harper’s performance on taxes has been anything but conservative -- a source of great unease to his supporters, even if these misgivings have thus far been suppressed. The two-point GST cut was roundly denounced by free-market economists, and rightly so. It isn’t just that cutting income taxes is preferable to cutting consumption taxes, as if one were expressing a liking for apple pie over cherry. It is that the one precludes the other. The nearly $12-billion that the GST cut will cost the treasury every year has ruled out significant income tax cuts for years to come, even as the productivity gap between Canada and the U.S. grows. (Or never mind the U.S.: the Irish are now richer than we are. Ireland!)
On top of which, the welter of special-interest tax credits with which Mr. Harper’s government has seen fit to litter the tax laws drives us still further from the kind of simple, neutral tax system that conservatives are supposed to favour. Even the one praiseworthy tax change the Tories have introduced, equalizing the tax treatment of income trusts and ordinary corporations, was sullied by the breaking of an explicit election promise to the contrary.
So listen carefully to Mr. Dion’s speech to the Canadian Club in Ottawa earlier this week. In it, he took dead aim at the GST cut: “There is scarcely an economist on the planet who supports this approach. From the IMF to the OECD, from the Fraser Institute to the government's own Finance Department -- all have clearly said that lower income tax, not lower GST, is the right way to go.”
“Taxes have a powerful impact on people's behaviour,” Mr. Dion said, sounding like a supply sider. “If you cut the GST, you encourage consumption. On the other hand, if you cut income tax, you encourage Canadians to save and invest, increasing our productivity.”
“As prime minister, I would not cut a second point from the GST. Instead, I would help grow the economy by ensuring that income taxes are low and that taxes on business and investment are competitive,” Mr. Dion said.
True, that’s about as specific as it got. But if Mr. Dion is serious, he has a large opening available to him. By forgoing the second point of the GST cut, he would have enough revenue to cut five points off of each of the top two brackets. Rescind the first, and Canadians could pay just two rates of federal tax: a bottom rate of 15.5%, and a top rate of 20%.
And that’s not the only revenue Mr. Dion has available to him. End Mr. Harper’s giveaways to the provinces, in the name of the fictional “fiscal imbalance,” and more of that revenue could go back into taxpayers’ pockets. Simplify the tax code, ridding it of all those narrowly targeted preferences and gimmicky tax credits, and you'd collect the same revenues at a lower rate of tax. Tax carbon and other environmental blights to discourage their consumption, and you could lighten the tax burden on income still further -- yet in a way that would still appeal to NDP and Green voters.
We will need to hear much more from Mr. Dion on this subject. Vague references to keeping taxes “low” or “competitive” will not be enough. But specific, costed proposals for deep cuts in income tax rates -- from the Liberals, of all people -- would turn the coming election upside down.
3/10/2007
