MON OCT.03,1994 PG: A14

If provinces give up their sales taxes, Ottawa could lighten the load

THAT was a useful bit of mischief Floyd Laughren was up to the other day. It won't fly, of course. While no one objects to the provinces scrapping their sales taxes, Ottawa could hardly swallow the Ontario Finance Minister's quid pro quid - that the provinces be given more of the personal income-tax loot and, as important, the right to apply the tax to a base of their own design, rather than tacking it on top of the federal tax. Jean Chretien is not about to let himself be known as the man who forced every Canadian to fill out not one, but two income- tax forms. (Quebeckers have to, which explains a lot.)

Nonetheless, the proposal was quite revealing. If the provinces are willing to pull out altogether from a tax field, on whatever pretext, then radical reforms are afoot. Moreover, it is now acceptable in polite company to suggest that the best way to end the confusion of two layers of sales taxes, each on a different base, may not be to try to harmonize them, with the endless dickering that implies, but to have the federal government occupy the field alone. It's the other side of the equation, two layers of income taxes, that's the problem.

Let's think a little more broadly. We are engaged now in redesigning the whole of that rickety scaffolding known as "fiscal federalism": taxes, equalization, social programs, the lot. There's no particular reason why each area of mutual fiscal concern should be quarantined from all the rest. If the provinces must be compensated for abolishing their sales taxes, nothing says it has to be with revenue from another source. Instead, Ottawa could compensate the provinces in another way: by taking some of the spending burden off their backs, namely for certain shared- cost programs.

This would not increase the federal deficit; the GST would rise to fill the revenue gap left by the departing PSTs. Without need of agreement with the provinces, the federal government could amend its own sales tax to its own specifications. Likewise, as sole paymaster, Ottawa could get on with the messy business of social-policy reform without having to get the provinces on side.

Granted, this breaks the one inviolable rule of Canadian federalism, which is that in every case of the famous "overlap and duplication," it is Ottawa that should withdraw. But if there are programs that more naturally lend themselves to federal superintendence, we might seize the opportunity afforded by Mr. Laughren's daring proposal for a bit of what the diplomats call "linkage." I have two programs in mind: welfare and post-secondary education.

Ottawa and the provinces jointly spend about $30-billion a year in these two areas. The provinces' share is about $20-billion. As it happens, this is just about how much they clear in sales taxes. Transferring responsibility for this spending from the provinces to Ottawa would not mean any new federal powers; if Ottawa can pay for these programs in part, it might as well pay for them in full.

One reason the social safety net is in such disrepair is that the two levels of government have a habit of leaving the unemployed on each other's doorstep. The feds tighten unemployment insurance, pushing some workers onto welfare; the provinces put them to work for 12 weeks, and dump them back on UI. Lately the provinces, notably Alberta, have begun offloading welfare costs onto each other. Joining responsibility for welfare and UI in federal hands would put a stop to these games, and permit the design of a coherent welfare-to-work support plan.

Likewise, university funding, notwithstanding provincial jurisdiction over education, is a natural for the feds - especially on the model the Human Resources Minister is considering, of sending grants (or better yet, income- contingent loans) directly to students rather than to universities.

Primary schooling is obviously a local matter: Kids don't travel well. But the market for universities is national, not local. If funding followed students across the country, it would not only make universities compete more fiercely, but would cure the worst perversity of the present system: Since students pay but a fraction of the cost of their education, provincially funded institutions have no incentive to attract students from elsewhere.

There remains the trump-card objection: Quebec will never go for it. Fine. Quebec stays out. Citizens in every other province would pay only one sales tax, of about 15 per cent. Quebeckers would pay two - and two income taxes. Let them stew in that a while.