Business & Economy
May 20, 2015

Fraser Games: Running government like a household

Remember this next time some politician, aspiring or otherwise, says that government should be run the way people, the voters, run their homes and finances.

From Business in Vancouver:

Worries about Canadian household debt “overblown,” says Fraser Institute

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Canadian households are not being irresponsible when it comes to taking on new debt, according to a Fraser Institute study released May 20.

According to Statistics Canada, household debt in this country has increased in almost every year since the agency began tracking this information in 1961. This statistic on its own may sound alarming, but when the whole picture is taken into account, the situation isn’t as dire as it may seem.

“Almost every day we hear analysts warning that household debt levels have reached record highs,” said study co-author Philip Cross, former StatsCan chief economic analyst.

“While debt levels are growing, those warnings should be tempered by the fact that asset and net worth levels are increasing at a far greater rate.”

Between 2010 and 2014, household debt grew 21% to $1.8 trillion. At the same time, however, the value of household assets increased to $10 trillion, representing growth of 31% – a full 10 percentage points higher than the increase in debt. …

The Fraser Institute argues that debt increases are now being leveraged into gains in household assets, which in turn improves household incomes and net worth.

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The Sun lead editorial today:

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Transit will be funded regardless of vote results

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Gregor Robertson said last week that Greater Vancouver could miss out on federal help from a new, $1-billion-ayear transportation infrastructure fund if people vote No in the transit plebiscite. Such a claim is misleading and, with just a month until voting on the plebiscite ends, Vancouver’s mayor is leaving himself open to charges he is scaremongering and panicking.

The transportation fund was announced as part of last week’s federal budget. The fund will launch with $250 million in 2017-2018 and ultimately grow to $1 billion a year by 2019-2020. It was welcomed by mayors across Canada.

They were not put off by the fact that the fund will not launch for several years because, as they point out, projects they envision are not yet shovel-ready. This, by the way, raises a question of why a 0.5-per-cent sales tax increase that Lower Mainlanders are now voting on would be collected starting in 2016 or thereabouts.

Robertson’s suggestion that the region would lose out on the benefits from the federal fund if voters do not approve the new sales tax — “If we do not have a Yes vote from the referendum, we don’t have funding locally to match the provincial and federal funds that are being promised” — was quickly refuted by federal Industry Minister James Moore, who said the region would definitely get its fair share.

Robertson’s statement relates to the fact that federal funding will be contingent on matching funds from municipalities.

But there is no specific federal requirement for municipal funding to derive from a sales tax hike, only that there be municipal money brought to the table.

While the Mayors’ Council was negligent in not outlining any Plan B alternative to voting Yes, logic dictates that if voters reject the sales tax increase, other means of finding necessary monies will be pursued.

Polls show a majority of No voters want municipal governments to find that money by reallocating existing revenues. Local mayors may not like that option, but it doesn’t mean it cannot be done, if it comes to that.

Surely, if the transportation plan is crucial, as mayors contend, citizens will expect them to find the resources to provide essential services and infrastructure.

Whenever politicians are unwilling or unable to do that, voters have a habit of turfing them from office in favour of politicians who can do the job.

Scaring voters into voting Yes is not a good strategy for the mayors. Nor should it be necessary given the mayors have had an overwhelming advantage in the plebiscite campaign, with $7 million of taxpayers’ money to spend, compared to the $40,000 raised and being spent by the No.

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A few points in response:

The transportation fund was announced as part of last week’s federal budget. …  This, by the way, raises a question of why a 0.5-per-cent sales tax increase that Lower Mainlanders are now voting on would be collected starting in 2016 or thereabouts.

The federal funds are meant for the large projects such as Surrey light rail and the Broadway subway, not the funding of much of the Mayors’ plan, notably the additional 400 buses, the express and rapid-bus lines, the funding for cycling, for the major road network – and importantly, for the additional operating funds to accommodate growth.  Rapid-transit lines on their own do not a comprehensive transportation system make.

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… other means of finding necessary monies will be pursued.

Please, some specifics.  Just what do you have in mind?  Vehicle levy?  Road pricing?  Carbon tax?  (Do not expect an answer.)

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Polls show a majority of No voters want municipal governments to find that money by reallocating existing revenues. Local mayors may not like that option, but it doesn’t mean it cannot be done, if it comes to that.

That does, however, mean some current expenditures must be reduced.  Again, specifics please.  What services should be cut sufficient to fund transit on the scale needed.  Minor cuts or reallocations won’t come close.

Behind the editorial, of course, is the real agenda: limit (preferably reduce) local government expenditures,

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From The Province:

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Study finds transportation preferences correlated with healthy habits

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A survey of 28,000 Metro Vancouver residents indicates people who use active transportation such as walking, biking and transit are healthier and have more positive lifestyle attributes.

The My Health, My Community study, which also revealed car drivers with long commute times have a lower sense of community belonging, will be the focus of a lecture Thursday at Simon Fraser University’s Segal School of Business by principal investigator Dr. Jat Sandhu.

The conclusions are particularly timely because the region is in the midst of a plebiscite on whether to increase provincial sales tax by 0.5 per cent to raise an extra $250 million annually for transit and transportation in the region.

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Which means that the Fraser Institute must be contrarian:

Just using active transportation doesn’t necessarily translate into better health, contends Dr. Kenneth Green of the Fraser Institute.

Green is a senior director of energy and natural resources for the Canadian public policy and research institute, but he’s also worked on transit and transportation.

“They’re clearly trying to create the impression that it’s the active transportation — things like transit, biking, walking — that leads to these better health outcomes,” said Green from his home in Calgary, where he takes a bus to his office because he doesn’t have a car.

“What they don’t account for is these are correlations, of course, not necessarily causation,” he said,

Green said the data collected doesn’t indicate whether the healthier people simply “self-selected” active transit, instead of the transit changing the quality of their life.

Sandhu, who is in the School of Population and Public Health at University of B. C., doesn’t disagree that the results are correlational.

But Sandhu pointed out that data collected from the 93-item questionnaire indicates active transportation users have more “positive lifestyle attributes” — habits such as eating five servings of fruit and vegetables a day, 30 minutes of walking daily, 150-plus minutes of moderate or vigorous physical activity a week, and not smoking.

Another conclusion of the study is that car users with longer commutes have a lower sense of “community belonging” — whether the community is ethnic, social or geographic.

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Hear for yourself:

Equity, Opportunity and Good Health: How Transportation Affects the Essential Qualities of Life In Metro Vancouver

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Thursday, April 30 7:30–9 pm Room 1200, SFU Segal School of Business, 500 Granville Street Free, but reservations are required Reserve. Read more »

Jeff Nagel picks up on another Fraser Institute report in which to play ‘spot the agenda.’

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by  Jeff Nagel – Surrey North Delta Leader

A conservative think tank says Metro Vancouver’s transit expansion plan fails to consider rapidly evolving personal transportation technologies that may open up nimbler ways to get around than a rigid network of fixed routes and stations.

The Fraser Institute’s Kenneth Green argues the region’s mayors underestimate the likely future influence of ride-matching services like Uber, car-share offerings like Car2Go and everything from private intercity buses to potential autonomous “robocars.”

He said Uber and Lyft are prime examples of new smartphone services that link willing drivers with passengers to create “highly dynamic” networks that can spontaneously adapt to changing demand through variable prices.

“Market signals rather than transit planners determine the number of vehicles available to transport passengers,” Green wrote in a new Fraser Institute paper.

Neither service is yet in Metro Vancouver, but Uber has been preparing to enter the market.

He foresees much more individualized options on the road ahead.

A Lyft user could book a Camry for the regular commute and a Jaguar for the late night date, he suggested.

Dynamic, personalized transport may meet many goals of transit expansion supporters, he said, but potentially with less cost and less public subsidy.

“We’re in the midst of a transportation revolution, yet the Metro Vancouver transit expansion plan barely acknowledges these new dynamic services that may eventually make mass transit systems obsolete,” Green said.

He suggests fewer people in the future will own their own cars, more will use car- and ride-sharing options, and many of them may well use those options in concert with the public transit system.

SFU City Program director Gordon Price agrees on that point – people who give up their own cars because of shared car alternatives will likely also use more transit.

But Price said no one should think any new service using cars can replace the role of mass transit by buses and trains.

“The arithmetic simply does not work with that number of cars in that amount of road space,” Price said. “You cannot do it. There are laws of physics in the way.”

It would be impossible to ever host another major stadium concert or sports event without transit to carry most participants, he said.

Green’s paper notes criticism that new elite services may skim off the affluent, young and tech-savvy and leave transit with “a poorer, older, less diverse ridership.”

Price said that outcome would dovetail neatly with the transit privatization agenda of conservatives like Green.

“You take aim at the most profitable routes and then you leave the rest for an increasingly demoralized and impoverished public transit system, which makes it so much easier to cut because it’s viewed as a social service.”

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A good example of Fraser Institute thinking, and strategy.

It’s an op-ed in the Sun – in response to Dahne Bramham’s column here.  (She’ll be speaking about it at Thursday’s City Conversation.)

Anti-tax’ accusation based on silly, simplistic arguments

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Taxes are indeed needed to fund important government services, critical both to a well functioning economy and, more generally, civilization. But there is a point when a larger, more interventionist government, combined with a heavier tax burden, can stunt economic growth and social outcomes, or achieve those outcomes only at great additional cost. …

Research shows that taxpayers get the best bang for their buck (in terms of economic and social outcomes) when total government spending is around 30 per cent of the economy. In Canada, total government spending is now 41 per cent, down from about 53 per cent in 1992, but still higher than what is optimal.

That means there’s room to scale back. When governments faced major fiscal problems in the 1990s, they responded with sweeping action to cut spending and reform programs, leading to a major structural change in the government’s involvement in the Canadian economy. The reforms created room for important tax reductions and ultimately helped usher in a period of sustained economic growth and job creation.

So it’s not surprising that Bramham and others feel that the public discourse since the 1990s has focused primarily on tax reductions and ensuring the right tax mix. After all, the reforms worked! …

In fact, voters in the upcoming plebiscite, which proposes a regional PST hike to fund transit expansion, should understand the economic problems associated with this particular type of tax, which discourages investment and job creation.

Lastly, and perhaps most importantly, it’s not even clear that governments in Metro Vancouver need the extra revenue. Municipal governments would do well to more heavily scrutinize their spending choices before requiring Metro Vancouverites to pay higher taxes, simplistic arguments notwithstanding.

 

Well, that seems unequivocal: 30 percent gives the best bang.   And whose research might that be?  And who defined what ‘best bang’ means in terms of economic and social outcomes?  In any event, it’s contradicted by the next highlight:

The reforms created room for important tax reductions and ultimately helped usher in a period of sustained economic growth and job creation.

If sustained economic growth was achieved at 41 percent while still delivering social goods (like non-market housing, a program sacrificed as part of the noted reforms), then why is 30 percent better?  This sounds like dogma, not economics: tax cuts good, government spending bad.  In a word: simplistic.  In another: silly.

But this is the usual op-ed back-and-forth.  The most important line is the one at the end:

Municipal governments would do well to more heavily scrutinize their spending choices before requiring Metro Vancouverites to pay higher taxes, simplistic arguments notwithstanding.

This in fact is what the referendum is about: forcing local government to cut their budgets by denying any source of revenue, new or existing, to fund anticipated growth – in this case, public transit.  (More here in Fraser Games – 5: The Larger Agenda.)

As an unstated outcome, the strategy has led to rising inequality, first by defunding those programs that provide similar services to all regardless of income.  Secondly, by cutting taxes that disproportionately benefit the affluent.

Let me repeat something that so far has failed to resonate:

AMOUNT RICHEST 2 PERCENT OF BRITISH COLUMBIANS WILL RECEIVE IN A TAX DECREASE THIS YEAR: $230 million

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Roughly the same amount that could be raised by the sales tax to fund transit – and support the economic activity that would result – will be retained by the richest 2 percent in the province.  It couldn’t be more blatant.

For the Fraser Institute, this, presumably, is the best bang for the buck: less government services for all, more wealth for the already rich.

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Not a good day for the Yes side in the Vancouver Sun:

Pete McMartin begins on the front page:

… what a disaster the Yes campaign has been. It has seen its lead in the polls erode. It was late off the mark — one of the disadvantages of working with sluggish government bureaucracy — and has allowed the No side to seize the momentum. …

And this week, the most recent public relations blunder:

Right in the middle of the plebiscite campaign, with the numbers for the Yes campaign going south, news emerges that in December of 2014 TransLink spent $13.9 million to buy back a former BC Transit building which BC Transit had previously sold at a loss.

Irony alert: BC Transit is a provincial agency.  TransLink actually had a good case to make for purchasing the building.

And TransLink has been trying to make that case, without much luck. Global TV for one used the word “boondoggle” in its coverage. The No side has been going to town over the sale.

“We could cure cancer,” said Colleen Brennan, TransLink’s vice-president of communications, “but no matter what TransLink does, we’re going to be a villain.”

Well, no. Villains are villains because they’re malevolent, not because they’re clueless.

Then a few pages over:

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Oh, so many points to make, but we can stop at the first sentence:

A consensus exists that we are sufficiently taxed.

And there it is: the beginning and end of the debate – and either the main or tangential purpose of the referendum: to limit local government’s capacity to tax, best done directly by those who might most benefit from the services.

So … if it were true that we are indeed sufficiently taxed, then why this?

AMOUNT RICHEST 2 PERCENT OF BRITISH COLUMBIANS WILL RECEIVE IN A TAX DECREASE THIS YEAR: $230 million

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About the same amount that could be raised by the sales tax increase to provide what business, in particular, argues is necessary infrastructure for the economic vitality of Metro.  That same amount will disappear from the provincial budget so that richest 2 percent will retain another $2-3,000.  (Sounds angry, doesn’t it, and rather impolitic to raise in polite company.  Which is why, I suppose, it isn’t.)

Another Sun columnist, Daphne Braham, has so far provided the best insight into all this in her piece on March 9:

Politicians and business leaders have talked way more about cutting taxes for poor beleaguered taxpayers for the past 30 years than they have about the valuable services tax money provides.

Through good times and bad, the political debates have focused on debt reduction, deficit-fighting, deregulation, privatization, selling off public assets to balance the books and shaming those who rely on public programs to pay the rent or feed their children. …

Why would it be any different? Along with the Fraser Institute, the Canadian Taxpayers Federation has been at this a long time with clever campaigns and awards ceremonies where an adult dressed up as a pig helps hand out pig-topped trophies to wasteful public officials.

With the No side support, they’re reaping what they’ve sown.

 

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Is there a larger intent behind the referendum the Premier has imposed on the region?  Beyond the obvious discrepancies (why only for Metro Vancouver, why only on TransLink  taxes and not on tolls for new provincial bridges in the region?), is the real agenda to limit local government’s ability to raise taxes at all.

I was struck by an op-ed in The Sun last summer by Hugh MacIn­tyre and Charles Lam­mam of the Fraser Institute: Van­cou­ver city hall has a debt ad­dic­tion 

In the City of Vancouver’s case, the substance is government debt and the city has been addicted for more than a decade. Despite clear signs of an addiction problem, city hall recently proposed an ambitious infrastructure plan that would further increase debt during the next four years. …

In 2012, the latest year of comparable data, Vancouver was in the red with liabilities exceeding financial assets by $ 268 million. In other words, the city was in a net liabilities position. Meanwhile, other Metro municipalities, including nearby Surrey and Burnaby, were collectively $ 2 billion in the black.

Remarkably, Vancouver’s net liabilities quadrupled between 2006 and 2011, from $ 101 million to $ 419 million. To the city’s credit, net liabilities decreased in 2012 and 2013, although the reduction stemmed from an increase in financial assets, not a reduction in gross liabilities. …

And now, with gross liabilities at a record high, city hall is proposing to spend $ 1.1 billion during four years on infrastructure. The plan, which includes new spending on bike lanes and social housing, would be partly funded by adding $ 400 million to the city’s existing debt. So instead of reducing liabilities, the city plans to take on even more debt.

… with the newly proposed infrastructure plan, the City of Vancouver is signalling it’s not ready to kick its debt addiction.

 

There was a flurry of articles by other organizations (they are well coordinated) and columnists (the second-hand dealers in ideas), and then not much.  But it’s certainly conceivable that the referendum was concocted as a way to have the voters deliver the cut without the Premier’s hand having to be on the knife.  If it works well this time around, it will be irresistibly tempting to use it again.  Other cities and regions, take note.

The City of Vancouver responded, of course.   Their release is below.

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Business in Vancouver ran this story back in June:

Vancouver has the world’s second most competitive taxes for business: KPMG

 

Vancouver is the second most competitive major city – defined as those with a population of two million or more – when it comes to business taxes, according to a KPMG report released June 17.

Overall, Canada is the most competitive country in the world in terms of its business tax environment.

The country’s low effective corporate tax policy, moderate statutory labour costs and harmonized sales taxes nationwide contributed to its ranking.

 

Surprised?  Indeed, the story strikes a chord of dissonance: That can’t be true!  Canada, the most competitive?  Vancouver, second in the world?

And then it goes away.

But the Fraser Institute doesn’t.  Indeed, it’s right there on the same page, bottom right:

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It’s annual story on Tax Freedom Day, repeated and repeated, just keeps on giving, with the same message regardless of context:

“Governments across the country are partly to blame since many have raised taxes after the recent recession to make up for big spending increases and deficits.”

Message:  Taxes going up. Governments are to blame.

The effect is to change the frame of discussion, so that we share a set of assumptions that don’t need to be qualified or even discussed:  Taxes are bad, getting worse, and government spending is excessive.

It’s worked so well on senior governments that now the target in their sights are municipalities and regions.

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That’s one of my favourite lines from the Jon Stewart show.  Some things are so widely believed that, even when they’re wrong, they’re still taken as true.

Like: Canadians are paying more taxes than ever as government increases its bite.

They are, of course, not:

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Iglika Ivanoa at CCPA elaborates:

Business and personal taxes rose as a share of family income in the 1960s and then again between 1975 and 1985. But taxes have been cut significantly since 1999 (by about 5% of income) and are lower than they were in 30 years ago in the 1980s.

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Hence the purpose of the Fraser Institute reports and stories:  “We’ve brought that info to the forefront so Canadians can basically tackle the question of whether they’re happy with that amount.”

Yeah, whether they’re happy, not whether what they perceive is true.   But once the perception is solidified, they can move on to the bigger agenda.  More on that later.

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YVRLutyens posts a comment below that deserves a higher profile – namely here – regarding the Fraser Institute’s report on increases in total taxation.

Like the TomTom congestion reports, what seems to be going on is the creation of infotainment clickbait. The key to this is to create something that will attract media types who will give it wider press.

Well, it works.  The report is quoted without qualification twice in The Sun today, including a Canadian Press story that was likely reprinted nationwide.  As YVR notes:

 Those media types certainly aren’t numbers people, but why they don’t just ask themselves whether the congestion in Vancouver is the worst they have seen or whether they themselves pay 42% of their income in tax, I don’t know.

Here’s what he asked himself:

I know that there is something funny with the Fraser Institute stats because I only employ one tax saving measure, RRSP contributions, yet there is no way that I pay 42% of my income in tax, including hidden taxes.

And here’s what he deduced:

  • When I look at the report, I see what fiddle has taken place. Using 13.3 million as the number of households in Canada, the tax rates shown in the report imply a total tax bill of $430 billion and the income totals imply a total income of $1,024 billion. When I do a rough calculation of total government revenue, I come up with $245 billion federal, $270 billion provincial, $55 billion municipal for a total of $570 billion. So the Fraser Institute has undercounted.
  • But total GDP is $1,700 billion so the Fraser Institute has undercounted this even more. The ratio of total tax to total income is 33 % which accords with OECD statistics (best as I can remember). (FI’s possible cover for this is that they used “cash” income, not national income, but they do not seem to have confined themselves to “cash” taxes.)
  • Another statistical problem is the use of averages. Income taxes are steeply progressive, so what the average family pays is not what the median family pays. High income families will pay a higher proportion of their incomes as income taxes than the median family. Sales taxes are complicated, excluding food and rent, which are a higher proportion of low income family expenditure, but also excluding savings which is a higher proportion of high income family expenditure. Other taxes are not progressive at all, so the total picture will be mixed, but nevertheless, the use of averages hides what is going on.
  • And the calculation of tax increases using nominal dollars is laughable: “The total tax bill, which includes all types of taxes, has increased by 1,832 percent since 1961”. The real number, which the FI does include in the report, is 147%.

In summary:

Not to say that I necessarily agree with our tax policies, but in order to talk about them, you have to use honest numbers.

 

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