Health as if everybody counted blog
It's all about priorities: How to think about health equity, part 2 - Talking taxes
In the previous posting, I argued for a closer look at public spending priorities, suggesting that governments have in fact been quite successful in finding money for a variety of purposes when it suits them. Here I look at the revenue side of the equation: an area where advocates for population health and health equity have, if anything, been even more timid.
Taxes do at least three things. First, they supply revenues for public purposes such as education, health care, and defence. Second, they create incentives to engage in certain kinds of behaviour and not others, with tax breaks for business investment and so-called sin taxes that raise the price of alcohol and tobacco being the most obvious example. Third, the way in which tax revenues are raised – how and from whom – can moderate (or, in some cases, magnify) trends in income and wealth inequality. As noted in an earlier posting, like many other countries Canada has conspicuously retreated from using taxes to moderate market-driven patterns of income inequality.
Canada faced a serious fiscal crisis in the 1990s. A combination of sustained growth in the United States, our major trading partner, and far-reaching spending cuts in successive federal budgets starting in 1995 turned a federal deficit of $42 billion in 1993-94 into a balanced budget by 1997/98. However, having balanced the budget both the Liberal governments of Jean Chrétien and Paul Martin and (especially) their post-2006 Conservative successors made a momentous choice: reducing income taxes, and eventually the GST, rather than reinvesting in social provision and economic infrastructure. By 2010, the federal government was claiming that its policies would reduce tax revenues "by an estimated $220 billion over 2008-2009 and the following five fiscal years" (1, p. 49). Clearly, the authors of the budget thought such reduction of fiscal capacity was a good thing.
Provincial governments, notably in Ontario and British Columbia, followed a similar route, with the benefit of tax cuts concentrated among their wealthiest residents. Ontario government figures showed that between 1995 and 1998, the richest one per cent of Ontarians (with incomes above $177,000), saw their annual tax bills drop by an average of $10,785 (2). When the BC liberals came to power in 2001, they followed a similar course, with provincial income tax reductions worth $644 a year to a resident earning $40,000 a year, but $7,797 to her senior manager paid five times that amount (3). A subsequent tax cut, in 2007, was calculated based on provincial budget figures to be worth $82 per year to a British Columbian with a taxable income of $20,000, but ten times that to a taxpayer with an income over $100,000 (4).
What were the consequences? According to the Organisation for Economic Co-operation and Development, tax revenues of all levels of government in Canada added up to 32 per cent of our Gross Domestic Product (GDP) in 2009, the lowest proportion since 1980. To put these figures into perspective, between 1990 and 2000 the figure never fell below 35 percent, and total tax revenues in the Nordic welfare states are between 42 and 48 percent of GDP. As noted in an earlier posting, these countries have child poverty rates lower than 5 percent on a standard cross-national comparative measure, according to the Luxembourg Income Study; Canada's are over 15 percent. The OECD estimated Canadian central (i.e., federal) government revenues at 13.3 per cent of GDP in 2009, the lowest proportion since the mid-1980s.
Public discussion of the opportunity costs and social and health consequences of these reductions in fiscal capacity, which international relations scholar Richard Falk has called "the social disempowerment of the state" that "follows from the impact of neoliberal ideas" (5), has been effectively nonexistent in Canada; we have been let down on this point by political leaders of every stripe. Going back to Ron Labonté's long-ago exercise, quoted in the preceding posting, we ought to ask what Canada's governments might do with just that additional 3 percent of GDP (about $40 billion) in lost fiscal capacity. Invest more in early childhood education and care – an area where, according to UNICEF's Innocenti Research Centre, Canada lags behind almost every other wealthy country? (The report in question identified ten "minimum standards for protecting the rights of children in their most vulnerable years," and found that Canada met only one of them.) Reduce the child poverty that Parliament declared its intention to eliminate, way back in 1989? Finance dental care for the poor? And what might be accomplished if we were willing to raise governments' share of GDP even a few more percentage points closer to the levels that are commonplace in much of Europe? (This would not be a matter just of raising income and payroll taxes. The tax on gasoline in every country in what used to be called western Europe is far higher than in Canada, and even drivers in middle-income Chile pay more per litre than Canadians, according to figures from the International Energy Agency.
I am not making a blanket argument for bigger government; many areas of public spending could and probably should shrink. Prisons, fighter aircraft and the salaries of senior university administrators come readily to mind; we all have our own lists. In this posting and the preceding one, I have made the argument that the resources available to Canadians are more than sufficient for any objective related to social determinants of health that we might reasonably wish to accomplish. When we are told that such objectives are unaffordable, the real message is either (a) that other areas of spending are more important, or (b) that tax cuts are more important. The more value any society assigns to tax cuts, the harder the choices it will have to make about spending priorities in the public sector, and their direct and indirect impacts on health equity.
- Department of Finance Canada. Budget 2010: Leading the Way on Jobs and Growth. Ottawa: Department of Finance Canada; 2010.
- Ontario Jobs and Investment Board. Report to Taxpayers: Jobs and the Economy. Toronto: Government of Ontario; April 1998.
- BC Ministry of Finance figures cited by Lunman K. New B.C. Premier Slashes Income Taxes for all Residents in First Day on the Job. The Globe and Mail, June 7, 2001.
- Murray, Stuart. Who Gets What from the 2007 BC Tax Cut? Vancouver: Canadian Centre for Policy Alternatives; May 2007.
- Falk RA. Human Rights Horizons: The Pursuit of Justice in a Globalizing World. New York and London: Routledge; 2000.