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Blupete's Weekly Commentary


March 5th, 2000.

"Taxes, International Competition &
The Electronic Age."

Up here in Canada, our finance minister has announced tax decreases. Thank God; and, its about time.

It's not that Canada has the highest tax rates in the world; but, as a country, I am sure, she is high on the list. The "surplus"1 which the Canadian government is anticipating could be used on any of the following, or combinations thereof: more government expenditure2, paying down the national debt3 and not to collect it in the first place, viz., reduce the tax burden.4 The Finance Minister presented his budget to the Canadian parliament -- a traditional process by which the government outlines how it is going to go about raising its revenues and what it intends to spend it on -- and, while I have not delved into the details, from what I understand, the good news is that the government is going to reduce income tax rates on the income of both individuals and companies.

During the times of the American Revolution, William Pitt, who was then in charge of the British government, in a speech to parliament in respect to the repeal of the Stamp Act, was to say: "Taxation is no part of the governing power. The taxes are a voluntary gift and grant of the Commons alone ... shall a miserable financier come with a boast that he can fetch a peppercorn into the exchequer to the loss of millions to the nation [trade]."5 This problem that faced Pitt over two hundred years ago, is, for the Canadian Finance Minister, and, indeed, for all finance ministers the world over, the exact same problem now faced. It is this (and the resolution of it is bound to be much in the taxpayer's favour): the producers of the wanted things and wanted services of the world will park themselves in a country which taxes them less, and in the process, employ the citizens of that country in productive and remunerative jobs. The producers of the world will, in this age of easy transportation, play in whatever part of the world that may appeal to them; and their property, as is represented by just so many bits and bites on a computer, can be zipped from one part of the world to another with the click of a mouse.

There is no sense arguing the rights and wrongs of it -- the people with mobile assets will shop the world for the safest place for these assets and settle them on that part of the world where these assets or the income earned from these assets will not be taxed, or at least, not by much.6 It is this thought, in no small measure, which guided the Canadian Finance Minister when he brought his budget down this past week. And while politicians, being politicians, will still want as much power (read money) as they can get hold of, -- in the years to come, high taxation levels will not be possible: and this, because of that wonderful and natural mechanism called competition.

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NOTES:

1 "Surplus," indeed -- it's over-taxation that these journalists and politicians talk of, not lottery winnings or a great gift from a rich relative. It is a perfect example of an emotional word.

2 Even if one were to accept for the moment that government expenditure helps the poor and the disadvantaged (it demonstratively does not; it but helps those who serve government); the government has consistently bungled in its management of the people's money.

3 The Canadian federal debt has increased from $200 plus billion in 1984 to $400 plus billion for 1992. That we should ask our children to pay for our past spending binges is a sufficient argument to get rid of debt. Quite a separate argument is the debt has a current day impact. Our government spends proportionately more on interest charges (26.7 percent of total federal government spending) than it does on protection of persons and property (national defence, courts, detention establishments, policing and fire-fighting) and education. And, another separate argument for getting rid of government debt, is, that it creates a legal obligation to transfer yet more wealth (interest payments) from those who have none or little (taxpayers) to the wealthy of the world, to the holders of government paper.

4 The tax burden goes much beyond just income taxes: our three levels of government (at least two too many) levy in a cumulative fashion -- much of it hidden from the dumb lamb's sight -- sales taxes, property taxes, excise taxes, license fees, and on and on. The average Canadian family income in 1992 was $74,000, of which our governments took away $23,537, of this less than $10,000 is attributable to income taxes. The attitude of those in charge of our taxation system over the years, as Walter Bagehot observed, is, like the attitude of the Irishman who visits the Donnybrook Fair, "Wherever you see a head, hit it." As for the elected politician, "Wherever you find an article, a product, a trade, a profession, or a source of income, tax it!"

5 See Trevelyan's England Under Queen Anne, vol. 1, p. 293.

6 Not only income tax must be reduced to international competitive levels, but also consumption (sales) taxes will have to be reduced, for, not only are the asset holders in this world mobile, but so too are the professionals they hire.

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Peter Landry

March, 2000 (2011)