In which I applaud the Nova Scotia budget

I don't follow what happens in Nova Scotia all that closely, but since the budget brought down by its new-ish NDP government reproduces the main features of the Quebec budget (of which I approved), it seems only fair to give credit where credit is due. To summarise:

• An increase in the HST by two percentage points
• Measures to compensate low-income households
• Business taxes not increased; scheduled decreases not canceled

There was also some fiddling with income taxes at the top end of the distribution, but the net effect is minor: a new tax bracket replaces a surtax on high incomes.

Once again, a budget straight out of the social democratic textbook. I hope that New Democrats outside Nova Scotia are paying attention.

Comments

[Just visiting from Maclean]

If you are supporting or advocating the Nordic model, shouldn't you also support increasing the minimum wage (through relatively strenger labour organizations) as the preferred measure to compensate low-income households?

This from a piece by Stein Reegård, current? chief economist of the Norwegian Confederation of Trade Unions (Jim Stanford equivalent?):

Comparison:

...................American Model........Nordic Model
Productivity.............100.................100
Average hourly wage......100.................100
Top hourly wage.........20,000..............1,000
Minimum wage..............30..................60
Working hours............125.................100
Per capita income........125.................100
Poverty...................20%..................5%
Prison population........1.5%................0.5%

...

The big difference between the Nordic countries and the U.S. is the wage spread. The main reason is that the lowest-paid workers in the U.S. have very low incomes, indeed. The minimum wage there is equivalent to NOK 45 per hour, and that is the actual wage for many millions of workers. The minimum wage in Norway is twice as much, NOK 90 per hour, and even that level is regarded by LO as too low.

http://www.nnn.se/seminar/stein.htm

It seems to me this is part of the NDP argument- if you were to look at an enterprise with say 60% wages and salaries - then if you increase the min. wage, to maintain the same 60%, it has to come out of the middle and upper wages leading to less disparity.

Of course, the counter argument will be that you have to pay senior management market rates or else the competition will poach them. Q: have N. American industries/commerce seen a massive immigration of underpaid Norwegian and Swedish management?

[Andrew F]

Maybe the best ones? Surely there is some friction, too, culturally and linguistically that helps with a brain drain.

[Just visiting from macleans]

I see some merit in looking at the Nordic experience, but it does have its limits in being relevant to Canada - partly for the reasons you highlight. And also because it is physically isolated from the world's biggest markets - which is an issue for large industry (not so much for high tech - cell phones etc.) Not the same for Canada next door to the US.

Some have compared the Nordic countries equivalent to Canadian provinces in terms of pop. So, to take it a bit further - say Norway is Alberta, Sweden is BC, Finland is Sask.

Norway is backstopped by O&G assets (state owned and controlled). Alberta - to a lesser extent (private investment and royalties). So, it has the luxury of having no sales tax, lower provincial and income taxes (the "Alberta Advantage"). This attracts more tax sensitive investment - largely at the expense of other provinces in its proximity. So, they (BC and Sask) in tune try to match Alberta's lower taxes (and royalties) and enter into agreements on the free movement of labour etc (TILMA). But, there has to be a point where Alberta's taxes and royalty rates get so low, no matter how hard they try - it just doesn't make sense for industry to locate there - and the overall gov revenue declines as a result of further tax cuts.

I don't know if that is how things evolved in the Nordic countries (I suspect this is way too simplistic), but if I had a manufacturing plant in Germany, say, the taxes in Norway would have to be quite low, relatively speaking, for me to open a branch plant there rather than just expanding where I currently operate, and incur the greater inefficiencies.

[Bob Smith]

I'd be very careful with Stein Reingard's measure of "poverty". He seems to have drawn these figures from OECD (reasonably enough) but if I recall correctly the OECD's measure of "poverty" is actually a measure of income inequality. For the OECD, a person is poor if their income is less than 50% of the median income in a society. By that measure, North Korea probably has the least "poverty" of any country in the world (despite the fact that its citizens are starving), since I'd suspect that few people in North Korean earn much less than the median income of the country (if only because the median income is at, or below, a subsistence level). I also seem to recall, in the mid-1990's, that Canadian newspapers mindlessly reported that child poverty was significantly higher in Canada than in such (at the time) far poorer Eastern European countries like the Czech Republic or Hungary based on those statistics.

Of course, one can reasonably argue that reducing inequality is a good thing in its own right, but it's important to recognize that it is not the same thing as poverty.

[Just visiting from Maclean]

I had seen some discussion of differing definitions of poverty in earlier blog postings, and I was myself wondering what measure was being used in the earlier blog Celebrating pointlessness: minimum wage edition

Wiki provided an overview I found informative.
http://en.wikipedia.org/wiki/Poverty_in_Canada

I concluded the data cited in the report for Ontario was LICO (~10.8%) around 2005, returning to its 1990's level after peaking at 15.7% in 1996. I don't know what the arguments might be for the rise and fall. I assumed it had more to do with the strength of the economy in general, though I wouldn't be surprised if some would argue that raising min. wages had an effect (perhaps some combination of both - the relative weighting a point of debate).

[Jack]

I understand that increasing consumption taxes is the least disruptive way to increase tax revenue, but what about the effect on the underground economy? Is it negligible at these levels?

[Andrew F]

There are countries that manage with VATs in the mid to high 20's ppt range. Presumably the system is reasonably robust to fraud.

One wonders whether things like building materials ought to be subject to double-VAT, and exempting the labour.