This is why we can't have nice things

A disconcerting trend is establishing itself in Canadian politics. Political parties are showing essentially no interest in the merits of a policy proposal beyond its potential as an element of some shrewd communications strategy.

From the Conservatives, we have the never-to-be-sufficiently-denounced cuts to the GST. They will never admit this was a mistake, because the policy was a winner according to only criterion that matters to them:

“Despite economic evidence to the contrary, in my view the GST cut worked,” Brodie said in Montreal at the annual conference of the McGill Institute for the Study of Canada. “It worked in the sense that by the end of the ’05-’06 campaign, voters identified the Conservative party as the party of lower taxes. It worked in the sense that it helped us to win.”

From the Liberals, we learn that they're thinking about canceling corporate tax cuts. Not because it's a good idea, but because it'll fit into the narrative they want to sell:

Some senior Liberals contend that vowing to roll back the corporate tax cut might actually help Ignatieff, who's been trying to position himself as the leader most in tune with the priorities of hardpressed middle-class families.

"Guess what? Every time some big moneybags kicks up a fuss, it's going to prove to John and Jane Q. Public that we're actually on their side," says one senior Grit of the potential backlash among business leaders.

And the NDP wants to cut the GST on heating costs. This is dumb for at least two reasons:

• Making heating oil cheaper can only increase greenhouse gas emissions.
• If the NDP wants to help low-income households deal with heating costs, they should give them money.

But once again, the merits of the proposal don't matter. What matters is being in a position to have this passage appear in news stories:

Layton said the government can't evade ownership for the [HST], even though it was imposed by the provinces, since Ottawa has been pressing provinces to harmonize their sales taxes with the federal GST, even offering billions of dollars in inducements. The resulting HST imposes taxes on many items previously not covered under the provincial version, including services such as hair cuts, phone bills and dry cleaning.

"This is his tax, it would not have happened without the Stephen Harper initiative. He can run but he can't hide from this one," he said.

All three parties have now decided that the path to power is paved with stupidity. We won't have good government, but at least we'll see cunningly-crafted communications strategies.

And that's all that matters, right?

 

Comments

[Mike Moffatt]

And as far as the Greens go, I can't find them saying anything about tax policy at all this year - though I may have overlooked a press release.

[JeffJardine]

Has this trend only begun to establish itself recently? It seems to me we have always been governed by those who are best at getting elected, not those who would be best at governing. It's all in the incentives, right?

You could probably make a good case that the gap between "ability to get elected" and "ability to govern" has widened as PR and marketing expenditures have grown.

[Just visiting from Macleans]

This is why we can't have nice things

You need to travel outside Canada more.

[Mike Moffatt]

RE: Greens - on the other hand, Don Drummond thinks their economic platform is pretty good:

http://www.youtube.com/watch?v=IM1u_dd_9sY&feature=youtu.be

[Nick Rowe]

It's depressing that they actually say those things.

[Mandos]

This is better in the long run. In the USA, you have a public that is increasingly convinced that no matter whom they vote for, they will get the same policies dictated by people claiming the mantle of science merited or not (ie, not). In Canada, at least, there is differentiation in which taxes to cut.

[Ian Macaulay]

The last Mulroney government implemented NAFTA and the GST. Both policies the stuff of economist's dreams. For their troubles the Tories were reduced to two seats in the house and a decade of derision. Now I see the HST implementation on BC being vilified despite it's obvious economic advantages. What do people expect. If you don't reward politicians for making the hard calls then they'll make the easy ones.

[Tim]

And the NDP wants to cut the GST on heating costs. This is dumb for at least two reasons:

•Making heating oil cheaper can only increase greenhouse gas emissions.

++++++++++++++++++++++++++

Who says they are using heating oil? Isn't this the same as giving them money by not taking money away in the first place?

[Determinant]

Few homes actually use oil to heat in Ontario. Most people here got rid of their home boilers. I lived in a house once (actually a manse) that had an old boiler under the basement stairs.

Natural gas is the first choice, hydro the second. Hydro is popular in apartments because it can be retrofitted easily, is self-contained to the apartment and isn't flammable.

[Mike Moffatt]

"Who says they are using heating oil?"

The NDP press release specifically mentions heating oil (along with "wood, fuel and electricity".)

"Isn't this the same as giving them money by not taking money away in the first place?"

No. It isn't. Demand curves slope downward.

[k. brockman]

I've said it before and I'll say it again. Democracy just doesn't work.

[edeast]

Rural people use oil.

[JP Koning]

Right, so a disconcerting trend is establishing itself in Canadian politics. You seem to be implying that before this trend started, politicians were wise policy architects who didn't care about votes. Come on, get real. It's always been about one thing, power, not policy. There never was a "golden age."

[Ian Lippert]

"A disconcerting trend is establishing itself in Canadian politics.``

Is this a disconcerting trend in politics, or an encouraging trend in the skepticism of our national news media towards politicians? People always complain that things are getting worse, but we are simply increasing our exposure to to the real state of politics. Although it can be argued that the voting public is relatively docile about acting on this information in the short run, I feel pretty optimistic that in the long run we will be looking at a much more functional poltical system as more and more of this stuff is brought to light.

[Mandos]

The last Mulroney government implemented NAFTA and the GST. Both policies the stuff of economist's dreams. For their troubles the Tories were reduced to two seats in the house and a decade of derision. Now I see the HST implementation on BC being vilified despite it's obvious economic advantages. What do people expect. If you don't reward politicians for making the hard calls then they'll make the easy ones.

Yes, and rightly so: the Canadian public, when actually asked, knows to reject "the stuff of economist's dreams". However, the Liberals continued to do the same thing anyway. What was democratic about that?

[Robert McClelland]

So Stephen, are you in favour of charging the HST on groceries and then giving low income households money for that?

[Stephen Gordon]

Yes. But that battle was lost long ago.

[Kevin Milligan]

RM: What's wrong with that? Why do you want to subsidize the grocery bill of the rich and wealthy? Rich and wealthy people spend WAY more on food. The grocery bill tax cut is way bigger for rich guys than poor guys. Why do you want to give tax cuts that favour the rich?

There's an easy way to avoid that. Why is it so hard to understand that to make low-income guys better off you should just give higher transfers rather than fiddling with prices?

[Just visiting from Macleans]

Why is it so hard to understand that to make low-income guys better off you should just give higher transfers rather than fiddling with prices?

How? And does it matter how?

[Adam]

I'm shocked, SHOCKED! To learn that politicians are playing politics!

Such a thing is truly unprecedented.

Next thing you know, they'll elect a black president in Nigeria: http://www.theonion.com/articles/nigeria-elects-black-president,446/

[Nick Rowe]

JVFM: "How? And does it matter how?"

That is the thing that economists get, and non-economists don't get. That prices have a role to play in allocating resources, so we get the right mix of goods produced and consumed. So we don't use too many resources producing too many apples and too few resources producing too few bananas. That under certain conditions the relative prices of two goods do reflect relative marginal benefits and relative marginal costs. The prices set by demand and supply are actually telling us something important about the relative scarcity of the two goods. They aren't just about making apple producers/consumers richer/poorer at the expense of making banana producers/consumers poorer/richer.

We really do teach something very important in ECON1000. That people otherwise won't realise.

[Nick Rowe]

Kevin: "Why is it so hard to understand that to make low-income guys better off you should just give higher transfers rather than fiddling with prices?"

Because ECON1000 *is* hard to understand. Because ECON1000 teaches something that is both important and non-obvious. Because most people really don't get it. Because they think of prices as merely determining the distribution of income, nothing more.

[Nick Rowe]

Because most people have never seen a demand and supply diagram, and don't realise that demand reflects marginal benefits and supply reflects marginal costs, and don't realise that to maximise net benefits you need to have prices where marginal benefits equal marginal costs, and have never seen a tax wedge diagram with a NWL triangle, and cannot go from that to where you have two such diagrams, let alone doing the whole thing properly in general equilibrium. Because it took economists 200 years to do this thoroughly, even though we grasped the vision much earlier than that. Because teaching that vision is bloody hard!

[Just visiting from Macleans]

JVFM: "How? And does it matter how?"

That is the thing that economists get, and non-economists don't get.

Actually, it is one thing economists perhaps don't get. I was assuming KM was going to come back with - a tax credit at income tax time (similar to GST rebate), in which I was going to ask - well, how does that help someone who doesn't have the extra 13% HST at time of purchase of food?

First Nations people in Canada don't pay taxes at time of purchase - a different model than paying and getting a rebate at tax time.

[Nick Rowe]

JVFM: OK. I misunderstood you.

[Kevin Milligan]

JVFM: Actually, the GST tax credit is paid quarterly up front by direct deposit. It's not at tax time. How's that? In BC, people got their new enhanced HST supplement in their July payment, just as they started paying (a bit) more for HST.

Nick: thank you for your efforts in 1st year ECO.

[Just visiting from Macleans]

KM, but these items are not covered in BC's HST, so there must be other reasons why quarterly direct deposits weren't the preferred method (eg some low income people don't have bank accounts nor fill out tax returns)

If you didn’t pay GST on an item before, you won’t pay HST on it now. These are things like:

basic groceries
most health, medical and dental services
visiting the doctor or dentist
certain medical devices (hearing aids; prescription eyewear; canes, wheelchairs, walkers)
prescription drugs
legal aid services
most financial services
many educational services
insurance premiums
resale housing

http://hst.blog.gov.bc.ca/2010/03/27/rebates-exemptions/

Anyway, the debate in BC continues.

[Kevin Milligan]

JVFM: I would argue that those exemptions are motivated by politics, not good economics. But, I would concede that many of those things (e.g. legal aid services!) are goods consumed mostly by lower income guys, so at least the target is right in some of those cases. If pushed, I may accept exemptions on goods consumed exclusively by the poor, with some grumbles.

But the deal with the NDP policy is that home heating fuel is a normal good--higher income people spend more on it. See here. The home heating tax cut is bigger for high income guys than low income guys. How is that a good NDP policy??

[Brendan]

Question about VATs on resale items, like resale homes(if it were to be implemented), used cars, second-hand clothing etc..

If tax was paid when the item was new, what sense does it make for the tax to be paid again when it's resold? I think I understand that tax should be applied to everything equally as to not base decisions based on taxes, but if the tax really is a VAT, what value was added to a used good (I suppose the answer may be two parts as real estate generally appreciates in price, but most other items depreciate).

[Just visiting from Macleans]

Well, I'm not one to defend NDP policies, but I do have a background in Mech Eng (HVAC), have renovated houses, and recently helped a relative upgrade their heating system (replace electric furnace/heat pump with nat gas) so I am somewhat familiar with the issues outlined in the graphs.

I would suggest that what your graph really shows is that people with higher income live in bigger homes and therefore spend more money to heat their homes (and their hot tubs etc). And within a reasonable range of energy costs, their actual consumption won't vary much.

So, will a 13% cut in HST on home heating change behaviour/lead to more energy consumed? I very much doubt it. The people at the top end of the income scale won't notice it. And the people at the lower end still need to keep warm - and if they live in apt buildings, probably have no control over it (central hot water heat, for example).

[Mark Dowling]

In Ontario, HST didn't even get rid of the ridiculous $4 PST exemption which basically benefits McDonalds... and Tim Horton's. Given the current fascination amongst journos and pollsters with that entity, no way was that going to get nixed.

[Michael Smart]

Kevin: Since I'm teaching the many-person Ramsey rule this week let me point out that home heating may be a normal good but its expenditure share declines with income. So of course leaving it untaxed would indeed be a progressive reform. Not as progressive as a targeted income transfer, but then some people seem to think that high taxback rates in targeted transfers are bad for the poor. Don't they?

[Michael Smart]

Brendan: Yes, in an ideal VAT, resale homes would be taxed, but the seller would receive a credit for tax originally paid, plus interest. That way, the real appreciation in price (and the consumption benefits it represents) would be taxed each time it is sold. But the one-time tax is much simpler and accomplishes much the same thing. The only problem is that pre-existing homes never get taxed at all - a massive subsidy to the older generation when the tax is introduced.