Policy

Taxpayer Funded Services a Great Bargain: Study

By Ryan McGreal
Published April 16, 2009

It's more or less an accepted truism that the governments can't do anything right - that their appetite for tax revenue is insatiable, that they squander our hard-earned incomes on boondoggles and pork barreling, and that markets could allocate our money much more efficiently.

We resent paying taxes - income tax, sales tax, property tax, levies, duties and fees. Pro-business lobby groups, think-tanks and astroturf coalitions exploit this resentment tirelessly in their ongoing drive to push down tax rates and scale back public services.

I still recall an old Reform Party PR scheme from the 1990s in which Preston Manning handed a working woman in the East Coast a cheque for the amount that her taxes would go down if the Reform budget were to pass in the House of Parliament. Journalists dutifully recorded her listing off the things she could buy for her family with that extra money.

What they didn't record are the services she would have to start paying for out of pocket if the government could no longer afford to provide them: public education, health care, transportation infrastructure, workplace safety, consumer protection, and so on.

A new study just published by the Canadian Centre for Policy Alternatives, titled Canada's Quiet Bargain: The Benefits of Public Spending [PDF link], has sought to quantify just how much value Canadian citizens get from the taxes they pay.

Overturning received wisdom, the study concludes that the public services Canadians receive would be far more expensive if they had to pay out of pocket.

A family earning the median family income in Canada receives a public benefit that would amount to $41,000 if they had to pay for it - an amount equal to 63 percent of their total income and far higher than the total cost of the taxes the family pays.

(Note: the median income is that amount at which half the national incomes are higher and half are lower, so it's a more accurate way of average than the mean income, which is the total income divided by the number of people and is skewed upward by an unequal distribution of income to the very wealthy.)

Even income earners in the $80-90,000 range, or just below the richest fifth, receive a public benefit equal to half their income, again higher than the taxes they pay.

If citizens had to pay out of pocket for education, health care, infrastructure and so on, they would receive less value and have less disposable income than we enjoy today.

This does not even take into account the efficiency and productivity gains that attend universal education, health care and education. Since all three constitute positive externalities - goods in which some of the benefits accrue to society as a whole - everyone benefits when they are more widely available.

The opposite is also true. Tax cuts, far from automatically benefiting the public who keep the cuts, can actually leave citizens worse off if they reduce the government's ability to provide public goods efficiently and effectively.

The report notes:

[A]n astounding 80 percent of Canadians would have been better off if the Harper government had transferred money to local governments to pay for more and better public services instead of cutting the GST by 1 percent.

Similarly, 75 percent of Canadians would have been better of if their provincial governments had invested in public health care and education instead of administering broad-based income tax cuts in the late-1990s and early-2000s.

And had the federal government invested in improved federal public services instead of cutting capital gains taxation by one third in the early-2000s, 88 percent of Canadians would have been better off.

Public investments in education, health care and infrastructure more than pay for themselves in increased quality of life for the citizens who are able to enjoy them. They represent a better bargain than markets could provide.

The ugly fact is that despite the tax cuts of the past fifteen years, the median incomes and living standards of Canadians have stagnated and the difference in living standard between the wealthy and the poor has widened.

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan writes a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. He also maintains a personal website and has been known to post passing thoughts on Twitter @RyanMcGreal. Recently, he took the plunge and finally joined Facebook.

13 Comments

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By jason (registered) | Posted April 16, 2009 at 11:44:23

O boy. I can see where this blog is headed already. I'll check back in a week for a good laugh.

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By Frank (registered) | Posted April 16, 2009 at 12:30:08

haha, true that. I think what angers me more than the tax I pay is the fact that the efficiency by which tax dollars are spent is pretty sucky.

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By Rusty (registered) - website | Posted April 16, 2009 at 12:56:52

I hear you Jason. I'm sure he'll be here shortly. In the meantime...

I have many suspicions about these findings. Anyone who works in government knows the monumental inefficiency that presides there. Million dollar projects suspended with no deliverables, consultants billing $100 + an hour and spinning their wheels. A friend of mine works at Smart Systems for Health, which was recently rebranded as EHealth. Millions of dollars worth of invesment and on-going projects were canned because nothing was getting done. There is simply no accountability in government. For every Sheila Fraser audit that comes to light there are a thousand more 'boondoggles' that never get reported.

A friend of mine working for a gov dept recently told me that she completed a project for a few thousand dollars. She found out that another dept had attempted the same project for a million dollars. There response was to undermine her work. They simply couldn't understand how she had completed the task so efficiently.

I support the idea of government and there is probably some basis to this reports findings, but we need to find a way to bring public firm accountability into our government.

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By Capitalist (anonymous) | Posted April 16, 2009 at 13:12:08

The Canadian Centre for Policy Alternatives is a very left wing organization, so what do you expect?

Of course taxes are a good bargain if you are some low income loser who uses alot of services and pays zero in taxes. But if you are middle class (or higher income)and pay tax out your ass to fund everybody else how is that a bargain?

Usually people who agree with these studies are people with low incomes and have a disdain for money.

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By jason (registered) | Posted April 16, 2009 at 13:32:59

so you're still living in that old 'left vs right' world eh capitalist?

Here's some research you should do that'll put a dent into those media-inspired thoughts.

Go look at the following financial numbers for each US administration over the past 50+ years:

  • size of national debt upon taking office and leaving office
  • size of government payroll upon taking office and leaving office
  • level of government spending upon taking office and leaving office
  • number of government employees upon taking office and leaving office
  • employment/unemployment numbers upon taking office and leaving office
  • growth/shrinkage of GDP during each adminstration

Ideologies make for good ratings and yelling shows on FOX/CNN but are generally full of ignorance. It's best to know what government is really doing before jumping on board with a bunch of talking heads whose only goal is to make money for their employee.

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By Capitalist (anonymous) | Posted April 16, 2009 at 13:34:58

Jason, would you like to pay my taxes if you think they are such a bargain?

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By Ryan (registered) - website | Posted April 16, 2009 at 14:11:14

Frank, Rusty, I prepared a reply to your comments here:

http://raisethehammer.org/blog/1304

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By Crapitalist (anonymous) | Posted April 16, 2009 at 14:14:52

Capitalist are you even for real? I'm starting to wonder if you're actually a left-winger secretly mocking conservatives with a crude caricature of right-wing views.

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By Capitalist (anonymous) | Posted April 16, 2009 at 14:41:18

I am for real and I am spectacular!

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By JonC (registered) | Posted April 16, 2009 at 14:44:36

Capitalist, feel free to ignore the actual article and post your unsubstantiated opinion. I'm pretty sure that's how good debates start.

At a bare minimum, point out holes with the methodology.

I can at least count on A Smith using numbers in his responses. They'll have to do with the most obscure part of the study and after a thousand word rant they'll probably revert back to lowering his property taxes, but at least they're numbers.

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By Crapitalist (anonymous) | Posted April 16, 2009 at 14:48:11

"I am for real and I am spectacular!" Now I'm confused. Both a real crude right-winger and a clever parodist would reply this way. Are you Bill O'Reilly or are you Stephen Colbert?!?

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By gullchasedship (registered) - website | Posted April 16, 2009 at 20:08:30

I haven't read the study, but I wonder if the think-tank considered the time waiting for the service into the transaction cost.

Typically in a situation where you can only get the service from the government, the easiest way the government can limit cost is by limiting the service, thereby increasing wait times.

This doesn't appear to affect the transaction cost, whether this means waiting in line at a license office, or waiting at home for a knee-replacement, but it sure costs the consumer, whether it's time they could be spending elsewhere, or in extended pain and suffering.

Why do you think people go to Buffalo or Bellingham for knee replacements?

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By jason (registered) | Posted April 16, 2009 at 22:00:58

Capitalist...thanks for the laugh. Even though I've seen every episode dozens of times, I always chuckle at a good Seinfeld quote. Lol.

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