Editor's note: Government spending

The next time you hear there's no room for tax relief don't believe it.

By the time you read this, Finance Minister Jim Flaherty will have handed down the new federal budget. If it lives down to expectations, it will be a small-c conservative budget, with little if anything in the way of new spending or tax relief.

The federal budget is only one part of the bigger system of governmental getting and spending. To see the bigger picture — that is, from the payer’s, rather than from the political, point of view — it’s instructive to look holus-bolus at revenues and expenditures from all levels of government. It’s not exactly a heartening view.

Consolidated government expenditures between 2003 and 2007 grew by an average 4.5% a year, more than double the annual inflation rate over the same period. Among the biggest spending increases ($23 billion over four years) was in health care — which grew by 6.4% annually. (Governments, it appears, believe the health-care system can be improved by throwing more money at it, rather than really fixing the system.) Also meriting higher-than-average annual increases were housing (7.2%), recreation and culture (5.7%), the environment (8.8%) and security (5.1%).

Now consider where government wasn’t spending. Expenditures on labour, employment and immigration fell by 6.6% a year. (Unemployment rates dropped by about 4% a year.) Meanwhile, spending on research crept forward at 1.5% a year — small wonder Canada’s performance on international innovation measures is mediocre. (For more on why, see the story on page 57.)

More troubling is the trend in how government collects. The development of competitive tax policies requires that government rely more on consumption taxes and user fees, and less on income taxes. But Canada is going the other way. While overall revenue grew by an average 5.7% a year between 2003 and 2007, the amount earned by consumption taxes grew by only 2.7% a year. And even as health-care spending went through the roof, health insurance premiums increased by just 2.6% annually. But income tax revenue? It grew by 8.4% a year, outpacing GDP (5.8%), revenue or spending growth.

These numbers suggest that even if Canada’s income tax rates were the lowest in the world — and they’re surely not — they’d still be too high.

My advice the next time a finance minister tells you there’s no room for tax relief? Don’t you believe it.

Joe Chidley, Editor