The Canadian Century. Brian Lee Crowley

The Canadian Century - Brian Lee Crowley


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second element of Laurier’s plan was based on the view that once freedom, the rule of law, and key infrastructure had been created, the best thing that government could do was to then get out of the way, to keep taxes and rules to a minimum. Indeed, Laurier believed that the cost of government, and especially the tax burden, needed always to be kept below the level in the United States, so as to create a powerful competitive advantage for Canada. Small but efficient government, not big government, was, to Laurier’s way of thinking, Canada’s secret weapon in the competitive struggle with America.

      Even beyond the absence of the welfare state, it may surprise many Canadians today the extent to which this belief in lean minimalist government in economic terms was also an article of faith for most of the first century of the Dominion’s existence. Indeed, one of our leading historians of Canadian tax policy, David Perry, of the non-partisan Canadian Tax Foundation, points out that this consensus was assumed by its drafters to be part and parcel of the plan that inspired the British North America Act, later rebaptized the Constitution Act, 1867. In that document’s scheme, both the major responsibilities and the major sources of revenue were granted to the central government in Ottawa, but the plan was not to create an expansive and activist government. Rather, it was to ensure that no government got too big for its britches by keeping them all, federal and provincial, on a meagre fiscal diet.

      The prevailing assumption in 1867 was that government should be unobtrusive and cheap. Its job was to prepare an environment in which private enterprise could thrive, and then stand to one side. So, although the federal government was to be stronger than the provinces, it was not to be very strong, or very expensive, in its own right.21

      Today Canada’s prime minister is excoriated in the press for suggesting that there are no good taxes;22 the country’s founders saw this view as unexceptionable. Sir Richard Cartwright, finance minister of the young Dominion in 1878, thundered during his budget speech to Parliament that

      All taxation . . . is a loss per se . . . it is the sacred duty of the government to take only from the people what is necessary to the proper discharge of the public service; and that taxation in any other mode, is simply in one shape or another, legalized robbery.23

      Politicians stayed as far as they could from directly providing services or competing with private enterprise. They did not think it their job to provide what businessmen with proper incentives could do more cheaply and efficiently, while the voters wanted no truck nor trade with government masquerading as business, or even any expansion of the role already played by the state. As one set of historians of the time wrote, the public, “regarded ‘national services’ like the Public Works Department, Post Office, and Intercolonial Railway, all of them believed to be sinkholes of patronage, as painful necessities that ought not to be duplicated.”24

      Laurier believed that we lived in a world in which people and societies compete for the most desirable things—whether they be immigrants, industry, or capital—and that Canada could not win that competition by trying to throw up walls against it. Instead, the winner of the competition would be the country that proved most open and hospitable to these footloose forces. A vital part of his plan, therefore, was to find a way to create a distinctive set of Canadian advantages that would help the young Dominion win the competitive struggle with others, including the United States. Again, this preoccupation of Laurier’s has an arrestingly modern feel to it.

      As already noticed, in the early years of Confederation, Canada was the destination for a goodly amount of immigration, but our country too often proved to be only a way station for many of the newcomers, who slipped south of the border in search of better opportunities.25 And in this vast, empty country, people were wealth; it took strong hands and stout hearts to bring European civilization to the new Dominion’s empty spaces.

      Governments, however, could not affect many of the factors that favoured one part of North America over another. If America enjoyed a more attractive climate, for example, or longer-established industry and infrastructure, there was little the government of Canada could do about it. Taxation, on the other hand, was something they controlled absolutely. In the battle to win a disproportionate share of people and industry for the Dominion, taxation was to prove a recurring and powerful theme.

      Competition for these mobile human resources, not to mention the capital with which these immigrants (be they farmers or businessmen) arrived, was fierce. Consequently, all Dominion governments were determined to keep their taxes low.26

      No one displayed this determination more doggedly than Laurier.

      Beyond rewarding energy and what we would today call entrepreneurialism and innovation, Laurier was deeply concerned that taxation that was too high, relative to the next-door neighbour’s, would create a vicious circle in which loss of people and investment led to loss of revenue, which led in its turn to higher taxes and so forth.

      References were made [during the Laurier era] to the relative tax burdens between the two countries as an important political constraint. The economic loss of people and their resources to the U.S. would reduce the revenue bases available for taxation, necessitating higher tax rates or reduced government spending. Thus the potential economic cost of this horizontal tax competition [i.e., competition on tax rates between the two governments] would be reflected directly into higher political costs for the government.27

      Not only, then, did Laurier’s plan envisage taming, to the extent possible, American protectionism,28 opening US markets to Canadian exports, it also envisaged attracting capital, enterprise, and above all people from under the American eagle’s nose. This he planned to do by making it clear that people who came to Canada from south of the border or beyond the seas would find in the Dominion a society of free men and women where everyone was expected to work hard, and where, if they did so, they would keep more of the fruits of their labours than anywhere else, including the United States of America.

      Laurier didn’t merely willingly grasp the baton that was handed to him by his predecessors and the founders of the Dominion; he took it to be his duty and obligation to keep the burden that government imposed on taxpayers light and unobtrusive.

      In this regard, he was himself a major tax reformer, for he believed that it was not enough to keep taxes low; it was also essential to impose the right kind of taxes and to the right degree.

      Taxes were, of course, a rather different affair at the beginning of the twentieth century than at the beginning of the twenty-first. To understand Laurier’s plan on taxes, one must realize that the major source of tax dollars for the Dominion government was not the income tax, a tax that was only to emerge with the exigencies of war in 1917,29 nor the sales tax—it was the tariff on imports.

      A tariff is a tax imposed on the value of imported goods. What we forget today, when governments have the administrative and technological know-how to impose and collect far more sophisticated and efficient taxes, is that tariffs can have their virtues in simple colonial societies. You can concentrate the machinery of taxation at the points of entry into the country, making the costs of policing relatively light. The revenue authorities need little in the way of coercive or surveillance powers over the domestic population, because the tariff is paid directly by those importing goods from abroad, and that tax is then passed on indirectly to consumers by being included in the final price.

      Used to thinking of tariffs exclusively as a weapon in the protectionist’s arsenal today, we forget the extent to which they were a simple and efficient way to generate cash for government a century ago. Indeed, they were the chief source of revenue.30 Customs duties constituted at least 60 per cent of federal revenues from 1866 to 1917, a fact that finds a faint echo even today in Ottawa: control over tariffs falls, not under the jurisdiction of the Department of Foreign Affairs or International Trade or even Industry but that of Finance.

      So as someone who believed that the tax burden should be kept light and simple, and who believed ardently as well in the principles of free trade, Laurier had his work cut out for him in tariff reform. He was dealing with the most important source of revenue the government


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