Surpluses. Then what?


The Globe and Mail ran an editorial last Friday (now subscriber only content)  Their summary reads:  “We have grown used to the notion that our governments can run up budget surpluses. If only they could show some vision for putting the money to work.Statistics Canada reported yesterday that all levels of Canadian government posted a combined surplus of $29-billion in the fiscal year that ended March 31, 2007. That matches a 20-year high set in fiscal 2001.”


The Globe argued that strong income tax revenue growth is driving the surpluses, especially at the federal level, indicating that people are over-taxed, and they concluded by calling for tax cuts.


I sent in the following Letter to the Editor which was not published (nothwithstanding the compelling logic of the argument, he adds modestly.)


“Your editorial “Surpluses. Then What?” (June 14) argues that our governments are collecting more revenues than they need, and should cut income taxes.

As noted, income tax revenues have soared in recent years. You fail to ask why this has been the case in a period when effective income tax rates have been falling rather than rising.

The explanation is that income growth has been concentrated at the very high end of the income spectrum. In fact, the one in every two hundred taxpayers who make more than $250,000 per year  now collect 10% of all taxable income, up considerably from 2000.

Effectively, most of the income growth in Canada is being taxed at well above average rates because it is being earned and declared by people in the top tax bracket.

Ordinary taxpayers – whose real wages are more or less unchanged – are not paying more income tax. Instead, our still progressive income tax system is doing what it is supposed to do – generating resources from the affluent to fund programs for all citizens.

Income tax cuts would further boost the incomes of the small minority who are already collecting a hugely disporoportionate share of pre tax income. Well-designed spending programs would benefit all of us.”

One comment

  • I would argue that increased income tax revenue is a temporary thing created by a series of bubbles(equities, houses, etc) caused by massive monetary inflation in all the major industialized countries. This has allowed those with considerable money to leverage this money and make a great deal more.

    The average peasant worker does not have the benifit of investable capital and has had their standard of living eroded by the inflation created by this monetary madness

    Those with fixed incomes or COLA indexed incomes are getting screwed by governments who habitually underestimate inflation.

    That said all bubbles burst such as U.S. housing is doing now and this era of increased revenue is not a certainty. Lower housing prices, less transactions and bankrupt homeowners are hitting U.S. municipal and state revenues serverly in the last two quarters. The valuations of our houses and general affordability could leave us having a correction some time soon.

    The possible economic impacts of global warming, Peal Oil, etc have the potential to lower our GDP and tax revenue, as will a very likely U.S. recession.

    With the exception of projects to lessen our dependancy on hydro carbons I believe paying down debt as preparation for harder times is more prudent than increasing funding we might not be able to sustain. While quick elimination of debt would make future new spending more sustainable. It’s a good rule, reduce debt when time are good so you can access credit when things are not so good.

    I know I have a very down impression of our future but the irrational printing of fiat currency has me scared so I’d also like to see Canada divert some portion of it’s surplus to a rebuilding of our Gold reserves. U.S. debt and devaluation, Spain, Portugal and Greece are all suffering account deficits that has forced them to drastically lower their currency reserves all have the potential to create a major U.S. currency crisis.

    We don’t need to go nuts on gold but our declared 3 tonnes is a joke, considering the size of our currency reserves and our 50% weighting to a rapidly devaluing U.S. dollar.

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