Today, the sharpest challenge in the public affairs of Canada is to repair the instruments for deciding and implementing policy. They depend on a public will, now diffused not only by diminished trust in politicians but by disillusioned abandonment of concern with politics. Development of an effective public will depends on making Parliament greatly more representative, enhancing its role and taming the entitlements of ministerial power. Fulfillment of a national will requires, in our diverse feder- alism, the reinvention of ways of effective collaboration between Ottawa and provincial governments. This better governance may be the greatest challenge of all in a Canada where the strains of regional diversity are being compound- ed by rapid economic and social change.
Meeting the challenge will be easier if Ottawa with- draws from much of the great jumble of interventions and expenditures it now makes in response to political and busi- ness pressures. Its role in the federation requires concentra- tion on major national purposes. They require all the use of the federal spending power that is practicable for programs that directly benefit people across the country.
Therefore, priorities for the agenda are best defined by what they do for people. The three I suggest are:
A charter for youth. This includes investment in human capital as well as the social justice of end- ing child poverty, and it gives economic purpose and moral justification to immigration policy.
Smarter work for adults. This is the human face of improving productivity.
A society of more equal opportunity and fairer rewards. This is about major segments of social policy.
The priority of investment in people is now well understood. The prosperity of an advanced economy depends more than ever on the capabilities of its people. The commonest response to this realization, calling for more and better post-secondary education, does not deal with the chief need. The most severe waste of human resources comes from deprivations, physical or mental or both, in childhood.
Health is crucial. We have been so busy treating sickness that we do far too little for the even greater purpose of pre- venting sickness, of fostering good health. While social jus- tice calls for care in sickness at all ages, well-being through life calls, above all, for the nurturing of the young. If choice is necessary, a higher priority than shorter wait times for fix- ing up old bodies should be fully comprehensive, preventive health services in childhood and adolescence.
The preventable causes of poor health fall most sharply on children in poverty. The existing child benefit remains well below the minimum cost of adequate nurturing. Raising it will not, however, in itself end the deprivation of children in poor families. For that, the need is a family income support, replacing the personal tax exemption by a refundable credit. Ideally, a substantial credit would remove the need for much of the provincial welfare that used to be cost-shared through the Canada Assistance Plan.
Family income supports and comprehensive health services, which include nutritional supplements and sport and recreational facilities, are the necessary prerequisites for positive investment in the capabilities of our youth. Next is care that strengthens the social stimulus for cogni- tive and emotional development occurring before the age of conventional schooling. We are not being serious about investment in human capital until early childhood learn- ing becomes freely available. The appropriate federal role is to finance individual demand, reimbursing people for the fees they pay for services provided by agencies under provincial jurisdiction.
We would need to be serious about it even if Canadians were begetting as many children as themselves. In fact, with a fertility rate little more than two-thirds of the replacement level, young Canadians are becoming increasingly scarce assets. A continuous stream of immi- grants can maintain the size of our population, but will not in itself alter the economics of an aging society. The immigrants we now select and the refugees we accept are, on average, of much the same age as present Canadians. They swell the numbers of those whose later leisure and health will have to be supported by fewer people of working age.
Present immigration admissions policy rests on a short-sighted view of Canada’s interests. It is also morally irresponsible. We seek out people whose skills constitute the human cap- ital in which poorer countries have invested their scarce resources. Increasingly, of late, we then fail to use those skills ourselves.
The trend of declining fertility, clearly established by the late 1960s, has made orphan babies, the saddest victims of conflict and disaster, our ideal immigrants. Bringing some to Canada is the immigration that would best serve our interests and those of the world. We would be the investors in their nurturing and education. The ample return would be the workers, brought up here as Canadians, without whom our economy will be increasing- ly burdened by disproportionate num- bers of old people.
Optimists see a solution in people working longer. Some will; but not people in routine jobs, not man- agerial cogs in large organizations, not couples working feverishly: they set high store on many years of leisure afterwards. Their volunteer activities may contribute greatly to the community, but I doubt that the market economy will grow much from later retirement. We need young immigrants as surely as we need bet- ter productivity.
Such change in immigration poli- cy will take time and care, but we can immediately start to build the capacity to welcome considerable and increas- ing numbers of young people. We should, at the same time, give more weight to youthfulness in the selection of immigrants of working age, and make compensation of source coun- tries for their education a major con- sideration in external aid. It seems possible that an ill wind will freshen thinking. We have lately been com- pelled to recognize that there can be no guarantee of freedom from tension in communities that are becoming more diverse. The risk will be less when the immigrants we greatly need are younger when they come.
While I give special attention to youth in immigration policy because it has been so little considered, there should be no need to emphasize that it can be given its due weight only in conjunction with comprehensive investment in Canadian-born youth, and especially the inclusion in that investment of full recognition, at last, of the responsibility of later-comers to the Aboriginal people of Canada.
However, investment in youth is, for the economy, investment in bene- fits to come. Earlier benefits are now conventionally identified with higher productivity. But, important though it is, productivity is imprecise as a policy goal. It may be achieved at too much damage to the environment. It may be achieved by fewer people working and more people idle. Insofar as value of production is a measure of well-being, it is GDP per capita of the community, not per hour of paid work, that mat- ters. So does what is produced.
However, none of this detracts from the need for smarter, more efficient production of most goods and services, and especially of those for which we may have international mar- kets. That objective calls, in some respects, for more public expenditure. Canada inevitably lags in research within industry; partly because so many of our large corporations are only subsidiaries, but also because smaller enterprises lack enough market base. Tax concessions are little use. The inadequacy of private sector research can be effec- tively offset only by signifi- cant government programs. Economic efficiency also calls for substantially more expendi- ture on infrastructures; some of those can be revenue-generating, but others are not.
Above all, however, one goal of smarter work is sharpening the com- petitive enterprise that should be the virtue of a market economy. Our out- dated competition law provides no effective defense of the public interest against the torrent of mergers and acquisitions that are contracting com- petition for the sake of the share val- ues of oligopoly. Our present tax and financial systems strongly favour large and established businesses over the smaller and more adventurous. Talk of productivity growth as the public pri- ority smacks of political guff unless it is backed by fiscal and financial reforms that will help Canadian enter- prises to grow.
We tax personal earnings too much. At moderate income levels, effort is discouraged. At higher levels " and if the tax is not evaded or avoided " enterprise is dulled. Corporate income is different. When it is all taxed as such, too much is used unproductively within large corpora- tions; too little becomes available for new investments. There should never have been any reason for the income trusts that have lately served as such bonanzas for peddlers of new issues as well as for some shareholders and speculators. There is no need to tax corporate income distributed to share- holders who pay Canadian personal tax. A withholding tax, at the top rate of personal tax, is appropriate for divi- dends paid to other companies and to non-Canadian individuals. The surviv- ing corporate income tax, again equal to the top personal rate, should fall only on revenues still retained within the corporation. The enterprise and efficiency of the economy would be enhanced by this changed tax regime.
There are other ways to strengthen the financing of enterprise. For example, private-public partnerships need not be a one-way street bringing private enterprise into public services. They could also bring in public capital to offset the inadequacy of private risk finance for the starting and growth of Canadian ventures. This does not mean subsidies: not grants or tax remissions, not loans low-cost or ever- lasting. It means equity investment " government subscription to shares that are ordinary in their entitlement to dividends, but special in that they are non-voting. Government can then contribute to creative investment without interfering in business man- agement.
While these and other incentives and financial improvements will help, long-term gains in productivity will still depend, above all, on our invest- ment in our scarce children. And that will raise real GDP per person only if we also succeed in steadily operating the economy at a level of activity that gives full scope to educated talents.
No one is avowedly against equal- ity of opportunity or opposed to fairness of rewards. How much we do for them depends not only on political will, but also on policy design. When the value of post-secondary education became increasingly recognized, the automatic response of governments was to give more money to universi- ties. The subsidization was and is unre- lated to need. Most rich kids go to university and benefit; many equally qualified poor kids do not.
Postsecondary education is not only critical to the economy. It is also a job qualification; a material benefit to the individual. There is no good reason to subsidize it. A fair and efficient poli- cy would offer, to all qualified students, the opportunity for advances to cover their costs of university or college. Each advance would accumulate interest at a rate somewhat above prime. Capital and interest would be recovered by a graduated surtax on subsequent income above a standard such as aver- age full-time earnings. Arrangements with foreign tax authorities would facilitate collection of the surtax from former students working outside Canada.
This policy, of financing by advances recovered through surtax, is equally applicable to the later learning and occupational training whose improvement is of first importance to productivity. The cost to the treasury of the whole program will come only from people whose earnings after education or training are lost to ill- health or accident or whatever. It is therefore rare among ”œsocial” pro- grams; it can properly be financed not from general revenue but as a revolv- ing fund created by borrowing.
Other measures to enhance equali- ty of opportunity " most notably the measures for children "will make heavy demands on current government finance. Nevertheless, we need, for the sake of work and enterprise, lower taxes on earnings. While the loss of revenue can be somewhat offset by eliminating the devious improvisations that now cut the effective tax on many incomes, it will still be significant.
Income measures, imperfectly, what is put into the economy. Consumption is what is taken out. If we were starting from scratch, with contemporary information tools, the main source of public revenue could well be a graduated tax on consumption, not on income. To switch now would upset too much, but a significant shift towards taxing big spending is desirable and practi- cable. By encouraging saving, it would strengthen the economy. It could considerably improve the fair- ness of rewards.
For this, corporate taxation is especially significant. The distribu- tion of income and wealth is increasingly polarized by the enormous boom in executive compensation. Reduction in corporation tax as such, desirable to smarten enterprise, could therefore be accompanied by a new compensation tax on profits, devoted to high levels of compensation and perquisites. Corporations would remain free to give their executives as much as they are thought to be worth, but the tax charge would give pause to questionable generosity with shareholders’ money.
However, the main way to a fairer distribution of income is the way that the Carter Royal Commission on Taxation proposed 40 years ago. It is to broaden the base for personal taxation to include financial receipts of all kinds. Capital gains, inheritances, gifts, dividends " all the things now taxed less or not at all " would be treated just like wages and salaries.
The broad base means that the same revenue will be raised, not only more fairly, but at a lower tax rate. Revenue is now impaired by the great increase in avoidance and eva- sion, partially reflected in the booming transfers to tax havens being made both by individuals and by corpora- tions. This disrepair of the tax system is cumulative, made easy by the con- temporary alchemists who know how to convert money that is heavily taxed into money that is taxed less or not at all. Ending the distinction, particularly if joined with a graduated consump- tion tax, would secure fair payment by Canadian residents. A further legal reform would require all Canadian cit- izens to pay Canadian taxes (subject to remission for foreign taxes) wherever their residence.
Though many of the tax propos- als made here would be much denounced by corporate executives and money traders, they would in fact greatly encourage enterprise and smarter work. Successful builders of businesses would continue to amass fortunes. Their children would con- tinue to enjoy the advantages of a wealthy home. Only the further advantages of inherited wealth would be trimmed by the taxation of inheritances and gifts. If that still drove some families to renounce Canadian citizenship when dad had made his pile, selling their property here and moving elsewhere, there would be no harm to a more produc- tive and fairer Canada.
Politics in the aftermath of the 2006 election will be much reshaped. Proposals impracticable today may become practicable in the medium term of five years or so. The objectives of developing our youth, smartening our work, making opportunities more equal and outcomes fairer, will be inescapable. So will building the inter- national collaboration on which, in the open world of the 21st century, both Canada’s prosperity and our nationhood depend.
The further challenge with which this paper began will therefore be all the more compelling. Setting objectives will be of little account unless we can refur- bish the instruments of our national gov- ernance that are now in woeful disarray.