Taxation

RECKONING: LOST OPPORTUNITIES: A CONSERVATIVE APPROACH? NOT REALLY

New budget is a taxing burden on Canada's 'American Dream'

DOUG SAUNDERS

LONDON -- What sort of country might conservatives want to live in? Let me take a guess - the sort of place where hard work, inventiveness and business acumen are rewarded, where laziness and dependency on handouts aren't, where mere identity or status don't give you rewards and where everyone has the opportunity, but not the right, to get rich if they try hard.

So what sort of place are Canada's Conservatives creating? A place like the one above, where you are what you accomplish? Or a place like many other countries, where your future is defined by the group you're born into? Given the shape of this week's budget, I fear that we're headed in the wrong direction.

To understand Canada's unique and vulnerable position, this week also gave us a handy new study by Julia Isaacs, Isabel Sawhill and Ron Haskins of the Washington-based Brookings Institution. They look at economic mobility - that is, the chances of escaping your economic circumstances.

According to a number of comprehensive studies analyzed by the authors, the United States, Britain and France have low rates of intergenerational mobility - that is, if you're born in the bottom rung of the ladder in those countries, you're more likely to stay there. Canada, Norway, Finland and Denmark (two countries with conservative governments, two with social democratic governments) have the highest rates.

In Canada, family ties are less than half as important: Only one-fifth of your "income advantage" comes from your family; it takes on average only three generations to lose the effects of your family's wealth or poverty.

In other words, the American Dream, the lifetime journey from log house to penthouse, is far more real in Canada and its Nordic neighbours.

This despite the fact that Americans, even poor ones, earn more than Canadians, or that the very low unemployment rates in the U.S. over the past decade have led to what one Canadian study describes as "a significant improvement in the wages of low-paid workers, a decline in poverty, and a rise in median wages" - improvements that so far have not been documented to the same degree in Canada.

Over all, it should be good news for any Canadian government that this is a place where you're not governed by your birth, poverty isn't usually intergenerational and wealth isn't locked into a closed elite. But this is not at all a guaranteed thing, and to appreciate the Brookings findings, it's worth finding out where this advantage comes from - and how we could lose it.

The 1980s - the Brian Mulroney era - saw huge changes in the way government acts on the population, according to a detailed analysis by Andrew Heisz of Statistics Canada. He concludes that "taxes and transfers both changed in that decade, increasing the share of income redistributed by the state from high- to lower-income families."

Despite its (progressive) conservative name, that government actually changed Canada into something of a Robin Hood state, reducing the tax burden on the poor and transferring some money from the well-off into their pockets.

While Canada and the Scandinavian countries moved in that direction, the U.S., Britain and France were changing their systems in a different way: They were taking taxes from the middle classes and spending them on people already in the middle classes - expensive government that doesn't change anything.

Government redistribution of income has a bad name among conservatives. They tend to fear that it creates dependency on the state, hampers the economy and kills entrepreneurship. But properly designed programs can do something else entirely: They can give motivated people a chance to get out of the traps of poverty. If you can put your kids in child care and get some extra education, you might have a shot at the middle class.

Look what happened after Canada became more redistributive: The economy grew by 50 per cent over the next decade, unemployment rates reached record lows and work-force participation rates hit record highs. The percentage of children living in poverty dropped from 18 per cent to just under 12 per cent. Starting in the 1990s, the risk of job loss fell and job tenure rose. The possibility of moving out of low-income employment remained stable for men and it improved substantially for young women.

But just as we have begun to enjoy the benefits of a system that harnesses the energies of all Canadians, our governments have begun to chop the bottom rungs off the ladder again.

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