MARY JANIGAN November 14 1988



MARY JANIGAN November 14 1988




It is an issue that has bedevilled the Conservative government since a warm June day in 1987 when Finance Minister Michael Wilson introduced his proposal for a national sales tax. The finance minister said that Ottawa was introducing the measure to replace another “seriously flawed tax.” In the months that followed, and now on the campaign trail, Liberal Leader John Turner and New Democratic Party Leader Edward Broadbent have repeatedly called on the government to reveal how much the new tax would cost Canadians. But Prime Minister Brian Mulroney has never cited a specific figure. Instead, he says only that the proposed tax would not affect the federal budget deficit. By sticking to that response, Mulroney has not shed much light on the complex world of taxation but he has effectively limited debate on a major tax proposal that would drastically affect the pocketbooks of many Canadians. Indeed, the furious battle over free trade has obscured the fact

that all three parties have delicately skirted around a litany of major issues throughout the campaign.

On many of them, such as the Conservative decision to spend $8 billion on nuclear-powered submarines, all three parties have avoided the debate. On some other issues, such as the size

of the deficit, opposition leaders have been even more reticent than their Conservative opponent. As a result, the public has heard little about those and other significant issues, such as immigration policy and the Meech Lake constitutional accord.

The reasons for the parties’ conspicuous silence are as complicated as the issues themselves. In most instances, the three camps do have specific policies but they are reluctant to mention them because the topics are political minefields: a call by the New Democrats or Liberals for increased immigration, which they both support, would probably provoke emotional predictions of foreigners competing for Canadian jobs. Many issues are also impossible to explain in brief television and radio clips. Discussing the national sales tax, for one, would entail an examination of the entire tax structure. Said Liberal national campaign director John Webster: “It is hard to have a serious discussion about an important issue in a 30-second TV sound bite.”

But the most important reason behind the apparent neglect of many issues is that the controversy over the Canada-U.S. free trade accord has absorbed nearly everyone’s attention. Lome Bozinoff, the vice-president of Gallup Canada Inc., said that after the televised debates on Oct. 24 and 25, voters became caught up in the emotional issues raised by the trade deal. “Free trade has gone from a battle of the mind to a battle of the heart,” he said. “There are other issues, but people are focusing on free trade.” Added Conservative communications director Yuri Kovar: “Free trade has become the focus. When we re-establish the comfort zone on that issue, then we can get back to broader issues.” Those issues include:


Under the Conservative proposal presented in June, 1987, a national sales tax would replace the manufacturers’ sales tax, a levy of up to 12 per cent that applies to many manufactured goods. The manufacturers’ sales tax raised $12.9 billion last year. But it is riddled with loopholes: it applies to automobiles and major appliances, for example, but it excludes clothing. It also increases the cost of domestic goods more than imported goods. By contrast, a national sales tax would apply to all goods and services, ranging from haircuts to legal work, with the exception of groceries and prescription drugs. It would also apply to every stage of the production process, from raw material to finished product. A complicated system of rebates would ensure that individual components in a product were not subject to double taxation.

Details of the new tax have not yet been announced. Finance Minister Wilson has suggested that it should replace both the manufacturers’ sales tax and the provincial retail sales tax. In that case, Ottawa would collect the new tax—and remit the required portion to the provinces. But if the provinces do not consent, Ottawa would proceed with its own sales tax, at a probable rate of nine per cent, perhaps in late 1989. If Ottawa does act on its own, its new tax


would apply to all goods and services. The provincial sales taxes would continue to apply to the specified goods that they cover.

It is also not known how much that tax would collect for the federal government. Predictions have varied over what the new tax would raise. Public administration professor Allan Maslove from Ottawa’s Car letón University has speculated that Ottawa will set a rate calculated to generate at least $4 billion more in federal revenue than the manufacturers’ sales tax does. Ontario’s Liberal Treasurer Robert Nixon, assuming a nine-per-cent rate of taxation, predicted that Ottawa would collect $14 billion more than it does now. Wilson has simply insisted that the tax will be revenue-neutral.

Whatever the amount, Wilson has said that the government would use any extra income to lower other taxes and to help low-income taxpayers.

Indeed, the white paper on taxation said that additional revenue would be used for three specific purposes: to remove the three-per-cent surtax that has been in effect on all income taxes since 1985; to lower personal income tax rates; and to increase the current refundable sales tax credit of $70 per adult and $35 for each child under 18 among lower-income families. But Edward Carmichael, vice-president of the Toronto-based C. D. Howe Institute, says that the new sales tax credit would have to be “very generous” to win the support of lower-income Canadians. As a result, he added, the credit would constitute the first step toward a guaranteed annual income because it would make a substantial addition to the pocketbooks of lowincome families. “But none of this is being debated or discussed,” said Carmichael, a strong supporter of the proposed tax.

Other aspects of the new proposals would also go to the heart of the Canadian tax system. Currently, the full amount of the sales tax credit goes only to families with incomes of $16,000 or less. Ottawa cuts $5 from the credit for each $100 of additional family income. If that does not change, many lowermiddle-class families would not receive the credit when the new sales tax goes into place. Critics of the proposed tax call it “regressive” because it would apply equally to all purchasers, regardless of their income, and would

cause greater hardship to lower-income families. A “progressive” levy, such as income tax, increases with earnings. Said Maslove of the proposed sales tax: “You are going to have people who earn about $20,000 or more who are above the tax credit threshold but who still have relatively low incomes. You are shifting $4 billion to $5 billion away from income taxes

and into sales taxes and, on balance, that would be a regressive step.”

The Conservatives have simply not addressed those issues in the campaign. Both the Liberals and the New Democrats have vowed to scrap the proposed tax. They add that they will change the existing manufacturers’ sales tax—but they do not say how.


The contentious issue of immigration has rarely surfaced in the campaign—even though academic studies say that the nation may face a labor shortage in the 1990s. From 1945 to 1980, an average of about 140,000 immigrants arrived in Canada each year. That number dropped dramatically in the first half of the 1980s: the average immigration level from 1981 to 1986 was approximately 102,000.

Then, in a startling increase, more than 152,000 immigrants arrived in 1987, followed by more than 118,000 in the first nine months of 1988.

According to most experts, Canada still needs more manpower. University of Toronto economist David Foot says that the first indications of a labor shortage are already visible in booming southern Ontario—in the Help Wanted signs for clerks and restaurant help plastered on shop doors. As well, the growth of the labor force has slowed to 1.6 per cent in the 1980s from three per cent annually in the 1960s and 1970s because population growth in general has declined. “People are going to become scarce,” said Foot. “If we decide that we want to continue to grow as we have done, then we are going to need significantly more people: levels above 150,000 per year.”

But the issue—and how best to deal with it—has received little attention from the politicians or the media. The Conservatives have not produced an election policy on immigration levels. The Liberals would put increased emphasis on family reunification. Their policy would aim for annual immigration levels of one per cent of the Canadian population—roughly 250,000 immigrants—but Turner has rarely mentioned it during the campaign. The New Democrats have produced a lengthy policy paper on immigration that states the party “is ready to address the pressing need to increase our immigration levels substantially in the future.” Said Foot: “People 2 still view immigrants as steal| ing jobs from Canadians, so it may not be politically wise to address the issue.”


The Conservatives are proud of their record on the deficit: they have cut it to $29.3 billion in 19871988 from $38.3 billion in 1984-1985. More significantly, during that same period, the deficit has declined to 4.2 per cent of the gross domestic product from 7.5 per cent.

Still, there are potential problems on the horizon. The national debt—the accumulated total of those annual deficits—reached $292 billion last March. Many economists say that if Canada goes into a recession, the interest on that debt could cripple the economy—and the deficit would skyrocket. Thomas Courchene, director of the school of policy studies at Kingston, Ont.’s Queen’s University, adds that Canada’s household savings rate has dropped to nine per cent of disposable income from 14 per cent over the past three years. As a result, Canada is now financing a portion of its deficit with foreign borrowing. Said Courchene: “We

could very easily move into a Third World type of debt problem.”

The Conservative program calls for steady deficit reduction. When the NDP announces a new policy, it also announces revenue measures, usually tax increases, that would at least partly pay for it. The Liberals rarely mention the deficit—although they say that they will provide a cost estimate for their lavish 40-point program before the end of the campaign. Said Webster: “In terms of moving votes, it is not a grabber.”


The Meech Lake constitutional accord, finalized in June, 1987, would make fundamental changes to the Canadian Constitution: it recognizes Quebec as a “distinct society”; it changes the amending formula to require effective unanimity; it allows provinces to “opt out” of new national shared-cost programs in areas of exclusive provincial jurisdiction and to receive federal compensation if they establish a program “compatible with the national objectives”; and it provides for a provincial voice in appointments to the Supreme Court and the Senate. So far, eight provinces and the federal government have endorsed the accord. For it to become law, the remaining provinces, New Brunswick and Manitoba, must endorse the accord before June, 1990.

But the accord is not an issue in the campaign. All three parties endorse it—although the Liberals and the NDP have proposed measures to amend it after it has passed. Deborah Coyne, an organizer with the Canadian Coalition on the Constitution, says that the accord changes the face of the nation. “We are going to end up with a balkanized nation, with a federal government that has lost all effectiveness,” she argued. “But there cannot be a debate as long as all three leaders support it.”


As the controversial centrepiece of a major defence agenda, the Conservatives have proposed purchasing 10 to 12 nuclear-powered submarines at a cost they estimate at $8 billion. But some defence experts say that the estimate is too low. Two weeks ago, Richard Barnard, editor of the U.S. weekly Defense News, predicted that, if additional costs such as maintenance are included, the price could range from $19 billion to $24 billion. As well, members of peace groups and other critics have questioned the need for the submarines. Said Ish Theilheimer, president of the Ottawabased Operation Dismantle: “They will not prevent a nuclear war and they will not protect us if one should break out.”

But that multibillion-dollar program has not surfaced in the campaign. The Conservatives simply avoid the issue—and have yet to decide on whether to choose Britishor French-built submarines. The Liberals, who estimate that the Conservative program would actually cost $16 billion, say that they would spend about $8 billion for a new fleet of diesel-powered submarines. The NDP also favors diesel-powered subs. Party spokesmen said last week that Broad-

bent would soon announce a price tag for those submarines—and for his overall defence policy.

Martin Shadwick, editor of the Canadian defence weekly The Wednesday Report, said that Canada’s ratio of surface vessels to submarines is an unfavorable 7:1—the highest in NATO. As a result, with all three parties favoring the purchase of submarines, Canada faces a major change in defence policy and major defence expenditures, whichever party wins. Shadwick pointed out that the submarines would replace aging surface frigates used in antisubmarine warfare operations in the North

Atlantic and the North Pacific. “We are changing from surface ship technology to submarines, but that has been missed in the campaign,” he said. “The three parties seem to have a nonaggression pact.”

That appears to apply to many issues in the current campaign. But it is abundantly clear that they have made no such pact on free trade, which, at the expense of virtually everything else, continues to dominate debate in the drive to the wire on Nov. 21.