What would you do as Canadian Prime Minister for a day... other than take the jet around to visit friends on the coast? I was asked this question, and I thought about it..
I would like to move our economy closer to the realm of sustainability. Specifically I would break up our system of federal income tax - a system that collects wads of money (especially from the middle class) and allows the federal gov't to pool it all together and give it back to us in the form of gov't services. This way, there are no apparent connections to the taxpayer between the money he pays and the services he receives in return. This system is inefficient. It fails to use economic incentives to charge those who incur a larger share of costs on society more, and vice versa.
For example health care. Why does our society "charge" equally two identical income earners, one of whom is health conscious and another who disregards his health (smokers, heavy drinkers, fast food junkies) and relies on our universal health care system disproportionally?
Another example are external costs of production such as pollution. They are called externalities because they are not factored into a companies financial calculations. Take a paper mill that releases runoff into a river. The river absorbs that company's disposal costs, but it is society in the form of a fisherman, a swimmer, a landowner downriver that has to pay in the form of a loss of enjoyment from the river.
Anyway, to put things into perspective, the giant dent that "income tax" puts into our paychecks needs to be slashed, and instead replaced with "smart taxes", ones that are actually connected to the costs of doing business. So, if you smoke, you pay a premium to cover the extra costs of smoking related diseases that overburden our hospitals. This kind of system provides real incentive for people to stop smoking.
To implement this kind of policy a price needs to be put on reckless and health endangering behaviour, and external costs of production must be internalized again, and passed on to consumers. Although this last one sounds like an unpopular move, consumers need to be exposed to the real costs of goods. Those who can afford the high price, will be paying the costs of pollution. Those who can't will find cheaper alternatives or find companies who provide alternatives by themselves cutting down on pollution.
The plan finances itself, using new taxes to make up for the cuts in income tax.
This rationale is behind the carbon permit trading schemes some countries and states have proposed, which cleverly sets a price on pollution by the number of permits released. Our Prime Minister has ruled out such a system in Canada.
Why doesn't the government create such a system of smart taxes now? Perhaps no one wants to bring up new taxes. Or, such an unpredictable level of tax flow would cause havoc with administration.
I hope this system would set an income tax level that is below the one we have now due to tax savings possible through lifestyle and business choices. Quite possibly the amount of smart taxes paid would redistribute itself in a pattern like that of income tax now. Simply, wealthy citizens who consume more and can afford to live in more luxury will be willing to pay for it, where as those who choose to consume less, will pay less because of the direct financial benefit of doing so.
For the past three years I've lived in a country where I pay 5% fed income tax, and about the same level of taxes on the purchase of goods and services, yet society is not falling apart. As PM, I would explain to Canadians that they deserve to pay lower general income taxes, and be given a chance to benefit if their lifestyle choices ease some burden of society.
