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Will Canada Save the G8? Sylvia Ostry asks whether there is still a role for summits. LRC VOL. 10, NO. 5 JUNE 2002 $3.95 Literary Review of Canada Leon Surette Eros and Oblivion Post-coital tristesse in Robert Kroetsch’s new poetry Andrew J. Paterson The Celluloid Canon Weird sex, frigid landscapes and Canadian film Mark Lovewell Crouching Tiger, Hidden Dragon Canada’s prospects for tax reform Anthony Westell’s journey • Eric Koch’s Earrings • At sea with Kevin Armstrong • 100 Canadian films • Carl Mollins sees history repeating itself • P.A. Dutil on food control • Thomas Kennedy’s craft of fiction • rob mclennan on three poets • Bosnian poetry ADDRESS LRC Literary Review of Canada 581 Markham Street, Suite 3A Toronto, Ontario m6g 2l7 e-mail: [email protected] T: 416 531-1483 F: 416 531-1612 Literary Review of Canada Vol. , No. - June 3 3 Letters 18 Not Far Behind (Big Black Dog) 20 The Celluloid Canon A review of Weird Sex and Snowshoes and Other Canadian Film Phenomena, by Katherine Monk by Andrew J. Paterson Can Canada Save the G8? An essay by Sylvia Ostry 10 When Baden-Baden Was Good Lewis DeSoto The Politics of Food A review of Robert A. Campbell’s Demon Rum or Easy Money: Government Control of Liquor in British Columbia from Prohibition to Privatization, W.H. Heick’s A Propensity to Protect: Butter, Margarine and the Rise of Urban Culture in Canada and Margaret Visser’s The Rituals of Dinner: The Origins, Evolution, Eccentricities and Meaning of Table Manners, originally printed in 1992 by John Stiles 8 EDITOR by Jonathan Burkinshaw A poem 4 Sea Changes A review of Night Watch, by Kevin Armstrong 23 A review of Earrings, by Eric Koch The Ballroom A poem 12 The Inside Story An excerpt from The Inside Story: A Life in Journalism by Anthony Westell 14 Eros and Oblivion A review of The Hornbooks of Rita K, by Robert Kroetsch 27 29 ASSISTANT EDITOR A review of Realism and Other Illusions: Essays on the Craft of Fiction, by Thomas E. Kennedy EDITORIAL INTERNS 16 Innocence’s Way A review of La Voie de l’Innocence, by Marie Desjardins by Marguerite Paulin 17 Crouching Tiger, Hidden Dragon James Brookes Jonathan Burkinshaw Lindsey Love Beth MacKinnon COPY EDITOR Madeline Koch RESEARCH Jamila-Khanom Allidina ADMINISTRATION Received and Noted The Tender, the Lyric and the Passionate DESIGN by rob mclennan 30 Sonali Thakkar by Mark Lovewell A review of Natalee Caple’s A More Tender Ocean, Helen Tsiriotakis’s A House of White Rooms and Jacqueline Turner’s Into the Fold by Leon Surette CONTRIBUTING EDITOR Anthony Westell A review of Most Favored Nation: Building a Framework for Smart Economic Policy, by Jack M. Mintz, and The Politics of Taxation in Canada, by Geoffrey Hale by Admiral Mahić Joan Allen Lauren B. Davis Pamela Divinsky Kathryn Kuitenbrouwer Lorna MacPhee Stephen L. McCammon John Roberts Geoffrey E. Taylor Nipun Vats Patrick Woodcock Ars Longa by Todd Swift 24 ASSOCIATE EDITORS by P.A. Dutil by Louise Rehak 11 [email protected] Postscript How the Mighty Fall Relevant words from Edward Gibbon by Carl Mollins Katy Lee Law Khoa Nguyen James Harbeck ADVERTISING/SALES Michael Wile Telephone: - Cell: - [email protected] PUBLISHERS Mark Lovewell [email protected] Helen Walsh [email protected] Published by LRC Inc. Denis Deneau, President founded in 1991 by p.a. dutil The Literary Review of Canada is published 10 times a year by the Literary Review of Canada Inc. It does not appear in January and August. Cover art and pictures throughout the issue by Gunilla Josephson. Gunilla Josephson is a Swedish-born multimedia artist currently residing and working in Toronto. She is represented by V tape at www.vtape.org. ANNUAL SUBSCRIPTION RATES: Canada and the U.S. .; Europe and CIS (including postage) . U.S.; Middle East, Africa, India, Latin America (including postage) . U.S.; Australasia, Asia (including postage) . U.S. Libraries .. Copyright ©2002, The Literary Review of Canada. All rights, including translation into other languages, are reserved by the publisher in Canada, the United States, Great Britain and all other countries participating in the Universal Copyright Convention, the International Copyright Convention and the Pan-American Copyright Convention. Nothing in this publication may be reproduced without the written permission of the publisher. FUNDING ACKNOWLEDGEMENTS ISSN 1188-7494 Canadian Publications Mail Product Sales Agreement No. 1479083. Postmaster: Please send address changes to the above address. The Literary Review of Canada is indexed in the Canadian Literary Periodicals Index and the Canadian Index and is distributed by Gordon & Gotch and the Canadian Magazine Publishers Association. Literary Review of Canada Crouching Tiger, Hidden Dragon Canada’s prospects for tax reform. Mark Lovewell Most Favored Nation: Building a Framework for Smart Economic Policy Jack M. Mintz C.D. Howe Institute pages, paperback The Politics of Taxation in Canada Geoffrey Hale Broadview Press pages, paperback t is , and the Canadian economy has been transformed into a “northern tiger,” with low taxes and levels of public debt, a percent unemployment rate and one of the highest per capita incomes in the world. Economic conditions are so favourable that the deluge of skilled immigrants into the country includes a considerable inflow from south of the border. This is the vision parlayed by economist Jack Mintz in his monograph Most Favored Nation: Building a Framework for Smart Economic Policy, first runner-up for this year’s Donner Prize. There is nothing new or original about Mintz’s version of economic reform, with its predictable mix of tax cuts, smaller government and market-based reforms. What is unique is Mintz’s concise, wideranging critique of current Canadian tax and government spending patterns, and a bold set of explicit proposals as an alternative to the status quo. His challenge is a timely one, in a decade during which taxes and government spending choices are likely to dominate the country’s political agenda, just as trade issues did during the s, and first monetary policy and then budget deficits did during the s. The recent soften- I Mark Lovewell teaches economics at Ryerson University. ing of fiscal retrenchment in most Canadian jurisdictions (with the exception of British Columbia) provides a notable opportunity for significant reform in our current fiscal regime. How Canadians handle this opportunity will have long-run consequences on our living standards, as well as on the viability of our current political system. Mintz begins by comparing the public sectors in Canada and the United States since the late s, when both countries had sectors of comparable size as proportions of their respective gross domestic products. Between the late s and the late s, the American public sector grew only marginally, from to percent of U.S. GDP. In contrast, Canada’s public sector grew from to percent of GDP. What accounts for this much faster pace of growth? Most predictably, expenditures on the military, policing and foreign relations underwent a drop in the U.S. (from percent to percent of GDP) due to the end of the Vietnam War. Meanwhile, in Canada the relative size of these expenditures changed only marginally. Public spending on education (primary, secondary and post-secondary) did not substantially change in either country when measured in relative terms, although public spending on health care rose relative to GDP in both countries, but much more quickly in the U.S. than in Canada. So, despite what Canadians might think, healthcare spending is not the main reason for the significant increase in the size of our public sector when compared to the U.S. Nor is aggregate spending on the environment, community development, housing and infrastructure, the relative size of which has not changed significantly in either country. There are two primary fac- tors behind the Canadian expansion. First is spending on social services, which includes publicly funded pensions, welfare and labour market programs such as employment insurance. Second is interest on government debt. Together, these two spending components in Canada rose by percentage points of GDP (split in half between both types of spending), and by only percentage points of GDP in the U.S. This trend speaks volumes about the track record of Canadian governments between the late s and late s. While Canada’s political leaders (and the voters who elected them) showed a remarkable generosity by raising public spending on social services to such a large extent, they saw fit to offload a major portion of these new expenditures on future generations through a massive buildup of debt. Governments in most parts of Canada have since managed to start living with balanced budgets, but the impact of past deficits on the size of Canada’s public sector—and the need to finance interest payments through taxation—is far from over. How does the size of Canada’s public sector translate into tax rates? Here Mintz is on firm territory, given his expertise as a public finance economist. Not surprisingly, with the relative change in the size of the public sector in Canada and the U.S. since the late s, Canadian governments now tax at much higher rates than those in the U.S. For income taxes, the difference in effective tax rates between the two countries is greatest for individuals with incomes of , or more. For businesses, the effective rate has risen in Canada since the late s, although corporate taxes are now more evenly distributed across different sectors of the economy than they were years ago. Mintz estimates effective tax rates on labour and capital in both Canada and the U.S., once both taxes (including payroll taxes) and subsidies (that is, on health care and education in the case of labour and on research and department and infrastructure in the case of capital) are accounted for. Based on his calculations, current tax rates on labour are . percent in Canada and . percent in the U.S. For capital, the effective rates are . percent and . percent. Can Canada exhibit healthy economic growth given this tax gap with our largest trading partner? In line with other neoliberal commentators, Mintz argues that this tax gap has already been a drag on Canadian growth rates. With an increasingly integrated North American economy and heightened mobility of both capital and skilled labour, he predicts that the gap will have an even greater dampening effect, which means that we can expect further long-term declines in relative living standards if we choose to maintain the fiscal status quo. Critics might argue that Mintz’s emphasis on tax rates downplays the positive role of government spending in enhancing employment, productivity and living standards. But his estimated effective tax rates incorporate much of this impact by including the effect of subsidies on health care and education. Moreover, Canadian public Literary Review of Canada spending has risen least vis-à-vis the U.S. in those areas (education, infrastructure and health care) with the greatest positive spillovers. If anything, the spending components that have risen most rapidly (public debt charges, social welfare and employment insurance) have had exactly the opposite spillovers on long-term economic growth. What measures could help brighten this bleak picture? Mintz recommends a full-scale pullback in Canada’s public sector, so that it again represents percent of GDP, as it last did during the s. He points out that several other countries with effective social services impact on regional disparities that has been minimal at best) be ended. Finally, he argues that redistribution schemes should focus on “in kind” social services, such as subsidized housing and education, rather than traditional cash handouts, to minimize abuse by underground economy participants able to hide income sources. For what is likely a majority of Canadians, these proposals will seem nothing more than political revanchism wrapped in a comforting cloak of statistical estimates and empirical findings. But a sizeable minority will find they agree with at least portions of Mintz’s critique, How Canadians handle this opportunity for fiscal retrenchment will have long-run consequences on our living standards, as well as the viability of our current political system. (Iceland, Switzerland, Ireland) manage to have public sectors much smaller proportionally than our own. Moreover, it is necessary to keep in mind the extra burdens that will be imposed on our publicly funded pensions and health care over the next few decades due to the aging of Canada’s population. Citing recent empirical work, Mintz maintains that this Canadian aging trend could add up to an extra percentage points of public spending relative to GDP by . (Comparable estimates for the U.S. economy are much lower, given a differing pattern of immigration and level of social services.) Mintz recommends a move toward consumption-based taxation, by reducing rates on capital, in both the personal income and the corporate income tax systems. High marginal tax rates for upper income households should be reduced, he suggests, in favour of a tax system in which progressivity comes from high personal exemptions and tax credits that benefit low-income earners. On the spending side, he argues that both health care and education (including primary and secondary) should be partially financed through private means. Although he recommends that employment insurance remain in public hands, he sees it being scaled back to a conventional unemployment insurance scheme (in other words, with contribution rates based on an individual’s risk of unemployment), thereby heavily reducing its availability to longterm repeat recipients, especially those in Atlantic Canada and parts of Quebec. In addition, he proposes that business subsidies and regional development programs (with an June 2002 and would be willing to consider proposals such as his as a roadmap for political reform. Leaving aside this partisan debate, let us pose more fundamental questions. First, would Mintz’s proposals be sufficient to propel Canada along an economic path ahead of its main trading partners, including the U.S., as Mintz seems to suggest? After all, a metamorphosis into a northern tiger would require much more than simply a change in government activity; it would also have to be based on a greater openness to innovation by Canadian business and entrepreneurial risk taking by Canadians in general. Second, even if Mintz’s reforms were sufficient to spur an economic transformation, would they allow Canada to maintain a political system that is sufficiently distinct from the U.S. to maintain Canadian independence? Mintz’s intent is to provide an intellectually coherent set of fiscal measures; he leaves it up to others to work out a politically realistic route to get there. But this means he does not provide a compelling answer to either of these questions. After all, it is one thing to construct a theoretically consistent program for economic reform, but it is quite another to detail its short-term costs, or to outline the practical challenges associated with its implementation. Before one can confidently talk of the possibility of Canada being transformed into a northern tiger, it is necessary to examine the most prominent impediment to his proposals: their lack of political acceptability in the current Canadian political climate (a hidden dragon, if there ever was one, for unwary economic reformers). This is a question whose answer can be found of Geoffrey Hale’s The Politics of Taxation in Canada, also short-listed for this year’s Donner Prize. Hale is not concerned with outlining a specific set of tax proposals. Instead, he provides a sobering reflection on the difficulties in executing “ideas-driven” tax reforms of the sort advocated by Mintz. His conclusions are based on a detailed examination of past attempts at tax reform, going all the way back to the Carter Commission Report on Taxation. As this historical record makes clear, gradual, incremental tax changes are more likely to achieve political success than sudden, large-scale changes. As outlined by Hale, the implementation of the goods and services tax by the Mulroney government in provides a perfect illustration of these principles. The GST reform was one based on strong theoretical underpinnings, since it replaced a highly distortionary tax (the federal sales tax, or FST) that levied . percent on the sales value of manufactured goods. This previous tax had been hidden to consumers, since it was built into final retail prices, and therefore most consumers were unaware of its existence. Because of its narrow base (with only one third of all products covered) and high rate, tax avoidance was a major problem. Moreover, the FST had a dampening effect on Canadian exports, and its regressive effects on low-income households was unadjusted by tax credits. The GST represented a marked improvement from a theoretical level, given its multi-stage coverage, broad base and accompanying tax credit. But because the tax was introduced suddenly, was visible to consumers and imposed significant costs on certain groups in the economy, it was deeply unpopular with the electorate, and its introduction was one of the most immediate reasons for the crushing defeat of the Mulroney government in the election. Of course, the Liberals campaigned with the promise of amending the GST, but never did so: its underlying logic was too formidable to be ignored (and its revenue windfall too large to be revoked). But the lesson of this reform should not be lost on Canadian legislators. Major tax changes are implemented at a government’s considerable political peril. But this does not mean that reform is impossible. Hale’s careful historical analysis provides a host of lessons for governments that decide that tax reform is essential. Most importantly, as he reminds us, voters are much more concerned with how tax and spending changes will affect their individual financial position than they are with grand over-arching political projects. This fact has many ramifications. First, a government must convince voters that tax changes are a “positive sum game,” with minimal costs for those harmed. Second, tax reforms are more palatable if they can be packaged as enhancing economic growth and increasing employment. Third, governments adjusting tax rates face a strong temptation to cloak any rate increases through the use of “stealth” taxes unseen by the average taxpayer. (Paul Martin’s reluctance to reduce the virtually invisible employment insurance contributions by workers and firms was a classic example of this principle in action.) As important as these lessons are, they are a matter of political tactics. Hale has another vital point to make about tax reform. Over time, it is economic fundamentals, not public opinion, that will drive tax changes. (Here, the Liberals’ reluctant acceptance of the GST after coming into office is a classic illustration.) He points to the same global factors identified by Mintz— the growing mobility of capital and labour in an outwardly oriented Canadian economy that is highly integrated with its southern neigh- bour. In coming decades, he argues, it is these inescapable factors that will drive the tax agenda. Hale’s analysis provides a daunting set of constraints for any future Canadian economic reformer. In particular, his conclusions show how unlikely it is that a full-scale fiscal reform of the sort Mintz recommends could ever be adopted as a complete package by a Canadian government. The popular avalanche of protest that would greet such reform would bury any finance minister foolhardy enough to make the attempt. Still, economic fundamentals will increasingly force Canadian governments to move piecemeal in this direction. It is unfortunate, but not a surprise, that Canadian tax rates and government spending levels will likely continue to be shaped by a perceived need to respond to outside circumstances, rather than reflecting a cohesive plan based on forward-thinking strategy. And such changes are unlikely to occur at fast enough to spur the sort of northern tiger metamorphosis envisioned by Mintz. In the near term, therefore, the dragon of public opinion will vanquish any crouching northern tiger, but over time, Canadians will likely be forced to clothe ourselves half-heartedly in tiger stripes whether we like them or not.m The Literary Review of Canada congratulates Lauren B. Davis, our European Editor, on the publication of her novel The Stubborn Season (HarperFlamingoCanada). Literary Review of Canada