Martin on Taxes

Martin on Taxes

For Finance Minister Paul Martin, the question is not whether taxes should be cut, but by how much and how quickly. In a wide-ranging interview with Maclean's, he acknowledged that high taxes may indeed be hurting the country, but noted that other priorities, among them health care and education, have curtailed his ability to cut too deeply. Excerpts:

Maclean's: How do you respond to the increasing hue and cry for income tax cuts?

Martin: There is no doubt that we would like to reduce personal income taxes as much as we possibly can. The constraint is our resources - we've brought taxes down as much as we possibly can and we'll continue to do that. But we're going to do it in chewable chunks, because when you reduce taxes you're dealing with structural change to the government's revenue stream and you've got to be very confident that you're going to have that revenue stream.

Maclean's: What do your soundings tell you - do people accept that argument?

Martin: There was no doubt that Canadians wanted to see money go into the health-care system and they would not have wanted tax cuts at the expense of that. So it really comes down to what you ask them. If you say to them: do you want tax cuts versus money going to education or health care, they'll tell you they want money going to education or health care. If you tell them: do you want to see your taxes down, if that's the question, then their answer is unequivocally yes, I want to see my taxes down. And if you ask me, do you want to see their taxes down, the answer is absolutely yes. There is an implication, however, in your question that perhaps we could have reduced taxes a bit more than we did. I don't know if that's fair.

Maclean's: There are a lot of people who feel that way.

Martin: I think we should look at the facts. A number of people speaking the most loudly on this were the same people who were telling us that we had to eliminate the deficit - and they seemed to have forgotten what they said three years ago. Obviously, cutting taxes to the extent that would either jeopardize our staying in the black or cutting taxes to the extent that would lead to a loss of credibility and an increase in interest rates just simply would make no sense. Let's compare what we have done with Ontario and Alberta. Essentially, Ontario cut taxes before they had eliminated their deficit. That was not an option for the federal government. We set the tone for interest rates in the provinces, we set the tone for interest rates for every private sector company and we set the tone for interest rates for individuals. And our interest rates are where they are because the federal government eliminated the deficit. If we had deferred that in order to cut income taxes, then I don't believe our interest rates would be as low as they are.

But now take a look at Alberta. Alberta eliminated its deficit the year we began to cut: 1994-1995. They waited three years after they had eliminated their deficit before they started cutting taxes. We cut taxes the year we eliminated the deficit. We didn't wait. Essentially, we have cut taxes as much as we possibly could. The issue isn't, do we want to cut taxes, the issue is how much room do we have to manoeuvre.

Maclean's: How concerned are you that taxation levels are driving many professionals out of this country?

Martin: The Bank of Montreal just did a study in which basically they challenged that - there are strong views on both sides of that particular debate. But I suspect that tax levels obviously have a certain amount to do with it, so does opportunity, so does the fact that they pay higher salaries down there. The main thing is, let's get taxes down because I think it's part of the puzzle.

Maclean's: Is there a kind of magic number, in your view? What are people looking for in a reduction?

Martin: More than anything, people have seen over the past 10 to 15 years declining amounts of money in their pocket, and what they're looking for is the knowledge that over the next number of years they're going to see increasing amounts of money in their pocket. What does that have to be? I don't know. I think the most important thing is that it be increasing. I also understand the realities, the famous example that a lot of people use: 'This wasn't worth much more than a cup of coffee.' Well, two cups of coffee a day times 15 million taxpayers over the course of a year is, what, $11.5 billion? I don't have $11.5 billion in surplus.

We are clearly going through what some historian 50 or 100 years from now is going to regard as one of the great transition periods. The success that we had with the deficit - there were some very difficult choices made, not just by government but by the Canadian people. This consensus was built across the country, and occurred because, essentially, Canadians really did debate the issues. There is no doubt that what we have to have is a debate over taxation. But then we've got to take the debate further, not on the basis of some shrill statements arising out of Bay Street, but basically on a rational basis as to what is the way in which you build a productive economy. And then we've got to go beyond that. As a country, we've really got to decide fundamentally what is it we're going to do to give us the rising standard of living. And what that means is that we've really got to go beyond just tomorrow's satisfaction.

Maclean's April 12, 1999