Here's a consumer angle - dump triple-digit sales taxes on food

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Appeared in the Calgary Herald and Winnipeg Free Press

In the recent Speech from the Throne, the federal government announced a variety of initiatives but the one that drew much attention was its ostensible consumer-friendly tack.

On some consumer issues, the Conservative government has the right instincts, promoting competition within the cellphone sector for example, even if its approach to the upcoming wireless spectrum auction is flawed.

In other places, the Harper government’s predisposition is counter-productive.

For instance, ponder the federal government’s desire to micromanage how airlines double-book seats.

This government desire to direct is daft. Consumers who don’t like the risk of an overbooked flight can choose airlines who don’t engage in the practice; others might well be fine with the chance they will be bumped. Those consumers will happily take the flight vouchers offered and usually worth several hundred dollars, this in exchange for the inconvenience. This is not a matter Ottawa needs to regulate.

More critically, the Speech from the Throne will do little to put downward pressure on the costs of the basic necessities of life—dairy and poultry products, for example. Those are yet “protected” by both a government-created cartel system and by extremely high tariffs (i.e. taxes). When applied to basic foodstuffs, it means above-market prices result. That hurts poorer Canadians the most.

Before detailing the federal government’s blind spot here, let’s put some matters in perspective, starting with consumer reactions to visible taxes: Consumers hate them.

Examples abound. In 1991, taxpayers became ornery over the introduction of the Goods and Services Tax. This was so even though as a tax, the then seven per cent GST was far superior to the 13.5 per cent hidden manufacturers’ export tax that it replaced. (The older tax acted as a tax on Canadian exports, rather counterproductive if one was trying to sell Canadian-made items to foreign buyers.)

More recently in British Columbia, 881,198 voters, or almost 55 per cent of those who cast a ballot, turfed the Harmonized Sales Tax in a 2011 provincial referendum. They did so despite the fact that the HST was superior in design and function to the two taxes it replaced.

That is not because such voters are anything less than bright; it is because Canadians generally suspect tax changes might leave them with a lighter wallet. (In Alberta, opposition to a consumption tax is driven by just such a suspicion.)

Tax policy scuffles aside, compare the past pitchfork battles over the GST and HST to some whopping import tariffs (i.e., taxes) designed to keep competition low and food prices high. Such tariffs rarely garner much public ire because, unlike the GST or HST, tariffs are not visible on your bill at the till.

Consider some hidden tariffs on imported dairy products: Yogurt, 238 per cent; milk, 241 per cent; cheese, 246 per cent; skim milk powder, 270 per cent; ice cream, 277 per cent, and butter, 299 per cent.

Sure, as part of the planned Canada-European Union free trade agreement, the government signalled its intent to let in more tariff-free cheese from Europe. But this is hardly a dramatic reform; poorer consumers are not likely to buy imported specialty cheese from Paris, though this could change if the doors to imports were thrown wide-open and dairy prices dropped.

The more necessary but ignored reform in the dairy sector is to allow open competition across the Canada-U.S. border, and in fact between provinces. Right now, even internal entry into the dairy market is restricted and quotas on supply are imposed through the Canadian Dairy Commission, a Crown corporation which chairs the Canadian Milk Supply Management Committee. The latter body has the power to set restrictive quotas on dairy production.

Such power to ban new entrants and to restrict supply exists only due to federal legislation passed in 1966 to allow for such cartel-like powers. To wit, it is not as if there is some constitutional right to a cartel in cheese and milk.

To help consumers, especially those with the lowest incomes, the federal government doesn’t need to micro-manage airline tickets. Nor does it need to concern itself with whether a cell-phone company charges two bucks for a paper bill. It could instead focus on the big picture: ancient legislation and policies that block new entrants into a market and which thus restrict the supply of products and services to consumers, the effect of which is usually above-market higher prices.

But that’s been Canada’s approach on dairy products—to restrict consumer choice through supply “management.” The Conservative government may well intend to help consumers; so it can start by killing the triple-digit taxes on imported dairy products, be they from the European Union, the United States, or anywhere else.

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