Friday, March 25, 2011

Will a fat tax reduce obesity?

My article in today's Province newspaper explains the likely outcome of giving government permission to tax products nanny statists deem undesirable. 

Read the entire article here

Governments love sin taxes and not because they want to punish sinners. Taxes on 'sins' like smoking, boozing and gambling rake in billions of dollars every year. In March, the B.C. government called for input on what to do about childhood obesity. Well, the BC Medical Association, worried about the growth in other peoples' waistlines, wants government to create a new sin – drinking soda pop – and tax it.

The prospect of getting permission for a new tax to fight fat has, no doubt, politicians and bureaucrats licking their lips in anticipation. However, if we let government invent a new sin and tax it, will we lose weight, or will our wallets just be lighter because government now has more of our money to waste?

Read the rest of the article here.

Monday, March 21, 2011

Minimum wage hike - good politics, bad economics

Christy Clark promised, during the Liberal Party leadership campaign, to increase the minimum wage, and now she has. The Liberals have long said a minimum wage hike would hurt first-time job entrants, so some people are asking, "why they are raising the minimum wage now?" A better question might be, "why did they wait so long?"

Raising the minimum wage is a no-lose political move. That's because conventional wisdom says a higher minimum wage will 'do something' to help the poor. Let's face it - governments can't free themselves from the pressure of public opinion, no matter how misguided. As Milton Friedman explained in A Conversation, in a representative democracy, if 80 per cent of voters believe in witchcraft, then politicians have to believe in witchcraft. The idea that minimum wages help the poor is today's witchcraft.

There are a couple of other reasons why increasing the minimum wage is good politics. The people hurt by the minimum wage hike, first-time job entrants, like young people and new immigrants, tend not to vote. Better still, hiking the the minimum wage takes the issue away from the NDP. 

When government fixes prices above the level they would naturally flow to, it increases supply and reduces demand. When government fixes a high minimum wage, more people with low labour skills try to enter the labour market but the demand for low-skilled workers falls. Increasing the minimum wage is like kicking rungs off the bottom of the wage ladder. It will make it even harder for young people and other first-time job entrants to find jobs and start moving up the income scale. 

Poor people in B.C. are poor because they are not working, not because they earn the minimum wage. The way to reduce poverty is to improve conditions for job creation,  not well-intentioned policies that might be good at election time but don't work to reduce poverty.

Monday, March 14, 2011

Will we see real change in BC?

Christy Clark will be sworn-in today as BC's new premier. She has a family first platform and says she'll focus on job creation, growing the 'innovative economy' and nurturing the resource sector and rural economy.

Ms. Clark had former Encana CEO Gwyn Morgan as part of her economic advisory group.

Mr. Morgan is a regular columnist with the Globe and Mail. He wrote an excellent article last January called "Three key fixes for stronger growth and future success."

He talked about what a great country we live in and what we need to do to make sure it stays that way. He had three reforms on his wish list. If Christy Clark listened to Mr. Morgan, we can expect to see real change. If not, it will be business as usual.

What was on Mr. Morgan's with list?

1. Overhaul the health care system. We've talked lots of times here before about how health care costs are spiraling out of control and without reform, the system will become unaffordable.

Canada's government run-and-rationed health care monopoly is strained and produces poor results.  The 2010 Euro-Canada Health Consumer Index report shows that although we have the fourth-highest per capita spending, Canada's system ranked 25th when compared to 33 European countries. So we're not getting good value for money and there is a lot of waste in the system.

Health is B.C.'s biggest spending program. In 2001, healthcare spending totaled $10.6 billion, or 34.8 per cent of all government spending. It now totals $16.5 billion and will climb to $17.9 billion by 2012, or 42 per cent of government spending. Without reform, the health budget will eventually take up all the government budget.  

The underlying issue is demographics. About 14 per cent of B.C.'s population is 65 or older now, and by 2032, 25 per cent of our population will be over 65.  People over 65 account for about 44 per cent of health care spending so without reform of the health care system, health costs will likely accelerate and more of the provincial budget will be diverted to health care. 

We need to get beyond the myth that a monopolized government system works best. What we need is an injection of choice into the heath system  to achieve better outcomes and lower costs.  By empowering patients with private and not-for-profit options, hospitals and care givers that provide the most valued service will be rewarded.

2. Re-invent the Universities. I recently worked on a series for Global TV on government waste. One area I looked at was how salaries have skyrocketed at colleges and universities.  Between 1990 and 2010, salaries at institutions of higher education went up by 343 per cent. To put that into perspective, the average salary went up by about 42 per cent during that same time period.

Put that together with what Gwyn Morgan talked about in his article, how Canadian universities are churning out large numbers of unemployable graduates, and you see why we need change at the university level. The Organization for Economic Co-operation and Development's study called "Education at a Glance 2010" looked at whether university graduates from 11 countries were working in the area they studied in. It found that about 38 per cent of Canadian graduates between 25-29 weren't and that was the second worst of the 11 countries. Here as well, we are not getting value for money. Besides, should taxpayers be forced to fund sociology degrees for waiters when we have a shortage of doctors and engineers?

3. Get provincial finances under control. The BC government has a spending problem. Spending hovered at about $30 billion per year between 2001 and 2004 then started to ramp up in 2005 as that dreaded second-term spending disease infected politicians looking to buy their way to re-election. Spending soared to $39.3 billion in 2009 and is expected to hit  $42.3 billion in 2012.

Meanwhile, the B.C. provincial debt sits at about $48 billion now and is expected to rise to about $57 billion by 2012, almost double what it was in 2006.

We're back in a deficit so will we see cuts to spending?

In fact, Finance Minister Jim Flaherty warned Canada is heading for a European-style debt crisis unless the provinces set a firm course toward balanced budgets. Mr. Morgan says that fairy-tale provincial forecasting is fuelling a dangerous complacently. Provinces aren't taking the actions needed to ensure they avoid the disastrous financial wall facing several European states.

In an article in the Vancouver Sun today, Jock Finlayson, the EVP of the BC Business Council says the economic outlook for 2011 isn't as rosy as it used to be. Higher energy and food prices, if sustained, will lower economic growth in some of our biggest export markets - the US and China.

If we go back to the PST, we'll have to pay back what the feds gave us and put the PST bureaucracy back in place.

So it will be very interesting to see what happens later on today. Will we see real change or will it be business as usual.