Gov't should stay off bus

By Lee Harding

Western Canadian bus riders have received an early Halloween scare: as of Oct. 31, Greyhound won't offer passenger routes west of Ontario.

For the company, it means 415 fewer employees and two million fewer passenger rides each year. For bus riders in remote areas, a vital link has been cut.

Some advocates want the government to pick up the slack but taxpayers should hope this never happens. When governments run the buses, more tax dollars make trips than people.

Greyhound Canada has had operating losses in the West since 2004 and ridership has fallen 41 per cent since 2010. (The only exception is a Vancouver-Seattle route that's run by its American counterpart and will continue.)

The primary reason for this precipitous fall is actually positive: consumers have more and better choices. These include more cars, more low-cost airlines and more inter-regional passenger services.

Although very few take the bus, they do squawk loudly. This has offered left-leaning provincial governments the chance to step in and buy votes with the voters' own money. Greyhound recognized in 2010 that Albertans didn't want bus service subsidized. Yet that didn't stop Premier Rachel Notley from recently starting pilot projects to provide public transit to connect small communities before Greyhound even left. It's not hard to imagine her following her NDP counterparts in British Columbia. When Greyhound stopped running buses to northern B.C. in May, the province started its own bus service as a one-year "interim solution."

Taxpayers beware. Government programs can stray far past their bounds of time, money and justification. Then tax dollars fill the seats where people no longer sit.

Such was the fate of Saskatchewan Transportation Co., the Crown-owned bus entity launched by Premier Tommy Douglas. STC ran its first buses on April Fool's Day in 1946 and lost money in only one of its first 25 years of service. But its last profitable year was 1980. It took 37 years of losses before the provincial government finally pulled the plug. By then, its ridership had dropped 75 per cent, expenses were triple the revenues and every passenger was subsidized by an average of $94.

An outcry ensued over the demise of STC, but it proved to be more about union jobs than maintaining bus services. One limo company owner was excited to start busing, but he withdrew his application following opposition from the Amalgamated Transit Union and even threats to some of his drivers. By now the dust has settled and eight companies fill the freight and passenger market once held by STC, with more set to come on board. The companies and workers will pay taxes to the province, which already expects to save $85 million by not having to subsidize STC.

The Manitoba government has taken heed. Although its NDP predecessors subsidized Greyhound, the current Progressive Conservative government is staying clear. On July 9, Infrastructure Minister Ron Schuler said, "We do not believe in giving subsidies and we're not going to get into the business of business. ... We would like to see individuals come forward and put a good business plan together."

Entrepreneurs have already shown such intervention is unnecessary. As Greyhound pulls out on Oct. 31, Kasper Transportation Service will step in with trips from Thunder Bay and several cities in Manitoba and Saskatchewan.

On Halloween or any other day, bus riders don't need government tricks to get their treats.

Lee Harding is research fellow for the Frontier Centre for Public Policy.

– Troy Media


End supply management

By Jon Berry, Alan Oxley and Dan LeRoy

As trade tensions between Canada and the United States over NAFTA renegotiations continue, and President Donald Trump places Canada's protection of various sectors of its agricultural industry front and centre, Canadian policy-makers would be well advised to learn lessons from their Commonwealth cousins in Australia about phasing-out supply management.

Canada's policy of supply management means that Canadians pay much higher prices for staple foods such as milk, cheese, eggs and poultry. These higher prices are enforced in two ways.

First, the amount of domestic production is limited by government regulation.

Second, imports face stiff penalties (tariffs), making them markedly more expensive than domestically-produced substitutes. The tariffs range from 168 per cent for eggs to almost 300 per cent for butter.

The higher prices on agricultural staples disproportionately hurt lower-income families across Canada, who spend a much higher share of their household income on food than families with higher incomes.

However, the increasing trade tension caused by Canada's supply management presents an opportunity for Canada to phase out a policy it should have eliminated years - if not decades - ago. And Australia provides a working example.

In 2000, Australia dismantled agricultural subsidies that had protected the dairy industry since the 1920s. For most of the 20th century, successive governments stabilized the supply and price of milk, butter and cheese through protectionist policies and subsidies. Just as in Canada, that meant higher prices for consumers and less efficient farms.

A series of policy reforms in Australia starting in the 1980s addressed some of these issues and in 2000 the industry was deregulated. State marketing authorities, which had been responsible for setting prices and managing supply, were abolished along with the premium paid for drinking milk.

The Australian federal government also introduced a package of measures worth more than A$2 billion by a temporary levy on the reduced price of milk, to assist farmers with the transition.

The opening of the dairy market was not abrupt but rather introduced systematically over an eight-year period to allow time for farmers to transition.

The results of these reforms have been unambiguously positive. Consumers have benefited from lower prices for milk with prices falling by 12 cents per litre in the first six months following deregulation.

While there has been consolidation in the industry, surviving farmers have benefited from a 56 per cent increase in wholesale prices for their milk. National milk supply has been maintained, and larger farms are driving much greater productivity. Exports of milk have increased as Australian dairy farmers have become more efficient and now represent the third most important agricultural export after beef and wheat, with earnings of roughly A$3 billion annually.

The key to this success was the transition period for the industry. Farmers were given only a nine-month advance notice of the reforms - but had a transition period of almost nine years.
Farmers had three choices: exit, expand or transition. In all three cases, they were given financial and policy support to adjust to the new environment.

The Australian reforms reduced consumer prices, and that disproportionately benefits lower-income households. The reforms also make the industry much more efficient and internationally competitive.

And the transition period and the funding provided to many farmers, particularly those who chose to transition out of the industry, meant the reforms were implemented with minimum disruption.

There is a way for Canada to both resolve a major trade irritant and reform an outdated and anachronistic policy that protects a small group of farmers at the expense of higher prices for staples. Australia's experience shows there's a better way forward for Canadians, including Canadian farmers.

Jon Berry and Alan Oxley are trade analysts in Australia with ITS Global. Dan LeRoy is a senior fellow of the Fraser Institute and an agricultural economist at the University of Lethbridge.

– Troy Media

Love BC? Buy BC

This B.C. Day long weekend, let's take time to enjoy food, friends and family. Let's also celebrate the farmers, producers, and local businesses who provide quality food and drink grown right here in B.C.

B.C. farmers grow fresh, local food delivered to us at farmers’ markets, grocery stores, and restaurants. We need to do more to make sure B.C. farmers survive and thrive. 

Our government is taking strong steps to support farmers and producers, jobs, and communities all over the province. Through our three-pronged approach – BuyBC, GrowBC, and FeedBC – we are making B.C.’s agricultural sector even stronger. 

With more and more people in B.C. interested in buying and eating locally, our government is encouraging people to BuyBC first. Through the BuyBC brand, we’ve made it easier for consumers to recognize locally grown or produced goods and businesses. BuyBC provides marketing support and a recognizable logo for B.C. farmers, producers, and local businesses. It’s a win-win for people producing and buying made-in-B.C. goods.

The local food, wine, and craft beer industry is thriving all over B.C. To celebrate B.C.’s booming wine industry, we declared April as B.C. wine month. To connect people to local, seasonal, and sustainable food in restaurants and bars, we launched the EAT DRINK LOCAL campaign, which connects local producers with restaurateurs and chefs to showcase B.C.’s quality products in the culinary scene. 

Buying local means $46 out of $100 we spend goes back into the province’s economy. When you BuyBC, you support local workers and help boost our shared prosperity. 

As we encourage more people to BuyBC, we must also make sure people have an opportunity to grow a career in agriculture. To get more young people farming, we’re making sure they have the land to farm on through the GrowBC program. This program also helps fruit and nut growers expand local food production. More people in B.C. – and the rest of the world – will have access to high-quality B.C. produce. 

To put fresh, local food on more people’s plates around the province, our government established the FeedBC program. Through FeedBC, we’re making sure foods grown and processed in B.C. are used in hospitals, schools, and government facilities. We’re also supporting lower-income families, seniors and pregnant women to buy fresh, local food at B.C. farmers' markets. This means more people, regardless of income, will be consuming healthy, local food from their local farmer and producer.

This long weekend, I encourage you to visit your local farmers market. Buy local ingredients, including local beer and wine. When we support our local food and drink industry, we’re supporting our local workers, jobs, communities, and our long-term shared prosperity. This B.C. Day, BuyBC to help build a better B.C.

– John Horgan, Premier of British Columbia

How to fuel entrepreneurs

By Ergete Ferede and Charles Lammam

Entrepreneurship remains a vital source of innovation, which helps grow economies and provide employment opportunities for British Columbians. Unfortunately, several recent studies have found fewer businesses are being started in B.C. (and Canada as a whole), pointing a long-term decline in rates of entrepreneurship.
This down­ward trend in entrepreneurship could have negative and widespread effects on B.C.'s economic well-being.

Given the current state of entrepreneurship, there's a growing debate over how government policies affect entrepreneurship and what policies could help reverse the decline. A common focus of these debates is tax policy.

Do higher personal taxes hurt entrepreneurs? If so, how much do changing tax rates affect entrepreneurship? Since B.C. recently increased its top personal income tax rate from 14.7 per cent to 16.8 per cent, these are timely questions with real consequences for British Columbians.

A higher income tax rate can affect entrepreneurship in two ways.
On one hand, it can discourage entrepreneurship because entrepreneurial activity is inherently risky, and entrepreneurs pay signifi­cant taxes on all incomes (labour income, capital gains or dividends) when they're successful.

However, the tax savings for entrepreneurs are quite limited when they incur losses. Higher taxes decrease the reward for entrepreneurs but do little to mitigate the risk, leaving them with plenty of risk and far less opportunity for reward.

On the other hand, with a higher income tax rate, entrepreneurs have more opportunities to reduce their tax burden through legal tax-planning techniques, and the potential tax-saving benefits increase with higher income tax rates. This suggests that higher income tax rates can actually encourage entrepreneur­ship, even if it's not productive entrepreneurship.

So how do rising personal income tax rates impact entrepreneurship in practise?

A recent Fraser Institute study sought to answer this question. The study analyzed Canadian provincial data from 1984 to 2015, focusing on how the top personal income tax rate affects entrepreneurship while accounting for other factors that also influence entrepreneurship such as demographics, business taxes and the state of the economy. To measure entrepreneurship, the study uses the business entry rate, defined as the number of new businesses as a percentage of total businesses.

The findings are telling and clearly relevant for British Columbians. Increasing the top personal income tax rate is associated with lower rates of entrepreneurship. In B.C., for every one percentage point increase in the top personal income tax rate (holding all else constant), 315 fewer new businesses would enter the economy over the long term (in this context, approximately a four-year span).

However, the B.C. government in 2018 increased its top personal income tax rate by 2.1 percentage points. Based on the study's findings, we estimate that 662 new businesses will not start up in the province due to the higher tax rate.

Over the past 30 years, an average of 25,305 new businesses started in B.C. each year. Because the federal government also increased its top income tax rate by four percentage points in 2016, British Columbians can expect the decline in entrepreneurship to be steeper. So relative to the average number of businesses created each year, increasing the top income tax rate by 2.1 percentage points will reduce the number of new businesses by 2.6 per cent.

The Canadian economy has experienced a decline in entrepreneurship for years. If B.C. wants to halt this decline and encourage entrepreneurship, reducing the top income tax rate would be a good place to start.

At the very least, if B.C. policy-makers don't want to exacerbate the decline in entrepreneurship, they should refrain from further increases in the province's top income tax rate.

Ergete Ferede is associate professor of economics at MacEwan University and Charles Lammam is director of fiscal studies at the Fraser Institute. 

– Troy Media

Inequality - why worry?

By Chris Sarlo

Much ado about nothing. The title of the Shakespearean comedy comes to mind when I think about the attention devoted to wealth inequality in recent years.

The left's (and much of the major media's) preoccupation with economic inequality is fundamentally misplaced and has diverted attention away from the real problems we face.

For example, take a look at the latest study from the Organization for Economic Co-operation and Development comparing household wealth inequalities among member countries.

A Globe and Mail article entitled "Unequal partners: A breakdown of how many hold how much of Canada's wealth" reviews the OECD paper uncritically and simply parrots the study's main points. This is regrettable. The Globe missed an opportunity to enlighten its readership about an important issue.

Wealth is defined as "net worth" and is essentially a household's assets minus its liabilities. Let's look at the evidence of household wealth inequality from the OECD study. It shows that among member countries, the top 10 per cent of households own about 50 per cent of the wealth and the bottom 40 per cent own almost nothing (the average is below five per cent).

The United States has the most unequal distribution of wealth among member countries, followed closely by the 'egalitarian' countries of northern Europe: Denmark, Norway and the Netherlands. It's notable that Sweden, an OECD country, is missing from the survey. However, other surveys show that Sweden also has a high level of wealth inequality similar to other Nordic countries. Indeed, in each of those three countries, the bottom 40 per cent actually has negative wealth - they owe more than their assets.

How can the bottom 40 per cent of households in any country, let alone the Scandinavian paradises, have no wealth at all? Well, it's easy to explain this pattern of wealth inequality: Age.

Almost everyone in every society goes through a pretty predictable life cycle as they move from their student years through to their work life and then on to retirement. Age is the dominant explanation for differentials in wealth. The 25-year-old starting his first job with no wealth (likely negative wealth if they have some student debt) will have substantial wealth 40 years later after a lifetime of accumulation (savings accounts, home equity, financial assets and debt repayment). Most people start their working lives in the bottom quintile or decile of wealth and end up in a top grouping around retirement age.

My own study of wealth inequality in Canada uses Statistics Canada data on household wealth and confirms this age pattern. Based on survey data from 2012, the net worth of the youngest grouping was only about $55,000; for the people around retirement age, average net worth was almost $1 million. My analysis of this pattern showed that between 80 and 87 per cent of Canadian wealth inequality is due to age (the life-cycle effect). This is entirely predictable for society as a whole, despite the fact that a small number of people have difficulties in life and do not follow the usual pattern.

With the recent OECD study, the larger negative values among the bottom 40 per cent in some northern European countries is due to higher home prices in recent years and because younger families are consequently carrying a heavier debt burden. The authors mention age as a factor but the explanation is buried in a small paragraph in the middle of the 69-page report. They state that "Levels of net wealth are strongly linked to people's life cycle, as wealth is built up over the course of working life and then reduced in retirement."

The explanation is lost in the plethora of attention given to the statistics on wealth inequality. 

Wealth inequality? Much ado about nothing.

Chris Sarlo is a professor of economics at Nipissing University in Ontario.

– Troy Media

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