Tax time is here
Spring is here, and with it, the annual obligation to file our income tax returns. If you find that filling out the return is complicated, there are some reasons. For one thing, the Canada Income Tax Act and associated regulations now runs to exactly 1,000 pages (you can buy a copy on Amazon for $160). Successive governments have created bunches of tax driven programs that interact in unexpected ways and are so complex that recent surveys show that the folks who answer the government’s own help line get about 30% of all questions wrong. Luckily, it’s hard to get one of the misinformed CRA workers on the phone. Wait times routinely run to over an hour, and only about 50% of callers get through before giving up. This is in spite of the fact that the CRA now employs 59,019 workers, up from a mere 41,256 ten years ago. That’s an increase of 43%; during the same time, the population of Canada has grown by 11%.
The growth in the CRA pales beside that of Employment and Social Development which has added no fewer than 18,737 employees in ten years. That’s an increase of 93.4%. Altogether, the federal civil service now numbers 357,247, up by 36% or more than 94,400 people. That’s bigger than all the people employed in any one of the Atlantic provinces. The cost to the government of an employee is roughly $80,000 on average, so the federal civil service payroll is about $28.6 billion.
What are all these people doing? Your guess is as good as mine, but clearly, if it is taking a whole lot more employees to serve a population that has grown just a little bit, whatever they are doing, they are doing more slowly or less productively. If you have been reading the papers, you know that this is a problem for the entire Canadian economy, which is in the midst of a productivity crisis. While other countries are using fewer people and fewer resources to get more done, we are using more people and more money to do progressively less. The size of the Canadian economy has gone from being about 10% of the US economy to a more recent 8%. The average Canadian, who used to be as wealthy as the average American, has now slipped badly behind.
Meanwhile, the Federal government will run a budget deficit of about $39 billion this year, and sees no prospect of a balanced budget in the future. With interest rates 5% higher than they were two years ago, the cost of financing the growing federal debt keeps ballooning, and the deficit keeps compounding.
Canadians mostly pay their taxes without complaining. We live in a wealthy, peaceful country and most of us are grateful, particularly as we look around the world and see what is happening elsewhere. As long as taxpayers feel they are getting value for their money, things remain calm. When that sense of trust is lost, the public temperament can turn on a dime. Brian Mulroney, who died this week, saw his party reduced from 156 seats to 2 in the 1993 Federal election. Twenty-five years later Kathleen Wynne saw her Liberal Party reduced from 57 seats to 7 in the Ontario general election.
At Baskin Wealth Management our job is to maximize returns for our clients. If you see more American stocks in your portfolio and fewer Canadian ones, it is only because money flows to where it can be most profitably employed. Right now, that is not in Canada.
Chairman
David Baskin
Media Appearances
Long Term Investing with Barry Schwartz & Ernest Wong
Stryker: Hips, Shoulders, Knees and Toes – February 5, 2024
Lessons from David Baskin – February 15, 2024
Sitting on Topicus of the World – February 27, 2024
Interesting Reads
What’s the ROI of Generative AI – Fastcompany
How Big Tech rescued the market in 2023 – Aswath Damodaran
Warren Buffett’s annual shareholder letter and eulogy to Charlie Munger – Berkshire Hathaway
