our new arctic policy talk loudly and err thats it

Cash-strapped finance ministers around the world are raising their sales taxes, giving us another reminder of why the Yukon is a fantastic place to live (as if we needed a reason after a very fine Yukon summer!).

Cash-strapped finance ministers around the world are raising their sales taxes, giving us another reminder of why the Yukon is a fantastic place to live (as if we needed a reason after a very fine Yukon summer!).

BC Premier Gordon Campbell and his Liberal government is taking a beating over harmonizing the province’s sales tax with the federal GST at a combined rate of 12 per cent. Nova Scotia’s new NDP government just raised its rate to 15 per cent to fight a big deficit.

In London, the new Conservative-led coalition has upped their version of the GST to 20 per cent. The crisis-stricken Greek government, also facing a severe income tax evasion problem, raised its rate to 23 per cent.

Meanwhile, the Yukon and Alaska don’t even have a sales tax. Alaska doesn’t even have an income tax.

There are some good economic reasons for looking at sales taxes, or consumption taxes as economists like to call them.

First of all, having a sales tax allows lower personal and corporate income tax rates. This lowers the disincentive to work and invest, which is good for overall prosperity.

Essentially the government is choosing to tax consumption rather than work. They often top up these consumption taxes on things like gasoline and liquor with additional “sin taxes.”

Secondly, consumption taxes are harder to evade than income taxes.

In 2006, for example, Canadians paid about $105 billion in personal income tax. Of this, $22 billion came from just 168,000 or 0.7 per cent of tax filers who made more than $250,000 that year. These are the people that pay for a big chunk of our public services.

They also have the money and incentive to avoid income taxes, both legally and otherwise.

Naturally we don’t know the exact extent of the problem, but recent prosecutions of offshore tax evaders make it clear the numbers are large.

A consumption tax makes sure that even if the affluent have somehow sheltered their income, they still have to pay GST on their BMWs and cottage renovations.

At the other end of the income spectrum, there were eight million tax filers in 2006 who paid no income tax at all since their reported incomes were below the minimum threshold.

A consumption tax makes these citizens contribute to funding their government too. Some view this as regressive taxation of the poor. Others point out that eight million is a lot of people not paying income tax, and that a certain percentage of them have criminal or foreign income the taxman may not know about.

In either case, finance officials know that, as income taxes apply to a smaller and smaller number of Canadians, the books won’t balance without broader levies like sales taxes.

Finally, the best thing about consumption taxes is that foreigners pay them.

It’s a way to make tourists and visiting business people pay for roads and schools. Most governments allow foreign visitors to get reimbursed for sales tax paid on big-ticket items, but very few tourists bother to fill out the forms.

Voters hate taxes, so politicians love it when visitors chip in to pay for things they can take credit for during election campaigns.

An Australian study estimated that eight per cent of Australian GST revenue was generated by tourists, either international or out-of-state. That may seem like a small percentage, but works out to billions of dollars for Australian governments to spend.

Prince Edward Island takes the idea even farther than most jurisdictions. Its 10 per cent levy is clearly designed to skim mostly from tourists. The list of exemptions is long, and mostly available only to locals. Tourists don’t buy much in the way of cars, heating fuel, electricity and school supplies. Even Island pastimes such as harness racing are carved out.

PEI obviously views its finance minister not as head accountant, but more like a small town sheriff with a speed gun looking for out-of-state licence plates to pull over.

If the Yukon did the same thing, we’d have a sales tax that only applied in the summer.

Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels.