Recently, we have seen policies from both the Ontario and federal Liberals demonstrating their anti-business side. Both used to be pro-business, but in their attempts to appeal to soft NDP supporters, they have abandoned this and I believe we will pay for it.
Wynne wants to raise the minimum wage in Ontario from $11.40/hour to $15/hour in a mere 18 months, a 32% increase. Even the NDP-Green coalition in BC is not so foolish as to pull a move like this. While I can understand how difficult it is to live on minimum wage, especially in large cities, I believe all policies need to look at the big picture; all too often, well-intentioned policies cause more harm than good. In Ontario, only 12% of those making minimum wage live in low income households, so if the goal is to reduce poverty, raising the minimum wage is not the best method. The fact we have a provincial election next year (with the Liberals trailing in the polls) makes me think this is more about politics than good economic policy. I support a modest or phased in increase of the minimum wage, but it should be done over a long enough time so businesses can adapt without suffering adverse impacts.
Recalling my student years and how difficult it was to get my first job, I fear employers will be dissuaded from hiring first time workers, denying them the work experience they need to advance further in their working careers. If a firm is going to pay someone $15/hour, they must be productive enough to make it worth paying them that wage; anytime you hire someone without any experience, you’re taking a gamble. I know first hand how many positions say x many years of experience is required, and I fear this will make getting a first job more difficult for some people. Having the skill sets is not enough, as a degree doesn’t guarantee whether you will be punctual or not, or what type of customer service you can provide, or how much effort you will put in, whereas past work experience does highlight these skills.
Another concern is that a fast increase in the minimum wage will put many small businesses under, or force them to automate. Wal-Mart and McDonald’s can afford such an increase, but small businesses (which are the life-blood of our economy) cannot adapt as easily, and with high hydro rates, increased red tape, and CPP hikes coming, small businesses are already under enough strain. Even if there are no layoffs, firms will raise their prices to negate the impacts of a heightened minimum wage, while if similar raises aren’t given to people making $15 to $20/hour, it will make them worse off. On top of this, if inflation is too high, the Bank of Canada will raise interest rates, and with our high levels of debt, this could create a host of problems.
Federally, the Trudeau government is trying to crack down on the sprinkling of income through businesses. I am not opposed to this per se, but I believe the reason it’s so rampant is because our top marginal rates are extremely high, so people with money are trying to find ways to reduce their tax load. If our top marginal rate wasn’t so high, this sprinkling of income would be less of an issue. The top combined federal and provincial rates range from 47.7% to 54%, meaning those making over 200K are giving almost half of their income to the government. This has many problems, including possible brain drain to places with lower top marginal rates, making it tougher to attract top talent from abroad, and sending a message to future entrepreneurs the government is hostile to success. I am all for the rich paying their fair share, and absolutely believe loopholes that allow them to pay less than the middle class should be closed, and those cheating on taxes should be prosecuted to the fullest extent of the law, but I believe our top marginal rate should be close to the OECD and G7 average, not near the top http://stats.oecd.org/index.aspx?DataSetCode=TABLE_I7 and not over 50%. I think 45% is a bit excessive, but is an acceptable compromise, while 40% is about what it should be. Many of these measures are intended to reduce income inequality, but I don’t believe income inequality is as big a problem in Canada as many make it out to be.
I don’t think lack of progressivity in taxation is the primary cause, rather automation and globalization are. Automation is not something we can stop, and it benefits the middle class as it makes products more affordable; globalization has widened the gap within countries in the developed world, but closed the gap on a global scale, as billions in the developing world have been lifted out of poverty. A better solution is to re-focus our spending on helping those left behind. A few suggestions include: focusing more money on mental health, as deputy Conservative leader Lisa Raitt advocated; providing more skills training to help reduce youth unemployment, as Conservative leadership candidate Erin O’Toole advocated; resource revenue sharing on Reserves to help improve standards of living for First Nations; and finally, a guaranteed annual income, as even arch capitalist Milton Friedman favoured. These recommendations would help those who are truly struggling without punishing business or the successful. I share Trudeau and Wynne’s goals of helping those who are struggling, but the current methods being applied to fix them will create more problems than they solve.