Day: January 9, 2023

Time to stop the escalator tax

If you’re like me, this past holiday season was one of relief with a sense of normality. Unlike years prior, Ontario wasn’t in lockdown, or on the verge of one, which meant that finally we could celebrate with our family and friends as we did prior to the pandemic. For many, part of those celebrations include enjoying their alcoholic beverage of choice (responsibly of course), and taking advantage of some much needed time off.

All that said, for those who were holiday shopping, whether that be for gifts, or food, higher prices were prominent across the board. Grocery bills were approximately 11 per cent more expensive in 2022 than they were in 2021, while overall food inflation came in at 10.1 per cent. These are staggering figures, and especially regressive for those with modest or fixed incomes.

These inflationary pressures are the primary reason why the Bank of Canada has been aggressively raising rates, which has drastically increased the cost of borrowing for businesses, and hit hard for anyone trying to qualify for a mortgage, or on a variable rate mortgage.

Unfortunately, the inflationary pain doesn’t end there. Because of the federal government’s escalator tax on alcohol, the price of your favourite drink will increase on April 1 by 6.2 per cent, because the government indexes alcohol taxes to inflation. Add this tax hike to the fact that taxes alone account for around 50 per cent of the price of beer, 65 per cent of the price of wine, and 75 per cent of the price of spirits. This is cruel punishment for the crime of wanting to enjoy an alcoholic beverage and socialize, or relax.

The escalator tax removes that discussion from the democratic process and eliminates consumers from the discussion all together. And by indexing taxation to inflation it uncomfortably punishes consumers for inflationary pressures not caused by consumers themselves.

Now, there are opposing views on the root cause of inflation. On the Conservative side, they’ve argued that inflation is an outcome of poor monetary policy, primarily the Bank of Canada injecting the economy for far too long than the pandemic required. On the other side of the aisle, there is the argument that overall inflation is high because of lingering supply chain issues, and exacerbated by the disruption of Putin’s disgusting invasion of Ukraine. Whatever your view is, it seems incredibly unfair for the government to punish alcohol consumers because the BOC kept their finger on the money printer for too long, or because the pandemic gummed up the global economy with Putin making it worse. 

And ironically, having taxation automatically increase prices puts continued upward pressure on overall inflation, and the longer these inflationary times persist, the more aggressive the BOC is going to have to be to avoid a run away scenario. This is a vicious cycle where inflation indexed taxation fuels the problem of inflation, driving rates higher, making mortgages more expensive, and leaving everyone poorer in the long run, except the federal government.

And when we compare how alcohol is taxed in the United States versus Canada, it feels like we’re rubbing salt in the wounds of Canadian consumers. For the average American, buying a case of beer has $4.12 in taxes associated with it. For the average Canadian, the tax paid on that same case of beer is over five times higher, at $20.31. The federal tax rate on beer in Canada is 2.8 times higher than in the United States, while the average provincial tax rate is over six times higher than the average U.S. state tax rate. Of course, there have to be taxes on alcohol, but do taxes really need to be this high?

The government needs to stop its hammering away at the disposable incomes of Canadians, and give alcohol consumers some much needed tax relief. It’s time to say no to the escalator tax.

Originally published here

Compared to Europe, the American farm system is more efficient and sustainable

One of the more notable misconceptions of many Americans is that people in the United States are worse off than their European counterparts. If we were to only look at income, Americans are wealthier than Europeans on multiple data points: the U.S. outperforms GDP per capita for most of the European Union. The American middle class also outperforms the European one, all while challenging what even counts as the middle class in the first place. 

Adding to that, primary needs goods are cheaper for most consumers. As I’ve previously written, Americans spend 5 percent of their disposable income on groceries, compared to 8.7 percent in Ireland (the lowest in the EU), 10.8 percent in Germany, 12 percent in Sweden, 17 percent in Hungary and 25 percent in Romania. However, some critics claim the American food system prioritizes efficiency over sustainability, which in turn hurts the environment. Here is where the analysis gets very interesting.

Toward the end of the 1980s, the divergence between Europe and the United States in terms of agricultural output became noticeable. While Europe has retained a steady agricultural production level since about 1985, the United States doubled its productivity between 1960 and the year 2000 and is on route to breaking the 150 percent productivity gain in the near future. Meanwhile, American agricultural inputs are slowly retracting to the levels of the 1960s, meaning the U.S is producing a much larger amount of food with fewer resources. For instance, in maize production, this means that the United States produces 70 bushels per hectare, while European countries make less than 50. 

An interesting mix of regulatory action and inaction has led to this divergence. A large contributor started in the 1970s, when Germany introduced the “Vorsorgeprinzip,” now commonly known as the precautionary principle. This policy is a preventative public safety regulation that inverts the burden of proof for the regulatory approval process: For example, a new crop protection chemical can only be approved if it is shown to have no adverse effects on human health or biodiversity. The precautionary principle does not only rely on mere toxicity but extrapolates to a comprehensive and difficult-to-establish level of proof that a product could never represent any harm. This elongated approval processes for new chemicals significantly as the EU enshrined it into its treaties — with the ironic effect that older pesticides remained on the market while newer products could not get approval. 

In fact, a demonstration of the ill effects of the precautionary principle, and incidentally another reason why American farming is more effective, have become visible in the field of biotechnology. Genetically modified foods, commonly known as GMOs, as well as newer gene-editing technology, remains illegal in the European Union. Despite the fact that jurisdictions such as the United States, Canada, Brazil and Israel, have been using these plant-breeding techniques for decades, the precautionary principle and Europe’s heavy-handed regulatory approach prevent it from being used. 

The European policies have, in fact, made farming less sustainable because Europe has neglected the innovation angle. Take the example of soil disruption. Agriculture is a large contributor to greenhouse gas emissions because carbon dioxide is stored in the soil, and as farmers disrupt the soil through tillage, that CO2 is released into the atmosphere. The more you disrupt the soil, the more you emit. While in the United States, over 70 percent of farming functions on reduced tillage or no-till farming, Europe still produces over 65 percent of its food on conventional tilling. The reason: no-till farming requires a more considerable use of pesticides, which are frowned upon in Europe.

Without innovation, agriculture cannot become more sustainable. While the European Union intends to reduce farmland, cut synthetic pesticide use and keep novel biotech solutions illegal within its “Farm to Fork” strategy (known as F2F), the United States has opted for a different approach. The USDA’s Agriculture Innovation Agenda (AIA) advances the notion that more innovation, through public and private research and investment, makes the food system more efficient and sustainable. The AIA is the forward-looking approach, while F2F attempts to reduce the impacts of farming on the environment by cutting back on farmland use and reducing the toolboxes of farmers to fight pests and plant diseases.

That said, the American food system also faces challenges. American environmental campaigners and trial lawyers appear to want to introduce a European-style regulatory system through the courts — including by suing food companies. The highly litigious American system creates a perverse effect in which you have to convince a judge or jury of the ill effects of a crop protection tool, not a scientific agency staffed with experts in analyzing data. As a result, developing farming chemicals becomes a liability that only large companies can actually afford, leading to market concentration. This is problematic because in an age when we need agricultural efficiency and innovation more than ever, it is essential for competition to reign in the agrochemical and agro-tech sphere. Competition creates the baseline for scientists, industry professionals and farmers to get a variety of choices in the marketplace.

Ultimately, we should recognize the wonders of modern agriculture. The benefits of high-yield farming are apparent: We feed more people more sustainably, all while having to charge them less for it. For instance, we need 60 percent fewer cows yet produce twice as much milk as we did in the 1930s. We need to build on these types of successes to make our food system more efficient and sustainable.

Originally published here

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