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John Carpay | Barrister and Solicitor

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A better way to pay for car insurance

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The price of car insurance has a huge impact on the family budget because Canadians don't have a lot of disposable income. Canadians don't have a lot of disposable income because they keep only 49% of their earnings. The other 51% of our wealth is consumed by three levels of government, which take our money through GST, income tax, property tax, the health care premium tax, fuel taxes, business taxes, air travel taxes, taxes on insurance, etc. The Fraser Institute calculates that in 2003, the average Canadian worked from January 1 to June 27 to finance three levels of government, and started working for herself on June 28.

In Alberta, too, car insurance is a hot issue because our disposable income is so small, thanks to Paul Martin and Ralph Klein and their insatiable appetite for more revenues.

The Alberta government pretends to care about high car insurance prices, while collecting a 3% hidden sales tax off every policy that is sold. If your car insurance costs you $1,200 per year, Premier Klein is collecting $36 from you. The Alberta government could lower car insurance rates by 3% tomorrow, just by scrapping this sales tax. This 3% tax is also applied to home and business insurance. Eliminating it would save Albertans $165 million per year - over $200 per family.

But eliminating the 3% insurance tax is only the first step that the Klein government could take to make it easier for Albertans to pay for their car insurance. Alberta's government is swimming in our money. Here are some ways in which provincial politicians pick your pockets each month:

  • Alberta families must pay a health care premium tax of $1,056 per year, or $88 per month. This money goes into general revenues, like money from every other tax.
  • Provincial income tax costs Albertans $5 billion per year, or $530 per month for a family of four.
  • Business taxes cost Albertans - as consumers or owners or shareholders - almost $2 billion per year, or $204 per month for a family of four.
  • Provincial property tax costs Albertans $1.2 billion per year, or $127 per month for a family of four.
  • Provincial fuel tax costs Albertans $607 million per year, or $63 per month for a family of four.
  • The 3% hidden sales tax on insurance costs us $165 million per year, or $17 per month per Alberta family.

Even for a family in which nobody smokes, gambles or drinks alcohol, this means a provincial tax bill of $1,029 per month. Mom and dad don't see this $1,029 taken off of their pay cheques, but that is what the average Alberta family pays in provincial tax each month when you include both visible and hidden taxes.

There are many ways for Premier Klein to reduce the $1,029-per-month tax burden on Alberta families. One option is scrapping the health care premium tax and the 3% hidden sales tax on insurance. That would put an extra $105 dollars per month in the pockets of the average Alberta family, month after month after month. And that would make it easier for Albertans to pay for car insurance, and pay for whatever else they choose, with their own money. After all, it was Albertans - not their government - who earned the money in the first place.

Last Updated on Monday, 18 April 2011 21:11

Abolish Alberta's sales tax on car insurance

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Premier Klein's Tories presented Albertans with yet another done deal last week, this time on auto insurance. Alberta's closed, secretive government makes sure that real debate on real issues never makes its way into the Legislature for a real vote. In Alberta, policy decisions on car insurance - and health care and education and every other topic relevant to our daily lives - are made behind the closed doors of Standing Policy Committees. Only Tory MLAs serve on these Committees, and only they know who voted which way on which issue.

Tory MLAs met in secret and emerged with a plan for a new bureaucracy to regulate and control car insurance premiums. A $4,000 limit on compensation for pain and suffering for "minor injuries" will supposedly help Albertans save $200 million per year on car insurance premiums.

While limiting compensation which accident victims can receive for pain and suffering, the Alberta government continues to collect a 3% hidden sales tax on every car insurance policy sold in Alberta. Considering the fact that car insurance premiums pay for victims' compensation, this practice has been described as "tax-pimping" on the horrible results of car accidents.

Under the government's new scheme, some drivers might see a 5% reduction in their car insurance premiums. However, more of their tax dollars will be needed to pay for more bureaucracy to administer a new system which bans "discrimination" on the basis of age, gender, and marital status. How much will it cost taxpayers to administer a new system which guarantees Alberta drivers "fair" and "affordable" insurance while still - miraculously - preserving private sector competition Are bureaucrats better equipped to identify and reward "good drivers" than insurance adjusters Is it fair to good and experienced drivers that their premiums subsidize a new cap on rates enjoyed by inexperienced drivers and those with recent at-fault claims 

Scrapping the 3% tax on insurance would save Albertans $165 million per year - over $200 per family. This $165 million is not far off from the $200 million in savings which the government claims will result from its new car insurance scheme. Besides, if the cost of running the new scheme were $35 million per year, those $200 million in claimed savings would already be reduced down to $165 million. Why not just scrap the 3% tax 

How did your MLA vote on this new car insurance scheme You will never know. It's impossible for Albertans to know whether their Tory MLA voted for or against the $4,000 cap on compensation. Nor will you ever know whether your MLA spoke out against Alberta's 3% sales tax on insurance policies. Nor can you know for sure what your MLA really said about the teacher's strike last year, or what she or he says now about the health care premium tax. In Alberta, every major decision is made behind the closed doors of the Progressive Conservative caucus, or behind the closed doors of a Standing Policy Committee, or behind the closed doors of the Premier's office.

Perhaps the government's new plan on car insurance will work well.

But transparency, democracy and accountability are not working well in Alberta.

Last Updated on Monday, 18 April 2011 20:54

The tax increases of 2002 remain in place

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Three years ago, just prior to the 2001 election, Premier Klein promised us that "The only way taxes are going in this province is down."

That promise was broken in March of 2002, when Premier Klein increased various taxes and fees, including an increase in the health care premium tax to $1,056 per year, per Alberta family. The $541 million tax increase of 2002 was partly reversed by small reductions to corporate tax rates in 2003 and again in Budget 2004-05. Still, more than half of the tax increases of 2002 remain in place, and Premier Klein's promise remains broken.

A government that is swimming in taxpayers' money can easily let Albertans keep more of their earnings. In the 2003-04 fiscal year, the Alberta government is taking in over $25 billion in revenues - about $8,000 for every man, woman and child in Alberta. Revenues for 2004-05 are projected at $23 billion, but will likely be higher.

The temptation to spend proved too powerful for our 83 MLAs, most of whom seem to forget that every penny they spend was first taken - it wasn't a voluntary donation - out of Albertans' wallets. Resisting temptation becomes even harder with two Opposition parties whose policies and entire philosophy can be summarized in two words: "spend more!"

Our so-called "Conservatives" have increased spending on a scale that would make a federal Liberal blush. While Ottawa's spending on federal programs has risen 40% since 1996, Premier Klein's Tories have increased spending on government programs by 75% during the same time period, while Alberta's population grew by only 16%.

If program spending in Budget 2004-05 had risen by 5% instead of 10%, we would all start enjoying a billion-dollar tax cut this year. What does a billion-dollar tax cut look like for the average Alberta family It would mean freedom from the $88-per-month health care premium tax, which doesn't pay for health care anyway, but flows into General Revenues like every other tax. Or the province could abolish the provincial property tax entirely. Or cut personal income tax from 10% to 8%.

Instead of tax cuts which would benefit all Albertans - including nurses, teachers, MLAs and doctors - Premier Klein's government has chosen instead to capitulate to unreasonable demands from public sector unions for double-digit wage increases. Of course it was hard for MLAs to resist these demands after they voted themselves a brand new "RSP allowance" and very fat severance pay packages in 2001. MLA compensation is but a fraction of a tiny fraction of the $22.6 billion provincial budget. But the MLAs' loss of moral authority to negotiate with public sector unions has cost taxpayers dearly.

On a positive note, debt servicing costs now eat up only 1.6% of our provincial tax dollars, compared to 12% back in 1994. Premier Klein's track record on debt repayment is excellent, and it corresponds with what Albertans told him in province wide surveys in 1998 and 2000. Called "Talk it up, talk it out" and "It's your money," these surveys were the vehicle by which Albertans told their government that tax cuts were the top priority, and increased spending the third priority. It's time the Alberta government stopped reading the survey results upside-down.

Last Updated on Monday, 18 April 2011 20:55

Why you must pay your taxes anyway

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As Canadians complete their tax returns this year, many are quietly - and sometimes loudly - cursing Ottawa. No responsible citizen can accept a government that abuses the public's trust and freely plunders the treasury. According to the Auditor-General, government officials failed to safeguard hundreds of millions of our tax dollars spent on advertising, sponsorships and fat commission fees. Canadians know that the accounting problems are more widespread than they first believed. Consider only the latest reports: the Department of National Defence improperly paid out $160-million in questionable contracts; and a public servant whistleblower revealed that rule-breaking began in 1994, not in 1997 when the Quebec sponsorship program was created. 

In response to this waste and corruption, some taxpayers are calling for a "tax boycott" whereby unhappy Canadians can deposit their taxes into a trust fund, to be paid to Ottawa only after the sponsorship scandal has been properly cleaned up. Others want to organize a class action suit to re-coup wasted tax dollars.

But neither proposal would go very far. Putting pressure on politicians by temporarily placing taxes into a trust fund would be illegal, because the Income Tax Act - and other laws - require taxes to be paid to the government directly and immediately. This legal obligation does not depend on how well - or how poorly - our money is spent. A class-action lawsuit would also fail, because wasting tax dollars is not recognized as a cause of action by the courts. This is, in part, because Canada's constitution - unlike that of Communist China - does not recognize property rights. In response to a class action filed on behalf of taxpayers, a judge would say: "Elect different or better representatives for yourselves if you are unhappy with current government policy." 

The powerlessness of Canadian taxpayers in the face of waste, arrogance and corruption point to the coercive and non-accountable character of government. Outside of government, in the real world of business, you don't get paid unless and until you have provided a valuable product or service. This basic principle of accountability applies to every employer and employee, to every consumer and company, and to every contract made by businesses large and small. Show up for work drunk a few times - or even once - and you will be suspended without pay, if not fired. Deliver less goods than promised - or goods of inferior quality - and you won't get paid the full amount. Charge customers high prices for lousy food and watch your restaurant go bankrupt. Outside of government's big ivory tower, the world of voluntary contracts has built-in accountability, all the time. But there is no legal requirement for a government to perform well, or at all.

Taxpayers can take advantage of legal credits and exemptions to minimize their taxes. But a refusal to pay taxes will ultimately result in government garnishing your wages, freezing your bank account, putting a lien on your house, and seizing your property.

This legal requirement to pay taxes, regardless of waste, corruption and poor performance, shows that government and accountability are natural opposites.

However, some accountability can be introduced into government through whistle-blower legislation, taxpayer protection legislation, and citizens' initiative legislation. But this won't happen until taxpayers elect people who are serious about reducing the sphere of government, and leaving more of life in the sphere of voluntary contracts, where continuous accountability reigns.

Last Updated on Monday, 18 April 2011 20:56

Court ruling is no excuse for hiring more tax collectors

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The Supreme Court of Canada ruled on March 6 that Joe Markevich won't have to pay $771,000 to CCRA (Canada Customs and Revenue Agency, formerly Revenue Canada). 

In 1986 Mr. Markevich admitted that he owed Revenue Canada $234,000 in unpaid taxes. As Mr. Markevich was unable to pay, CCRA wrote this debt off internally. For 12 years CCRA made no collection efforts at all, and didn't even say on statements that taxes were owing.

Suddenly in 1998, CCRA told Mr. Markevich that he owed $770,583.42 - the 1986 amount plus interest!

In court, Mr. Markevich argued that the six-year limitation period in federal legislation prevented CCRA from collecting on debts more than six years old. He said that CCRA's failure to make any collection efforts was like failing to start a law suit within the limitation period. CCRA disagreed, arguing that an unpaid tax bill was enforceable at any time, like a judgment obtained after a trial.

The Supreme Court of Canada ruled nine-to-zero that if CCRA has not made any efforts to collect on a debt for six years, it cannot start (or re-start) collections proceedings. This ruling does not say that unpaid taxes owing from more than six years ago do not have to be paid. As long as CCRA has continued its collection efforts, the unpaid taxes could date back to 1980 (for example) and must still be paid - plus interest!

The Court said (www.lexum.umontreal.ca/csc-scc/en/rec/html/markevic.en.html) that limitation periods "promote certainty, avoid stale evidence, encourage diligence, and bring repose." These same rationales apply to the collection of tax debts. If CCRA makes no effort to collect a tax debt for an extended period, a taxpayer should be able to expect that he or she will not be called to account for the liability.

This judgment will encourage CCRA to act diligently in collecting tax debts. CCRA bureaucrats should focus their collection efforts on the largest outstanding debts, and target those who have not filed in five or six years, or those who owe huge back taxes. CCRA should not focus on honest taxpayers who may owe a couple hundred (or a couple thousand) bucks and are trying to pay it off in installments.

This court ruling does not justify hiring more tax collectors. CCRA is already the largest arm of government, employing 40,000 people. There is no need to hire more tax collectors, especially when one considers that over two million low-income Canadians are paying 16% federal income tax on earnings in excess of $7,756 per year. Canada's $7,756 basic personal exemption is so low that a person earning minimum wage must pay federal income tax on half of her salary! The federal government could take two million low-income Canadians off of the income tax rolls by raising the Basic Personal Exemption from the current $7,756 to $15,000. This would give all Canadians a tax cut, and would make it possible to reduce the size of CCRA's tax-collecting army.

This court decision gives taxpayers some security. If they have not been pursued for debts by CCRA for six years or more, they can't be surprised. CCRA should respond to this ruling by becoming more efficient - not by becoming bigger.

Last Updated on Monday, 18 April 2011 20:57

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