The recent appointment of Michael Sabia as the new Deputy Minister of Finance invites reflection on what his personal experience and evident policy inclinations might mean for the economic reconstruction necessary to recover from the fiscal strains imposed by the COVID-19 pandemic.
In a former government role and evidently in a prior private business life, Mr. Sabia championed the role of "infrastructure" - including notably publicly supported infrastructure - to enable private interests to prosper with the kinds of "spillover" effects so important to citizens and the communities in which they live.
This is not a new notion. In fact, Brian Mustard, Nick Pantaleo, and I wrote about the ideas reflective of those commented on here in an international tax context for the Canadian Tax Foundation in "Why Not Kenora? Reflections on What Canada's Approach to Taxing Foreign Business Income Is and Could Be" likewise, these ideas were expressed in a paper inspired by the distinguished U.S. tax practitioner and professor, David Rosenbloom, entitled "Why Not Des Moines?", and further, Nick Pantaleo, Finn Poschmann, and I wrote about the same issues in the C.D. Howe Institute Report No. 379, “Improving the Tax Treatment of Intellectual Property Income in Canada”. In both papers I co-authored, we considered how the tax system could assist, as it often does, enabling fiscal policy via economic development. An important thesis of both papers is that businesses that could just as readily be conducted in Canada need not be displaced "offshore"; they can equally be supported by the tax system in Canada - it's a question of tax rate, tax incidence, strategic exemption and the like, which are all elements of the international tax system. An implicit proposition, though, evident particularly in the C.D. Howe paper, is that if Canada invests in its economic context, it is entitled to resulting benefits in the form of spillover effects, such as Canadian production and community building that tax expenditures to effect fiscal policy will have assisted. These papers foreshadow the kinds of fiscal and tax issues that COVID-19 now will require us to confront, if we are to build constructively on our present experience.
It is important to consider the strategic and tactical implications of infrastructure as a manifestation of Canada's entire culture and personality, as we will be required to determine how best to recover the massive stimulus spending by turning it and its offshoots into "investments", the return on which is general prosperity, including the rebuilding of livelihoods taken by the force of COVID's circumstances.
It is useful, as with any analysis, to start by not supposing that the answers to necessary questions lie in habitual fiscal notions and behavior and, as it is so often tritely said, to "think outside the box". So, let's consider a number of questions, informed as they are by the agility with which they may feature in our economic life, even though not for the benefit, yet, of all.
1) Is it necessary for businesses - employers and employees - to congregate in any particular physical circumstances in any particular community to conduct their activities? Or, has the world shrunk in a way that economic geographers call "time and space compression" - in effect, the ability to be everywhere and nowhere at the same time, enabled by technology and our fearless (an acquired skill!) willingness to embrace and learn how to use it. Surely, not a fully adequate substitute for occasional physical meetings, but within the art of the possible a way for business activities "normally" conducted in major communities to diversify geographically.
2) In a country the size of Canada, with such a concentration of the population within a short distance of its southern border with the US, what is a major impediment to ability of businesses otherwise able to locate in less densely populated places and still provide "goods" and "services" to customers? Transportation costs associated with moving products from remote locations and making service providers accessible to their customers and clients are a major barrier that private enterprises have difficulty absorbing while still remaining competitive. There is a particular significance of this for northern communities including limitations imposed by space and distance on the inclusion of First Nations and Indigenous communities as full members of the Canadian community of interests. So, the question is, how do we effectively get rid of this barrier - transportation costs, and with it mobility barriers for citizens that we see being erected as commercial transportation businesses reduce their services to many communities in Canada?
3) How do we imagine an economic environment and craft an industrial policy in which physical presence is not nearly as relevant as the "old normal" made it to be?
4) How do we do this in a way that provides universal child care without needing a system of universal child care? This sounds like a riddle, but in a reactive way parents and businesses have had to "internalize" child care - made more difficult for the moment by school closures - and businesses have had to cope with these demands of personal life - and we know it is possible - with the flexibility that remote employment permits, with its savings of the opportunity costs of communing and the like, allowing parents to be the caregivers they need to be and to be full partners within families to share these responsibilities and joys, and also to be full participants in commercial and business life. We don't yet really know the possibilities of this revolution, which of course would not in any event replace other more systematic external supports, because so far this year we have been reacting - buffeted about by circumstances made much more complicated by school closures. But, imagine a world when children are back in school, but remote commercial life is still possible and what that might mean as a mainstay of universal family support without a bespoke program to accomplish this.
These are "outside the box" questions that are worth asking. Might the answer lie in infrastructure development.? Not exotic infrastructure. But development that arises from a concentration on fiscal questions before jumping into the morass of tax enablers. Bluntly, what kind of social and economic system do we think defines our civility, our community of interests as Canadians? How best, then might we go to to the "collective consumption store" to "buy" the economic redevelopment that allows this goal to be achieved in the "new" world illuminated by COVID disruption?
What if we collectively - "the government" - not only funded but actually developed all manner of transportation and communications "infrastructure" - that is, built and operated, at our collective shared expense, those aspects of economic life that are the real barriers to a more geographically diverse life, so that the excessive transportation costs arising from locating productions facilities in remote places would be overcome without adverse competitive effects, so that "spillovers" would contribute to building communities, so that the home - work balance with all that entails could be rebalanced without any productivity deficit (maybe, in fact the opposite would occur), so that rather than spend on various and many specific stop-gap measures we would really build a new way of living that we now know is within the realm of the possible, which with attendant climate conservation and other benefits necessarily flow from the reduced demands on all dimensions of our lives associated with a more clumsy way of living - which we've been shown is not inevitable?
These are questions that might occupy a critical examination of the role and possibilities of infrastructure to enable the economic recovery we no doubt face, a reconstruction that produces personal opportunity and well being as well as key assets that are attuned to our national characteristics and ways of living. And, where does tax fit? Where it usually does, as an enabler of fiscal policy, to pay for our collective consumption and to direct and encourage economic activities in our collective interest capitalizing on our bespoke Canadian "assets" with a return that benefits all of us.
Just a thought.
- Professor Scott Wilkie (Distinguished Professor of Practice, Osgoode Hall Law School)