1. THE GOVERNMENT OF BRITISH COLUMBIA MAY DEMAND OF THE TAXPAYERS NO MORE THAN A CERTAIN PERCENTAGE OF THE GROSS PROVINCIAL PRODUCT (GPP) AS NET REVENUE IN ANY FORM (TAXES AND OTHER). THIS PERCENTAGE MAY BE ESTABLISHED EITHER BY PUBLIC REFERENDUM OR BY THE WINNING POLITICAL PARTY AS STATED DURING AN ELECTION CAMPAIGN.

2. DEFICIT FINANCING SHALL BE CONSIDERED DEFERRED TAXATION AND SHALL BE INCLUDED IN THE ABOVE.

3. ONCE THIS PERCENTAGE IS ESTABLISHED, IT SHALL NOT BE INCREASED EXCEPT BY PUBLIC REFERENDUM OR A CHANGE IN GOVERNMENT.

4. IF THE GOVERNMENT OF BRITISH COLUMBIA EXCEEDS THE SPECIFIED PERCENTAGE, AN ELECTION MUST BE CALLED AND THE EXISTING GOVERNMENT DISSOLVED. ITS BUDGET AND SPENDING AUTHORITY SHALL BE NULL AND VOID.

5. THE GOVERNMENT OF BRITISH COLUMBIA SHALL ESTABLISH AND ADHERE TO "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR GOVERNMENT" (GAAP-G) AS OUTLINED BY THE CANADIAN INSTITUTE OF CHARTERED ACCOUNTANTS AND THE CERTIFIED GENERAL ACCOUNTANTS OF CANADA (AS AMENDED FROM TIME TO TIME).

6. CAPITAL EXPENDITURES SHALL BE AMORTIZED IN ACCORDANCE WITH THE ABOVE PRINCIPLE (5).

7. IN THE CASE OF A DECLARED PROVINCIAL OR NATIONAL DISASTER, TAXCAP SHALL BE SUSPENDED.

Why does government cost so much more in 1993 than it did in 1965? As a society, is this what we want? If not, what can we do about it? These are some of the questions this paper addresses.

In 1965 the cost to taxpayers of all services provided by the Government of British Columbia was 7.6% of the Gross Provincial Product (GPP). By 1969 this cost to the taxpayer had risen to 11.54% of GPP. This year (1993) the cost to the taxpayer will have exceeded 21% of GPP. (See the table above). In less than 30 years, the cost of running the province went from 8% to 21% of the Gross Provincial Product. If the provincial government continues to grow at the same rate, the tax rate will be 100% of our incomes in about 19 years. Of course, our economy would collapse before then. There would be no incentive to produce or work. This is what happened in the Soviet Block. We also need "Perestroika"! (or restructuring). Time is running out for us too!

Democracy is based on the rights and responsibilities of the individual. Democracy is one of the chief causes of the economic success of the western world. In the past 25 years, there has been an insidious move by all governments away from this principle. As our governments take more control over our daily lives, we have less. As governments take a larger portion of the economy in taxes, we have less to spend on our own wants and needs. Big and growing governments not only seriously endanger Canada's economy, but also threaten the very institutions and traditions that have made Canada's economic success and social network the envy of the world.

In the evolution of democracy, some significant events stand out.

The Magna Carta was signed in 1215 by King John at Runnymede. This document gave the Lords of England the right to a trial by their peers and started the erosion of the absolute powers of the King of England.

The Bloodless Revolution of 1688, gave us the first Bill of Rights, which further diluted the power of England's monarchy.

Universal Sufferage was hard a won battle, first giving the right to vote to the common man and then later to women.

The history of democracy is long and often fraught with frustration, wars, beheadings and turmoil. The trend in modern history is the reduction of unaccountable authority to government of the people, by the people, for the people - democracy!

There is a noble spirit in most of us to help those who, through misfortune, find themselves in dire straits. We realize that it demeans us if others do not share in the rights and opportunities that we take for granted. As a result of our economic success after World War II, it became possible for us to do more for the less fortunate among us. The sacrifice seemed small and the benefit great. There was little opposition to the first tax increases and our governments were left to get on with the job while we got busy building our families, careers and businesses. Unfortunately, we paid little attention to what our governments were doing....far too little. And herein lies our "problem".

What they were doing was implementing one-half of Keynesian economic theory.

John Maynard Keynes, writing in the 1930's, advocated that during depressions and hard times, governments should engage in deficit financing in order to "prime the pump", get the economy moving and get people back to work. These deficits were to be paid back from tax surplus during the boom times. It is the second half of his theory that was largely ignored, the pay back part. This may have been because Keynes did not adequately allow for the degree of resistance of governments to reduce deficits in better times.

Politicians and public alike declared that nobody had to pay the debt back - we owe it to only ourselves (which in relation to debts occurred within Canada, is true). The cost of servicing this debt (interest payments) and the effect on future generations was ignored. One may also be tempted to cynically observe that if debt did not matter, then why not eliminate taxes altogether and just run massive debt.

Over time, governments became dependent on the annual increases in revenue and expenditures and like an addict, became unable to stop. If massive government spending can drive the economy, then we should now be in the midst of the biggest economic boom in the world's history. We aren't.

When public resistance started to build against higher taxes, solutions were found by hiding taxes. This resulted in inflation. But the governments and the public blamed the resulting inflation on greedy unions, greedy business people and an excessive expansion of the money supply.

Consider 1969 a watershed year. By then, most of the modern social programs we value were in place. Since 1969, little has been added in the way of social services, yet by 1993 taxes and spending have nearly doubled. Where is all this extra money going? With the benefit of hindsight, we can see now what happened! Our governments kept getting billions of dollars more each year. The demands for more spending were much louder than any calls for restraint. It was much easier to give in and promise even more. There was no impelling incentive to evaluate spending. No need to ask if programs were working. If they were efficient. Or if they were needed. Like any person or group faced with a seemingly endless source of funds, waste and inefficiency grew faster than our collective capacity to pay.

Today in British Columbia, direct and indirect taxes account for about 21% of the Gross Provincial Product (GPP). Up from 12% in 1969. And in 1965 taxes were only 7.6% of GPP.

Exact figures are often not available because governments do not follow standard accounting procedures. The loose accounting standards, now in effect make it too easy to disguise tax and spending increases. For example, B. C. Hydro was recently required to increase user rates in order to pay a "dividend" to Victoria. This dividend is an indirect tax increase, but it is presented to the public as "Investment Income".

The waste and inefficiency in governments results primarily from administration costs and unnecessary programs. There are regular stories in the press about the waste of our hard-earned tax dollars. Today, governments and crown corporations account for 27.4% of Canada's total payroll. Of a working population of 1,500,000 in B. C. - 300,000 work for one government or another. But the main problem is not with the salaries of the front line workers, i.e.: teachers, doctors, nurses, social workers and the necessary support staff, who provide the services we want, but with the massive and growing bureaucracy. There are too many administrators. Too many rule enforcers who hamper every move. They hamper not only productive civil servants, but also business and the general public. We have too many laws, too many regulations. This prevents the people in our economy from operating efficiently. As governments gain power and money (taxes), we lose freedom and buying power.

Today, it is the citizen who is accountable to governments. The citizen's job is to earn money to pay ever-increasing taxes to unaccountable governments. Our governments behave as if they have every right to have full information about us, but we have no corresponding rights to comparable information about the governments. However, the growing number of arbitrary and meaningless rules invites noncompliance from a frustrated public, tempting us all to be less ethical. The fast growing underground economy is a result of this frustration. Such rules are becoming more and more out of date, as a result of our rapidly changing technology. Today successful companies employing highly technical personnel are finding they must give more power and trust to employees. The days of highly centralized control structures are rapidly fading. Governments are in dire need of this new thinking.

High taxation rates have their economic costs too. One does not have to be old to recall a time when a family only needed one salary. Today, it takes two working people to support a home! Or when a national average unemployment rate of 5% was considered too high. Today, we accept 10% as normal! Something has gone wrong - seriously wrong! This year, each employed person in the province of British Columbia will pay an average of $12,231.17 as taxes to the province. Add to this Federal and municipal taxes.

It is now generally accepted that many promises made on the campaign trail are virtually meaningless. Once a party is in power, the previous administration policies are often used to show why campaign promises cannot be kept. Once in power, politicians often make statements that are inaccurate, misleading or even outright lies. Politicians promise "fiscal responsibility", "balanced budgets", "reduced borrowing", "open and honest government" and "better services" to the point that the terms are virtually meaningless. All political parties have been involved in this dishonest game at one time or another. The real tragedy is that we seem to accept this as normal.

But the real danger lies in the fact that more and more people are losing faith in democracy. Here in British Columbia, almost half the population do not support any political party at all! When the people do not trust or support their politicians, what is happening to democracy? There is no guarantee that we will remain one of the most advanced economies in the world. We seem to be bent on throwing our advantages away. Many advanced civilizations before us enjoyed the lead only to collapse, from Egypt, to Greece, to Rome, to Europe. Each collapsed from excess. Our excess is bureaucracy and we too are not immune from history. At least Egypt's admired pyramids are still standing.

Our best hope to correct many of our problems with democracy is to put brakes on our irresponsible politician's pocketbooks - to restrain their power to tax and borrow at will, and to return this power to the people, where it came from in the first place. He who pays should have the right to "call the tune". To accomplish this, we need two changes to the Constitution of British Columbia; a proper accounting system or GAAP FOR GOVERNMENT (GAAP-G), and TAXCAP.

GAAP FOR GOVERNMENT is beyond the scope of this paper, but it is a fundamental requirement for TAXCAP. TAXCAP is useless unless our governments adopt a standard accounting system which truly represents our financial position. Briefly, GAAP-G is comparable to the GAAP system which is used in private business.

The idea of TAXCAP is to limit the percentage of our Gross Provincial Product that may be used by the Gross Provincial Expenditures. A limit to taxes, user fees, spending and borrowing.

Economists use Gross Provincial Product (GPP) to measure our provincial economic activity, usually for a one year period. The Budgeted Gross Provincial Expenditure (GPE) is the result of all expenditures the government intends to make for the coming year. These figures are published in the government budget, usually each spring. The Gross Provincial Product would form the basis for TAXCAP. TAXCAP is the ratio of the GPE to the GPP.

TAXCAP is the ratio of the GPE to the GPP. (GPP/GPE*100=TAXCAP)

Under TAXCAP, an amendment to the constitution would be passed that would limit the amount of tax collected (and deferred) to a fixed percentage of Gross Provincial Product. This would immediately establish an UPPER LIMIT on the government's power to tax, spend and borrow. Borrowing for day-to-day operations would be considered deferred taxes so the deficit would have to be brought under control without introducing tax hikes. If a government wished to increase rates of taxes beyond the limit set by the current the TAXCAP, for whatever reason, it would have to hold a referendum to get permission from the people.

TAXCAP introduces massive changes to the concepts and methods of how we are governed. We see it as a very important part of the evolution of democracy and an essential part of the emerging technological economy. It reduces the power of governments and enhances the power of the people. As Abraham Lincoln said our goal is "government of the people, by the people, and for the people". While analogies do have limitations, it is useful to compare governments to households and businesses. TAXCAP imposes on governments a limit that the rest of us take for granted. If we, as householders, do not live within our means then we court financial disaster. Households are constrained by their income although there are many things they would like to buy. We must, of necessity, say 'no' to some expenditures. Households also have respect for the money received as a result of hard work. Business likewise, faces constraints from its competitors and its owners. Government has not had any such comparable constraints. It often increases taxes to cover its own follies.

TAXCAP also gives our politicians a way of saying "NO".

It is popular among some politicians to blame the public for the current mess we are in, and to some degree this may be justified. All of us seem to want more. But without TAXCAP, the public has little say with regard to the overall level of expenditure. With TAXCAP in place, the public would have the ultimate say in spending. If politicians failed in their obligation to act responsibly with our money, then an election would be automatically triggered, regardless of the excuses.

We would expect the GPP to grow as the population increases and we become more successful in our economic endeavors. As the economy grows (or contracts) so will government. If this is done, the TAXCAP ratio will remain constant. This is called "living within one's means". It is government's responsibility to the public to follow these principles and TAXCAP is an easy way to monitor the government's financial activities. Furthermore, our politicians must be answerable to us if they fail to control the province's spending and our money.

But what of the need for new programs in the future such as cleaning up an environmental mess or the need for new infrastructure to accommodate the information age or retraining our people as their old training becomes obsolete? TAXCAP does not put an end to change. It encourages it and makes it more possible than the current system does. There are a number of ways:

First, government can be encouraged to learn lessons in efficiency, to do more with less - a lesson which many governments have refused to learn.

Second, government can shift priorities, cutting in one area to fund another or eliminating programs that are no longer appropriate.

Third, government can ensure that our business environment is healthy so our wealth grows and the tax share grows proportionally.

Fourth, there could be a referendum to increase the TAXCAP limit. If the public was convinced of the necessity, then extra money could be raised. Such a decision is then made by all, democratically, not by a minority or an elite group of politicians and civil servants.

Each of the above mentioned changes are practical, but both the public and politicians will need time to re-educate themselves to a new way of thinking.

As noted earlier in this paper, there have been large increases in spending in recent years without a corresponding increase in service to us. Without the necessary limitations, bureaucracy has mushroomed out of proportion to the population growth or to our ability to pay. We must work to raise the incomes and opportunities of all citizens. Raising taxes is not the answer. The biggest threat to our social programs is the fiscal irresponsibility of many administrations over the past 25 years. If we could provide essentially the same services 25 years ago for almost one-half the cost of today, then surely there is a lot of room for improvement (even after taking into account changes in demographics and inflation).

We recognize that we all lose, when some of us are demeaned by poverty. A society should not be judged only by its achievements but also by how it treats the poverty in its midst. As runaway bureaucracy eats up more and more of the budget, less is available to those truly in need. As taxes take more from business, less is available to create jobs.

There are some areas of TAXCAP that require clarification.

There is the problem of income support payments which tend to balloon when times are bad and fall in good times. Should these expenditures be exempt from TAXCAP? If they are, what kind of regulations are needed to ensure that the shortfall in bad times is fully made up in good times? Or should we require the creation of "trusts" to fund the rough spots?

There is also the question of capital borrowing - not the irresponsible borrowing we often see, but borrowing for projects that have a benefit for many years to come. Households buy cars and houses, businesses buy machinery and equipment, which push the dollars spent in a given year above revenue. With this type of borrowing there are set plans to repay both principal and interest over a fixed period of time. Can we allow (or trust) government to do this? And what form should the restrictions take to prevent abuse?

There are a larger number of voices lately calling to restrain government spending. Some politicians are starting to think in this direction, though timidly and, as yet insufficiently. We may even get balanced budgets without tax increases in the near future without TAXCAP. However, all the forces for borrowing are still there. It is still said that the debt, however large, does not matter. The voices to continue to increase hidden taxes are still loud. Be prepared - the next round of tax increases will be presented to us as "user fees". This is why TAXCAP specifies "net revenues in any form" including, for example, fees for government services and net profits from government lotteries".

TAXCAP is also a powerful tool for the politician to use to say "NO".

With TAXCAP in place, the politician has a bottom line which helps him/her to say 'NO' to the many special interest groups that continually seduce governments into spending taxpayers dollars.

TAXCAP does not promote one political philosophy over any other except to promote democracy over irresponsible governments. Those who wish to implement expensive government programs would support a high TAXCAP ratio (percentage). Those who wish to implement less expensive government programs would support a lower TAXCAP ratio. We Conservatives favor a reduction of one percent a year until we reach 15%. This would take six years to bring the government of British Columbia back to 1969-75 levels. This rate of reduction would be slow enough not to create economic havoc, but fast enough to provide encouragement to business to start creating jobs again. After all, well paying jobs for the largest number of people is our economic objective.

We recognize that TAXCAP is a new concept. It takes time and thought to come to grips with its full implications. There are many areas that have already been considered and surely, many that have not. Therefore, we encourage you to take the time to ponder it, question it, discuss it with both political friends and foes, to attack it, to offer suggested improvements. Do whatever is necessary to understand and improve the concept of TAXCAP.

The most important reason to insist on TAXCAP, regardless of your political leanings, is to help clean up our current economic situation and to preventing it from happening again.

We believe that TAXCAP is the most significant constitutional improvement of modern times. TAXCAP takes the arbitrary power to tax, spend and borrow away from our politicians and civil servants, and returns this power to the people. It is unfortunate that we, the people, need to limit the spending of our elected representatives, but we do!

PETER B. MACDONALD

PAST - LEADER

B. C. CONSERVATIVE PARTY

Rev .72(1997) August 17th, 1993

Copyright Peter B. Macdonald (c) 1993

REVISED APRIL 19, 1997 - UPON STEPPING DOWN AS LEADER OF BCCP

e-mail to Peter B. Macdonald
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