Rabbit In The Hat

Commentary, Role of Government, Frontier Centre

Bloc Québécois leader Gilles Duceppe visited the Western Festival in St. Tite, a 4,000-inabitant town between Montréal and Québec City. This annual event was started four decades ago by a local business to advertise its cowboy boots. Interesting entrepreneurial idea from another time! The St. Tite Western Festival is now subsidized by both the provincial and federal governments, although many private advertisers also participate.

The festival features rodeos, country music, exhibitions, etc. There was even a “western marriage” in the town’s Catholic church. Although they lack the cowboys’ guns and cowboy country weather, many small-town French Canadians are would-be rednecks. And many of us read Lucky Luke as kids and dreamt of cowboy country.

The $100,000 federal subsidy came from the Building Communities Through Arts and Heritage program. You see, art subsidies can be useful! The day before the festival’s opening, Minister of Canadian Heritage Josée Verner declared, “We are proud to partner with communities to support activities that celebrate local history, arts, and heritage”.

Stopping at the festival on the campaign trail, Mr. Duceppe chose not to wear a cowboy hat like everybody else. Not me, my dear! He did not wear a revolver either, but no doubt his RCMP bodyguards were carrying their semi-automatic pistols. He blasted the Conservative government for granting only a $100,000 subsidy to the festival. “[F]or each dollar invested in the St-Tite Western Festival”, explained a Bloc Québécois press release, “the federal government gets $40.” Indeed, why don’t the feds “invest” more if they get a return in taxes of $40 for each dollar invested? As financial genius Duceppe suggests, how stupid can they be?

Why not increase the St. Tite Festival’s subsidy to $1 million, thereby producing $40 million in tax revenues? Yet, a moment’s thought will show that we can do much better. Let the government give a $1 million annual subsidy to each of the 5,600 municipalities in Canada (the number of census subdivisions). This would cost $5.6 billion, just 2.5% of federal expenditures, and would generate $224 billion in federal tax revenues, enough to cover the entire federal government’s budget. For a tax of less than $200 per person ($5.6 billion divided by 33 million Canadians), all federal expenditures will be fully financed.

On double reflection, there is no need for a tax. The banks will be happy to lend the $5.6 billion to the federal government at a low interest rate: no risk with a borrower who makes a 3,900% return on investment! So, the whole federal government can be financed at no cost to anybody. Hocus pocus!

What’s wrong with this reasoning lies in the illusory “economic fallouts” or indirect benefits. The alleged $50-million fallout of the St. Tite Festival, of which $4 million are said to land in federal coffers, is money that visitors to St. Tite will not spend elsewhere. There will be an equivalent reduction of other “fallouts” and tax revenues in other economic activities. Or, to reformulate the economic argument in a better way, what is produced for the St. Tite Festival (hot dogs, shows, hotel services, etc.) uses resources (i.e., manpower and machines) that will not produce an equivalent value of goods and services elsewhere in the economy.

At the end of the day, $1 in subsidy to the St. Tite Festival — or to anything else — costs $1 to taxpayers. The net impact on taxes is zero. (For the purpose of this argument, I ignore all slippages on the way from the taxpayer to the subsidy recipient.)

Even politicians cannot create something out of nothing. The rabbit that would come out of Mr. Duceppe’s hat must have been put there before. Mind you, Duceppe’s hat looks more like a dunce cap than a cowboy hat, but let’s not get diverted from our main argument. As impotent as they are at creationism, politicians are very efficient at taxing a large and diffuse group of taxpayers and redistributing the proceeds to small groups of concentrated interests. Each Canadian worker pays less than a cent to finance a $100,000 subsidy to a few people in St. Tite.

The problem, of course, is that this process is repeated over and over again in all kinds of government transfers and “investments”, and the Canadian taxpayer ends up paying nearly 40% of his income in miscellaneous taxes. In return, he gets bad services, stupid subsidies, and a pile of regulations, controls and prohibitions.

I always marvel when a politician announces a new subsidy and no journalist ever asks, “Is this with your own money, Sir?”

This item was first published on libertyincanada.ca.