How Governments Can Improve our Summer Vacations

-- (historic), Commentary, Taxation, Trade, Uncategorized

“The way to ensure summer in England is to have it framed and glazed in a comfortable room,” wrote the English Earl, Horace Walpole, in 1774. With a look back at the cool summer in much of Canada where the rule has been more cold and less sun—British Columbia and its forest fires an obvious exception, it’s a sentiment with which most Canadians might agree.

The weather is not something men and women or their politicians can do much about. That’s unlike an issue over which our governments have direct control and where a simple policy change would make summer vacations cheaper and more pleasant: the constant gouging of consumers at the Canada-U.S. border.

The border gouging, and the border line-ups they produce, is an item vacationers might notice during their summer vacations if they skip across the line. They then probably forget about it for much of rest of the year. They shouldn’t. The duties and taxes imposed at the border are an example of how free trade ostensibly exists between Canada, the United States and Mexico, but not for consumers.

And there is great hypocrisy here. The premiers recently met in Regina to urge the U.S. to allow Canadian companies in on state and local procurement. They issued that call because access is restricted thanks to the Obama administration and Congress’ “Buy America” provisions in their stimulus packages.

The opening up of such trade would be useful and a smart addition to NAFTA which does not yet apply to local governments on either side of the border.

However, while our provincial and federal governments preach free trade at the macro level, they then stiff consumers as individuals.

At present, any Canadian who crosses the border for just under 24 hours faces taxes and duties if they bring back foreign-purchased goods worth more than $50; they can bring back up to $400 worth if absent for more than 48 hours, or $750 if away for more than one week.

U.S. limits on its citizens are more generous: Americans can bring back up to U.S. $200 worth of purchases in any 48-hour period before they face duties and taxes. That limit is increased to $800 if absent from the country for more than two days.

The Canadian limits are low and don’t even include that most useful summer beverage: beer. As any border-crosser knows, bring back any alcohol (regardless of the just-noted Canadian dollar allowances), and you’re limited to 24 cans of beer or two bottles of wine on any return before you’re hammered with punitive duties and taxes.

It’s clear why Canada’s provincial governments like to punish consumers at the border (though that’s no reason for Ottawa to play along): most border states have far lower prices for beer, wine and spirits. That’s because American states have significantly lower taxes and mark-ups compared to Canadian provinces.

In addition, every province except Alberta has at least some government liquor stores which rake in profits over and above the mark-ups and taxes imposed on the product itself.

Even in Alberta, where the province fully privatized government liquor stores in 1993, the provincial government still rakes in almost $700-million in invisible mark-ups on alcohol. So the Alberta government favours taxes and duties at the border to get its pound of flesh from Albertans who cross the border with beer, wine and spirits. Other provincial governments, with sales taxes in addition to mark-ups on alcohol, are similarly rapacious.

If the premiers and the federal Conservative government are serious about open markets , they should remove all duties and taxes at the border. That would provoke competition and lower prices for consumers in both the U.S. and Canada on a variety of items. In addition to shorter line-ups at the international crossing, it would, importantly, be a useful demonstration on the virtues of free trade.

Let’s suppose governments can’t bring themselves to abolish duties and taxes at the border completely—though they should do both given cross-border shoppers already pay tax in the jurisdiction where they bought their goods.

At the very least, in Canada’s case, the federal government could at least wipe away the different standard on beer, wine and spirits at the border and give consumers a break. Should provinces complain, Ottawa can remind them they were the ones who recently demanded more free trade.

Governments cannot change lousy summer weather. They can remove their artificial impediments to free trade for consumers—and to cheaper summer vacations.