The Ottawa Citizen from Ottawa, Ontario, Canada on October 14, 1975 · 9

The Citizen, Uttaa, ‘ i ..”.’4 2?a economic planning by Mon freM J . – i f .V,: mJmS fit By Dian Cohen ! In the past several years, Canadians have ‘, suffered no shortage of examples of bad economic ; planning. This week another classic was added to the files. Montreal has just raised the cash price of a bus ‘ or metro ride to fifty cents. ‘ Other cities have raised their fares before and I will undoubtedly continue to do so. Montreal’s I transit commissioner acknowledges, as have other ; transit commissioners before him, that the high ‘ priced ticket will drive away customers in the case of Montreal four or five million of them. They will get around some other way probably by car. ; ! That the local government’s decision to raise fares is bad economics is palpably clear maybe ; even to the men who make the decisions. Public transportation is more efficient than private cars to get people around in a city. Compare the number of people-miles per dime on ! the bus or metro with the number which can be carried in a car. The order of efficiency may be ; as great as five-to-one. In an era in which we are concerned that city centre traffic congestion may make our cities impassable (as New York is impassable for many hours each day), what we do not need is to encourage people to bring their cars downtown. Neither can we afford either individually or, collectively to have hundreds of thousands of gallons of gasoline burned as cars idle in traffic, or to embark on what in time will seem the logical way to go: the more cars which come into a city, the greater the demand for more roads. The more that is spent on roads, the less is available for extending public transit systems, which themselves begin to appear redundant. Operating costs The local government has been true to tradition by citing the rise in operating costs. According to the municipal spokesmen, these costs should be passed on to the consumer, just as they are by suppliers of food clothing and entertainment. Herein lies the fundamental error which governments at all levels across the country make when they try to deal with price setting for education, medicine, low costs housing, care of the elderly, beautification of the city and public transportation. , The mistake is to think that the mechanisms of the marketplace which set prices for maketable goods and services can do the same thing for activities which are not marketable. The -pricing mechanism cannot set prices for what economists call public goods. The market pricing system can set prices only for goods and services which benefit (or fail to benefit) us as private citizens. For example, I can go to the movie Jaws at a cost to me of $3. I decide which I value more my money or an evening’s entertainment, f, j :. Whatever my decision, it’s a private cost to me , and a private benefit. It does not affect society as a whole. V Hidden social cost . 4 Not so with public goods. The market pricing system cannot capture the social costs of millions of people who are prevented from moving, or who cannot work where they want to, or who cannot make adequate use of their leisure time. ‘ It cannot account for the hidden social costs of the extra travelling time involved in getting to work another way. For example, if it takes an extra half hour for a million people to get to work, and they are paid $3 an , hour4 then the hidden social cost to all of ts j-.riins to S1W million a day. fc A stated objective of government is, the encouragement of restraint and conservation , of. resources. That means encouraging the use of public transit. That means not raising fares. It, may even mean lowering fares for off-peak-hour ‘ travelers an empty seat costs no more or less f tun than one in which a paying little old lady , is sitting. Whatever she pays is pure gain. ‘ k i None of this is to suggest thSpubfic transportation costs nothing. It is to sugc5t,that the costs should be borne in other ways. :Jj;. Whether this cost should be collected through a municipal income tax or by changing the basis of provincial financing is not clear, t , t What is clear is that bus fares are inefficient both to collect and to administer. I -i It is also clear that driving customers away from the most efficient mode of sfrajisportation is both extravagently wasteful anij, extraordinarily bad economic planning. ijV’ . (Copyright 1915 ECCO katuAs.) , (Ms. Cohen is a Montreal-based economist.) ‘ i .i.’ r ir . 3 vj7 Tax letter t; Mrlil Food firm, loses appeal; ft jf L. Playing the numbers game -CP photo Printer Bill Martin inserts an $8-million numbers on “the bonds which go on sale to stack of Canada Savings Bonds into a special the public today at banks, trust companies press at the British American Bank Note Co. and other financial institutions across the Ltd. plant here. The press prints the serial country. By Paul Dioguardi If any tax case is appropriate for the day after Thanksgiving it has to be Cuddy Foods Ltd. versus Minister of National Revenue. Cuddy Foods was in the turkey liat&hery business on a very large scale. Apparently it had experienced some problems in selling tom-poults which are more difficult to raise ‘ than hen-poults and when fully grown weigh at least twinty-five pounds. Normally this size of turkey would only be sold on a seasonal basis around Christmas or Thanksgiving, with consumers, during the rest of the year, looking to hen-poults which are substantially ‘ smaller. In an attempt to solve the problem a verbal arrangement was made with Riverside Poultry Ltd., a pro- , cessing firm, which has a wholly . owned subsidiary of Cuddy Foods. Conversations were held between the corporate officials of both companies and it was decided that Riverside Poultry would embark on a processing project designed to increase the sale of tom-poults. At first the plan worked out quite well but thereafter a substantial loss was incurred by Riverside Poultry. Alfred Cuddy, president of Cuddy Foods, agreed to underwrite a portion of this loss to the extent of Don McGillivray Govt, may set contols 1 but courts have last say The prime minister proposes. Parliament decides, but the Supreme Court of Canada disposes. And the court could pull the teeth of any compulsion eventually enacted in an attempt to control inflation in peacetime. The precedents of the past are heavily against the federal government having any such power. It is only in recent years that, without the constitution being changed in any way or any new jnterpretation being put on it by the courts, there has grown an assumption that the federal government must be able to do what other governments can do. Previously as ministers of finance stoutly maintained when pressed to “do something” about rising prices the power to control prices was assumed to be in the hands of the provinces except in times of “some extraordinary peril to the national life of Canada” or an “epidemic of pestilence” or some similar “highly exceptional” situation. . Double-digit inflation after the First World War was not judged to be exceptional enough. In 1919, the federal government tried to stem the flood of rising prices, which was believed at the time to be because of hoarding and gouging by monopolies, by enacting a Board of Commerce Act and a Combines and Fair Prices Act. Both were struck down three years later by the Judicial Committee of the Privy Council in London, which was at that time the final court of appeal for Canadian cases. This decision which is still the law of the land as far as anyone knows said the constitution, the British North America (BNA) Act. gave the provinces power over such things except in times of dire emergency. ‘Provincial power The federal government might prohibit actions such as the formation of a monopoly under its power to decide on criminal matters. Or it could override provincial powers in times of emergency under its power to provide for the “peace, order and good government” of Canada. ‘ It could make laws on international trade and interprovincial trade, under its power to “regulate trade and commerce.” But trade within a province was under control of the province, to which the BNA Act gave power over “property and civil rights.” “Are we not surrounded by emergencies?” asked Frank Scott, Montreal poet, legal expert and cr.e of the pioneers of Canadian socialism. “The rent of a house, the cost of food, pensions and health, the unemployed; these are lasting emergencies, tragic for me.” But the courts did not see it that way, at least ‘ at that time. There used to be a legal doctrine, now abandoned, that a court was absolutely bound by the decisions made previously, perhaps in a different time by judges with a different set of values. But courts tend to be wary about making abrupt changes in the way they rule on things. Once a ruling is made, as in the Board of Commerce case, and is sustained by other judgments, it becomes part of the legal and constitutional background of the country. Eventually all kinds of arrangements and agreements depend on it. If it were swept away, the , legal framework of the economy might be plunged into confusion. Whether the federal government has the right to regulate prices within a province in peacetime is also a delicate question in federal-provincial relations. If the Supreme Court held that the federal government could control any business anywhere in the country and at any time, it would reduce provincial control over economic matters to almost ‘ nothing. Provincial jurisdiction over labor might be swept away, for example. One straw in the wind, suggesting that the . provinces are not prepared to give up their traditional (and until-now constitutional) control over prices, has been the way several of them moved in to control oil prices after the federal government let the price go up. It is the federal government’s oil price control, in fact, which stands on a shaky constitutional basis. Many Canadians are impatient on the legal niceties which stand in the way of some worthy objective, such as the control of inflation. But enactment of laws which are not constitutional can be just harmful as doing nothing because of legal difficulties. If a price control program were built on an ‘ unconstitutional foundation, it could be swept suddenly away by an adverse judicial decision with no time left to phase out or build an alternative program. This, apart from any other argument, is good reason for caution. (Mr. McGillivray it SathaaJ Economics Editor for Scuihsa Sews Services.) $40,000. His rational, was that the deduction, jfis reasoning was Riverside Poultry, through its spe- that this was siijiplyla payment by cial project, had enabled Cuddy one companny for a business loss Foods to sell a larger number of incurred by a Separate, legal entity tompdults. . ‘ and there was i)a;that it could In-lhe. 1971 : taxation year. Cuddy be qualified hf ‘promotional FoodsTpaid ; ever , (be $40,000 to expense. ; VL Riverside f -‘Poultry and thereafter What Cuddy? jFoem had attempt-attempted “to deduct this amount ed to argue waif Itufct; the $40,000 from? . jncbme as a promotional had been paid 14 rJdgnition of the expense.: , . ‘ fact that RiversidbVPoultry had The – Department of National Re- increased the salefc ‘pi’jlts’ tom-poults. venue’ refused , to allow this claim However it’ wa noted that there for deduction on “the basis that it was no written,” agreeWnt between was not-, an outlay or expense in- the two companies to show that curred by Cuddy Foods for the they were workmg together in a purpose of gaining or producing joint venture nor was there any- income., An appeal was launched thing to indicate exactly how the and the matter was duly taken promotion, supposedly ‘carried on by before the Tax Review Board where Riverside Poultry): had increased the the hearing member was A. W. sales of tom-pouh Prociuk. . During his judgment the hearing Mr. Prociuk found that the de- member wondered fctiji loud whether partmenf had properly disallowed or not the rictVat Riverside L ‘ H’wr- . rouitry naa ar tax ;? loss position mignt nave Deea tpq motive tor tne payment. . On the basis ‘pf She facts before it, the court felf ttii there was no alternative but; to dpiuiss the appeal on the basis the- S4flJ)00 could not be deducted by Cufldy Foods as payment for abusiney’ loss incurred by another legll jfntity. On this reasonining the Iftess’rtent was held to be correct Sh4 (?the taxpayers appeal was dismissal ; (Mr. Dioguardi ty irt Ottawa lawyer.) – x t-; Turkey without trimmings ti CCTTP II V 5. oiive got tne 4t . ; bmnm wevegot the routes.5′ 3 Look. I’m really sorry about the pun. But it did seem a fast way of telling you that wherever your business interests are, entisn Airways can take you or your cargo. To start with, we fly frequently from Toronto ana Montreal s Mirahel to London. And from London we’ve flights once a day to East and south Atnca. the Oult and the Middle Easti And as for flights to Europe well to give you some idea, we have 8 flights to ‘ Paris every dav from London and 2 a Jav to Rome. – Actually. British Airways goes to over 200 destinations around the, world. But honestly, would you expect anything less from the world’s “lamest international airline. British airways Well take good care of you. To Britain; Europe. The World. 4r r. J jk 4 ( I l r a ‘ ‘.i’FV-N – Lj . .

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