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Low prices and low taxes sound great - but someone has to pay

Live for the day, make the other guy pay.

This is how we roll as a society after five years of financial stress brought on by the global financial crisis. We feel our prosperity is under threat and we're reacting by trying to protect what we have. We demand our goods cheap and our taxes low. Governments and corporations recognize this, and they aim to please.

Problem is, prices and taxes can't really be cut or kept low in today's world. Somewhere behind the scenes, someone pays. Example: The Bangladesh garment factory collapse.

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To be sure, manufacturing goods abroad can help impoverished people earn a living. But that being said, there's plenty of blame to be spread around for the deaths of the close to 400 people who worked to make clothes for customers such as Loblaw Cos. The bottom line is that it's hard to make clothing cheaply without being tough on costs such as wages and building safety.

There's no comparing the misery of what's happened in Bangladesh with the economic troubles here in recent years. But the financial stresses we've undergone have had an effect. They've made us hungry for opportunities to defend our earnings from the slow erosion of our buying power. Cheap shirts and pants from Bangladesh are the only new clothes some people can afford.

It's not much talked about, but people in most age groups have actually been getting poorer for decades, if you measure the purchasing power of their money after inflation. Maybe that's why the past five years have been so confusing. The stock and housing markets have done well, but unemployment and underemployment remain stubborn problems and debt levels have soared.

Third World workers are affected by our enthusiasm for low prices, and so are Canadians. Talk to young adults about what it's like in the job market and you'll hear stories of unpaid internships that never turn into paying work, of contract positions that never convert to full-time jobs and of people with one or two university degrees who can't find work outside of retail or fast food. For workers of all ages, technology and outsourcing are worries.

Corporations know the importance of low prices, and they're delivering by lowering their business costs. But what they call overhead, other people call jobs, pensions and benefits.

We have no idea how all of this will play out for today's job seekers. People who work on a contract basis have less to spend on houses and other things because, without the benefits that many full-time workers get, they must pay for dental bills, prescriptions, physio and other costs. They also lack workplace pensions, which suggests that today's so-called retirement crisis will seem a joke in comparison to what's coming decades from now.

There are consequences to low taxes, just as there to cheap clothes. Not that anyone's talking about this. Governments believe that tax increases are political death, so they're unwilling to raise taxes on anyone but the wealthy. In Ontario, recent tax increases have affected only those earning more than $500,000 a year. In the current British Columbia election campaign, the NDP is proposing to increase income taxes only for those earning $150,000 or more.

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The low-tax imperative came out of a time of economic strength, when federal and provincial governments were regularly in surplus. We live in a low-growth world today, where deficits are the norm. But our thinking on taxes hasn't evolved. We want them cut, if possible, and left untouched at worst.

Might surging economic growth help reduce deficits? Maybe some day. Until then, governments will have to rely on cost-cutting to make a dent in their deficits. But what governments call cost-cutting, other people call layoffs, reduced levels of service and user fees. On Monday, the Parliamentary Budget Officer said spending cuts announced in the past two federal budgets will cost 67,000 jobs and slow the economy.

People often say they favour tax cuts because government just wastes the money. That's a side issue, though. Government money pays for the health care of an aging population, as well as highways, food and workplace safety, and more. Which of these do you want to see cut so that taxes can stay low?

Look, we're not at our best right now as a country. We're financially stressed, and that makes us protective of what we have. But there are consequences to pursuing low prices and low taxes that we didn't talk about much before the Bangladesh disaster. It's time to wake up.

For more personal finance coverage, follow me on Twitter (rcarrick) and Facebook (robcarrickfinance).

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About the Author
Personal Finance Columnist

Rob Carrick has been writing about personal finance, business and economics for close to 20 years. He joined The Globe and Mail in late 1996 as an investment reporter and has been personal finance columnist since November 1998. Rob's personal finance columns appear in The Globe on Tuesday and Thursday, and his Portfolio Strategy column for investors appears on Saturday. More


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