Many Canadians are unhappy about the food sector; they say high food prices are squeezing households. There are competing views as to how to remedy the situation. One approach — threatened by the prime minister and demanded by activists protesting outside grocery stores this past weekend — is special taxation of grocery stores. The idea is that higher taxes on their profits might persuade grocery stores to earn lower profits by reducing prices. And the taxes collected could be redistributed back to households.

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Matthew Lau: Don't tax grocers, shut government food ministries Back to video

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Let us evaluate this interesting proposal. The greatest target of anti-capitalist vituperation in the past while has been Loblaw, so suppose we raise Loblaw’s corporate income tax rate to 100 per cent. And let’s make the tax so punitive we capture its profits, not only from its food business but also from its pharmacy (Shoppers Drug Mart) and banking (PC Financial) businesses. And because Loblaw’s CEO is said to be overpaid, let us also impose a 100 per cent tax on his income. His after-tax income is nearly a rounding error in Loblaw’s financials, but let’s take it anyway.

How much might we raise to redistribute to Canadian households every year through such a 100 per cent tax on Loblaw’s shareholders and CEO? According to its last four quarters of financial statements — and they were strong quarters, as the protesting activists keep telling us — it would be about $2.1 billion, or $51 per Canadian per year. But we have to assume Loblaw shareholders are content to turn the operation into a non-profit and its CEO is happy to work as a volunteer. And even then the $2.1 billion is not all net redistribution to households, since many of the shareholders we are taking money from are middle-class, and not part of “the rich.” They will be paying the 100 per cent tax, too, to help finance their $51. In fact, most Canadian workers are at least indirectly among Loblaw shareholders since the Canada Pension Plan holds shares in both Loblaw and George Weston Ltd.

And what would be the broader impact of imposing such a tax on Loblaw and its corporate executives? Such punitive taxation would surely cause a decline in investment across the sector. Efficiency would decline, operating costs would rise, and consumers would face less choice and higher prices. And a tax on Loblaw wouldn’t only hurt Loblaw shoppers. Arguably, the greatest benefit Loblaw gives grocery shoppers is not actually the food it sells them, but the protection it provides all consumers against price-gouging by Metro and Empire Company (owner of Sobeys, Longo’s, IGA, and other stores). The ability to go to an alternative store is the greatest protection shoppers have.

In sum, this idea of redistributing from business to households through special taxes is not a winner.

Fortunately, there is another source of money and wealth in the food sector that is available for redistribution. The federal government’s latest public accounts show total ministerial net expenditures of over $3.6 billion for the Ministry of Agriculture and Agri-Food, which includes the Canadian Dairy Commission and Canadian Grain Commission. And provincial governments are in the food sector, too: Quebec’s Ministry of Agriculture, Fisheries and Food costs over $1.3 billion; Ontario’s Ministry of Agriculture, Food and Rural Affairs costs $833 million; in Alberta, Agriculture and Irrigation costs $685 million; and in British Columbia, Agriculture and Food costs $293 million. And then there are still Saskatchewan, Manitoba, and the Atlantic provinces to account for.

Forget Loblaw’s measly $2.1 billion (including pharmacies and banking, remember). If you want food sector income and wealth redistribution, there is over $7 billion in annual government spending on food and agriculture alone. Take it down to zero, and that’s more than $175 per Canadian per year, or $700 for a family of four. Now those are real savings!

Of course, in addition to the dollars involved, we need to consider the wider economic impacts of abolishing all the agriculture and food ministries, just as we did with the special Loblaw tax. But while higher grocery taxes had only negative consequences, abolishing the agriculture ministries brings only positive economic effects.

I have no reason to think the 5,677 people employed at Agriculture and Agri-Food Canada, the 73 at the Canadian Dairy Commission and the 453 at the Canadian Grain Commission are anything but very nice people and very competent employees. But that only means all these people are very nicely and very competently causing central planning trouble that distorts the food market, creates inefficiencies in the food industry and imposes administrative and regulatory burdens on Canadians. Releasing the six thousand to do useful and productive work of their own instead of obstructing markets would be a great economic benefit to all Canadians.

Let’s not have any more of this nonsense about going after grocery store profits. If we really want savings for grocery shoppers, let’s start abolishing government departments instead.

Financial Post

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