Government setting a trap, says professor

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York University economics professor Fred Lazar believes the idea of creating financial institutions for First Nations is an approach designed to get the federal government off the hook for unpaid debts.

The draft First Nations Fiscal and Statistical Management act was unveiled on Aug. 15. It proposes the creation of financial institutions that will allow First Nations governments to pool resources and join together to form financial entities large enough to take advantage of the kind of low-interest loans that are available to municipal, provincial and federal governments.

Lazar, a 56-year-old Romanian-born economist, is an associate professor at York University's department of economics and the university's Schulich School of Business. The University of Toronto grad received his PhD in economics from Harvard University in 1978.

He was retained by Abenaki Nation member Roger Obonsawin, president of the OI Group of Companies, to analyze the government's proposal. Obonsawin is locked in a legal battle with the Canada Customs and Revenue Agency (CCRA, formerly Revenue Canada) over an employee leasing operation that sought to maximize First Nations people's ability to make use of their right to be tax-exempt.

While the proposed financial institutions legislation seeks to give First Nations the right to employ taxation to raise their own revenues, Obonsawin argues taxation is not the answer to real economic development on First Nations territories.

Lazar's analysis backs up Obonsawin's position.

"The only argument I've heard in favor of this is that it will enable First Nations to borrow money. Why would First Nations want to borrow money?" Lazar asked during an interview in Edmonton on Sept. 18. "To improve infrastructure and basic services for their people? These are all areas where the federal government has an obligation that it hasn't met."

He said the federal government would benefit from any project that is paid for with borrowed money because it would be one less thing the government would either be forced to pay for or be criticized for not paying for.

"This is an attempt by the government of Canada to harmonize and dictate tax regimes," he said. "There's no upside for First Nations. It's a trap set by the federal government."

The professor believes the creation of a First Nations middle class would solve a lot of the problems, and that requires real, sustainable economic development, not the program-oriented approach favored by government bureaucrats.

Obonsawin said he believes the solution to creating real economies on First Nations is to create a national First Nations economy that relies heavily on the tax-exempt right.

"And we need to control our resources," he added. "That's the real threat. That's what they're trying to eliminate. My main disagreement with the federal legislation is that it's very paternalistic."

Lazar said the main objections to this approach is that tax exemption is seen as a special right and non-Native Canadians resent paying taxes that Native people don't have to pay. He countered that by saying that First Nations have had resource riches stripped from their lands by governments and private companies and have not received their fair share.

"First Nations people are taxed 40 per cent more than average Canadians when you take that into account," he said.

Canadians need to look more closely at this issue, he said.

"Let's take RSPs as an example," he said. "I've heard it stated in government circles that the government had to bribe Canadians to save for their retirement because we're too stupid to do it on our own. The ability to put money aside and avoid tax was a service provided by the government originally, an inducement to save. But now Canadians see it as a right. It's not a right. But the tax exemption for First Nations people is a right."

Creating RSPs could be seen as a paternalistic gesture by the government that has created a dependency, he argued, mirrorng an assessment that critics of tax exemption have offered regarding First Nations people. It's another example of fuzzy thinking by mainstream Canadians when it comes to First Nations issues and, he argued, definite evidence of a double standard.

In his 76-page report entitled Tax Exemption: A tool for economic development for First Nations. Sorting out the issues, released in July, Lazar makes his arguments in detail citing a number of statistics.

Early in the report, Lazar mentions the Harvard study that concluded that sovereignty for U.S. tribes was the key to solving social and economic woes.

"Economic development for the First Nations is imperative," he wrote. "Stephen Cornell and Joseph Kalt have stressed that sovereignty, nation-building, and economic development go hand in hand. Without sovereignty and nation building, economic development is likely to remain a frustratingly elusive dream. There is general agreement that the First Nations must be in control of their destiny, regain the rights to resources, expand their land bases and continue to receive reparations from the federal government to support economic development initiatives, including education, health care, infrastructure and social programs."

He points out that the economic gap (the difference in net worth between the average Native and average non-Native Canadian) is too large.

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He states that if the gap was closed it would mean a net gain to Canada each year of more than $9 billion. That number would be the result of savings in social assistance expenditures and an increase in the amount of tax revenue that would flow to the government as a result of impoverished people suddenly having money to spend.

"Eliminating the gaps would produce sizable benefits for both the First Nations peoples and all peoples living in Canada. RCAP calculated an annual net benefit of $7.5 billion," he wrote. "Closing only the income gap between registered Indians and non-Aboriginals could lead to a net eonomic benefit of between $5.8 and $7.8 billion. These estimates do not include the additional savings that would result from lower health care costs, lower social assistance payments and lower costs for justice and correctional services. With conservative estimates for these additional savings, the net economic benefits could well exceed $9.0 billion annually."

He noted that the federal government is not interested in spending any more money on dealing with the First Nations. The economist's recommendations to First Nations included getting rid of the Indian Act; negotiating constitutionally entrenched and protected sovereignty, including appropriate compensation; and creating a First Nations government and economic development strategy.

When First Nations are truly sovereign, he wrote, they could control their own taxation policies for their own reasons.

"Tax policy should be viewed from the point of view of incentives rather than as a source of revenues for First Nation governments. This latter perspective plays into the hands of the federal government and runs counter to the view that the federal government should maintain, if not expand, its financial support of First Nations communities," Lazar wrote. "There are at least two lines of argument to support tax exemption for all First Nations peoples and their companies, whether they are collectively or individually owned.

"One line of argument follows from the fact that the rights to set tax rates and formulate tax policy belong to a government and are important instruments for a sovereign nation to control. If First Nations are to have self-government and eventually be treated as equals, they alone must determine how their people should be governed, and this includes how they should be taxed. Indeed, the First Nations have every right to set tax rates at zero if they decide that this would be in the best long-term interests of their peoples.

"The second line of argument follows from the fact that tax polices have long been considered and used for a wide range of economic and social objectives, and as such, they can play a key part of a First Nations economic development strategy. The current and former Ministers of Finance in the Chretien government have made tax cuts a major component in their economic growth strategies. Further, the federal government continues to have in place a large number of tax incentives to stimulate economic growth and these measures cost the government billions of dollars annually in foregone revenues.

"Thus, at a minimum, First Nations peoples should not be subject to an income tax since economic development is critical to reduce and eventually eliminate the income gaps that exist between the First Nations peoples and non-Aboriginal peoples in Canada."

He lined up a number of facts to make his case that Canada has treated and is treating Native people unfairly.

Lazar pointed out that two per cent of Canada's land mass has been set aside for parks while reserves occupy only 0.4 per cent. Three per cent of Canada's population is Aboriginal.

"More money is spent to prop up incomes of farmers than is spent on education of Aboriginal children," he added.

He also illustrated that the government makes all kinds of choices to forego taxation in order to accomplish a social benefit and wondered why it wasn't willing to do so for First Nations people.

"The non-taxation of business-paid health and dental benefits costs governments $1.6 billion, exceeding Health Canada's expenditures of $1.4 billion for health care for Aboriginal people," he wrote. "The charitable donations credit produces an additional cost of $1.3 billion as compared to INAC's expenditure of $1 billion for social programs for registered Indians and Inuit."