Calculating tax breaks isn’t easy
TheStar.com – opinion/editorialopinion
Published On Tue Jan 25 2011. By Carol Goar Editorial Board
You’ll be hearing a lot about cutbacks, savings and restraint in the next few weeks. Finance Minister Jim Flaherty intends to chop $8 billion from federal spending in his 2011 budget.
But there is one large drain on the national treasury you won’t hear about: Tax breaks.
Every year, the government forgoes billions of dollars of revenue in tax credits, deductions, exemptions, rebates, deferrals and concessions. These special measures range from the universal child-care benefit to the accelerated deduction allowance for capital equipment. There are 235 of them.
Auditor General Sheila Fraser would like to do a cost-benefit analysis, but she can’t. Her mandate covers only direct spending.
Members of Parliament would like to know how much money is going out the door. But the finance department won’t provide a tally.
The answer won’t be in Flaherty’s upcoming budget. But there is one publication that provides a measure of this activity. It is called Tax Expenditures and Evaluations. The 2010 edition just came out.
It is not a user-friendly document. It consists of page after page of tax incentives, with no total. The finance department says it would be misleading to sum them all up because “tax expenditures interact with each other such that the impact of several tax provisions at once cannot generally be calculated by adding up the estimates.”
Former auditor general Ken Dye wasn’t satisfied with that answer. He did his own calculation in 1986 and came up with an estimate of $28 billion.
The parliamentary library took another stab at it in 2006. Its tally was $70 billion.
No one has attempted to update that figure. In the absence of any official estimate, here is a journalist’s rough approximation: $135 billion. (Caution: Contrary to the finance department’s advice, I added up all the tax expenditures in its 2010 report.)
This total does not include outright tax cuts. If Prime Minister Stephen Harper’s two GST reductions and his three corporate tax-rate cuts (the fourth took place on Jan. 1, 2011) were added, the total would go up to about to $153 billion.
Nor does it cover tax expenditures the finance department considers “fundamental structural elements of the tax system.” These range from the basic personal amount (Ottawa exempts the first $10,382 of an individual’s income from taxation) to the tax-free status of lottery winnings. If they were included, the cost would go up to $206 billion.
It would be foolish to get rid of all tax expenditures. They are an effective way to deliver financial support to the elderly, the poor, parents and Canadians with disabilities. They encourage charitable donations, help workers save for their retirement, spur investment and promote regional development. They allow Ottawa to avoid turf wars with the provinces and distribute benefits without legions of bureaucrats.
But it would be salutary to scrap some. The trouble is neither MPs nor citizens have enough information to evaluate or debate them. Parliamentarians can’t hold the government to account for them. Taxpayers can’t ask that an outdated or inequitable tax expenditure be scrapped in order to preserve a valued program or service.
It’s wrong that these tax preferences are not part of pre-budget consultations. They have an important bearing on the cost of government and the size of the deficit.
It is regrettable that Canadians have to rely to guesstimates and pocket-calculator figures. But what is most disturbing is that a multi-billion component of the nation’s finances is off-limits to the people who pay Canada’s bills.
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