Tax breaks leave gaping hole in federal budget
TorStar.com – opinion/editorialopinion
Published On Thu Jan 12 2012. By Carol Goar, Editorial Board
Ottawa’s chief cost-cutter, Tony Clement, is finalizing his list of budgetary cutbacks. The losses will be big — 10 per cent of federal spending — and they’ll hurt. Some public services will be axed. Some departments will be decimated.
But there is one area of government activity that will escape his scrutiny. Every year Ottawa gives up billions of taxes in deductions, exemptions, deferrals, credits, rebates and concessions. Because no money actually goes out the door, these tax breaks don’t count as spending. But they cost the federal treasury billions.
Opposition MPs would like to know how much revenue the government is forgoing. The auditor general would like to do a cost/benefit analysis. Taxpayers would like to know who’s actually paying the freight in this country.
They’re unlikely to find out. The government refuses to provide a tally. All it offers is an annual compendium of all its “tax expenditures” with a warning not to add them up.
It would be misleading to produce a bottom line, the finance department insists, because “many tax expenditures interact with each other such that the impact of several tax provisions at once cannot generally be calculated by adding the estimates and projections for each provision.”
But over the years, frustrated public officials — a former auditor general (1986), a researcher in the parliamentary library (2006) and Canada’s parliamentary budget officer Kevin Page (last June) — have disregarded this directive, seeking to provide Canadians with a rough idea how much is going out the back door.
In that tradition, here is the value of all the tax expenditures in the 2011 report, released this week: $152 billion.
To put that in perspective, the government’s total program spending in 2011 amounted to $248 billion.
Since Prime Minister Stephen Harper took power in 2006, tax expenditures have grown by $20 billion. Part of the increase was beyond his control; the child tax benefit is programmed to increase annually and the aging of the population drove up the cost of retirement support. But that’s only half the story. The Tories have created a profusion of new tax expenditures.
Here is a sample: the children’s fitness tax credit, the children’s arts tax credit, the universal child care benefit, the public transit tax credit, the first-time homebuyers’ tax credit, the volunteer firefighters tax credit, the working income tax benefit, the family caregivers tax credit, plus two sheltered-savings vehicles, registered disability savings plans and the tax-free savings accounts.
While all these new tax expenditures were being added, many long-established tax credits and exemptions shrank. The value of the charitable donations tax credit, the education tax credit, the textbook tax credit, the nontaxation of social assistance benefits, the nontaxation of veterans’ disability benefits and the nontaxation of guaranteed income supplement benefits (a pension top-up for impoverished seniors) all went down on Harper’s watch.
Few Canadians — even fiscal hawks — would want to get rid of all tax expenditures. They promote investment, encourage altruism and help workers save for their retirement. They assist parents with the cost of child-raising, help people with disabilities and heavy medical bills and spare the elderly and the poor onerous tax payments.
But the 236 currently on the books could use some culling. At a time of austerity, does it make sense to sacrifice badly needed revenue to give parents tax breaks on sports equipment and dance lessons? Given its dismal success rate, is it smart to keep pouring $2.7 billion a year into the scientific research and experimental development investment tax credit? At a time when an affluent minority is acquiring an ever-greater share of the nation’s wealth, do corporations need a tax deduction for meals and entertainment?
These questions are never discussed in Parliament. They are not open for public debate. They are not part of Flaherty’s budgetary consultations. They are not part of Clement’s spending review.
Canadians understand that the nation has to live within its means. But that means all expenditures, including the 38 per cent delivered through the tax system, should be on the table.
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