How Canada got a step closer to taming its big fiscal beast
TheGlobeandMail.com – ROB/Commentary
Mar. 08, 2016. Dylan Marando
Dylan Marando is a PhD student at the University of Toronto and a former adviser in the Office of the Premier of Ontario.
On Feb. 23, the Department of Finance made the unprecedented decision to release tax expenditure figures in database format. You may not have felt the tremor, but this liberation of hitherto cloistered information was earth-moving in the world of Canadian public finance. It has brought us one step closer to understanding and thus taming Canada’s most unwieldy fiscal beast – a hidden multibillion-dollar boondoggle born from an excessive politicization of public policy.
For years now, the government has been drifting toward the use of tax expenditure as a means of policy, and we have lacked the tools to analyze what’s happening. Colloquially known as boutique tax breaks, benefits, or loopholes, this policy instrument has generated programs such as the Public Transit Tax Credit and the Children’s Fitness Tax Credit. Measures such as these are thought to incentivize desired behaviours through targeted tax relief.
It sounds simple, almost like a tax cut. But, in fact, these budgetary boogeymen are subsidies to the select few, often conveniently benefiting the sorts of voters that form the support base of the political powers that be. Many tax expenditures, but thankfully not all, are disproportionately beneficial to the wealthy given their countervailing effect on the progressivity of the income tax system. Research by Ben Sand and Peter Taylor for the Frontier Centre For Public Policy notes that the top income quartile in Canada claims 43 per cent of the value for the aforementioned public transit credit and 71 per cent of the value for the children’s fitness credit.
As the Parliamentary Budget Office reported, already in 2009 there were 189 of these programs, costing the government more than $100-billion a year and representing an astounding 7.5 per cent of gross domestic product. The cost of tax expenditures is greater than the voted appropriations of the federal government.
More troubling, tax expenditures are invisible in the policy discourse. They are not reported in the budget. There is no statutory obligation to review them. As far back as 1976, those skeptical of the tool’s stubborn opacity and growing power asked the government to inform Parliament of costs and benefits. The parliamentary secretary to the minister of finance rose and said: “The information requested is not generated routinely in the regular processing of taxation data. To obtain this information would require special data processing the cost of which would be several thousand dollars. Answering the question would thus be prohibitively expensive.”
Amazingly, that answer was the standard for 40 years. The government did not start reporting on tax expenditures in any form until 1979. It was not until 1994 that the Department of Finance began publishing estimates; even then, the information that came was highly unusable.
In an analysis from the Macdonald-Laurier Institute, Canada’s former chief statistician said of the programs: “Taxpayers neither know accurately how much tax they are paying nor do they have any knowledge of the many ways their tax dollars are being spent, and with what effectiveness.” In the United States, critics have been sounding alarms for years. Cornell University professor Suzanne Mettler argues that tax expenditures create a “submerged state” that detaches the public from policy making, thus enabling governments of the right and left to pursue ideological agendas without public push-back. Prof. Mettler sees this phenomenon as a threat to democratic institutions and evidence-based policy making. My doctoral research seeks to test Prof. Mettler’s thesis in the Canadian context. But roadblocks abound, including access to coherent data.
The trend to hide these expenditures is beginning to change. To be sure, there is a long road ahead. The first step is accurately describing tax expenditures. Then, advocates need to call for the elimination of those programs not well aligned to the broad public interest. We must do more to grasp the political implications of a tax-expenditure-driven system of public policy. Thankfully, we are one step closer.
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Tags: budget, economy, featured, ideology, participation, tax
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