Time to rein in Canada’s tax code
TheStar.com – Opinion/Editorials – It’s high time for Ottawa to take a hard look at its labyrinthine tax code and make sure tax breaks are doing the job they were intended for.
May 24, 2016. Editorial
In its original form, Canada’s tax code was 11 pages long. A century later, it is more than 200 times that length. That the Income Tax Act has become a complex tangle will come as no surprise to the many Canadians for whom tax time is an annual nightmare. But the implications of the code’s exponential expansion go well beyond inconvenience to the taxpayer. Somewhere along the way, Ottawa lost track of whether its labyrinthine tax policy was doing the job it is intended to do.
The tax code’s current prolixity is in large part the result of successive governments’ embrace of so-called tax expenditures. The Harper Conservatives were particularly fond of boutique tax credits aimed at, say, promoting children’s fitness or arts education; they introduced dozens of these during their decade in power. (After all, such credits served two of the Tories’ chief interests: retail politics and shrinking the public purse.)
Tax expenditures now amount to upwards of $100 billion annually; by some estimates, they comprise about one quarter of total government spending. Yet these measures have never been subjected to the kinds of accountability or evaluation that are applied to other government outlays.
Federal departments are required to submit reports on direct spending for parliamentary review, but no such rules exist for tax credits. As Auditor General Michael Ferguson warned last year, not even the finance department seems to know exactly how much money is foregone or whether these giveaways achieve their objectives.
That’s a lot of money to lose track of. And what little we do know suggests that, while some of these measures are used to good effect, many others are not or benefit most those who need help the least.
Take the Canada Education Savings Grant, Ottawa’s most significant post-secondary program. A government study, uncovered by CBC News late last month, confirmed what economists have long argued: the program profits the well-off most of all. Roughly half of the money goes to families with annual household incomes between $90,000 and $125,000; an additional third is allotted to families making more than that. Surely the goal of the credit is to increase access to education, not simply to help those who can already pay for school do so more easily. Yet this credit has persisted for more than a decade, ineffective but unscrutinized.
Even more regressive is Canada’s backwards tax break for executive stock options. A study by the Canadian Centre for Policy Alternatives found that in 2013, 75 of Canada’s 100 top-paid CEOs received part of their income in the form of stock options, which provides them a significant tax benefit. This loophole allowed them to accrue combined savings of $495 million, or $6.6 million each. That’s half a billion dollars of foregone public money to subsidize 75 very rich people.
The Liberals rightly vowed to close that loophole, but failed to do so in the March budget. That’s a shame. Still, they did deep-six several wasteful Harper-era boutique tax credits (while adding a dubious one of their own for teachers). More important, Finance Minister Bill Morneau promised to undertake a thorough review of tax expenditures in the coming year to ensure that these measures are “consistent with our approach to tax fairness.”
The review is essential. Clearly we ought to subject tax expenditures to the same oversight and public debate as other spending. As it stands, we don’t know whether these astronomically expensive measures are the most cost-effective way of achieving their objectives or whether they achieve them at all. Morneau’s stated goal of finding $3 billion in savings through the review seems a plausible, if modest, aim.
But if the government wants to fix our tax system, this does not go far enough. The review is an opportunity to simplify our sprawling tax code, making it easier for Canadians to navigate and less vulnerable to abuse. And, post-Panama Papers, to do a better job of collecting what Ottawa is owed.
Equally, as the Liberals try to find a way to pay for their ambitious investments, they should bear in mind that their willingness to undertake deficit spending, while welcome, is not good enough. Sooner or later, Ottawa will have to address the revenue gap, too.
The last comprehensive evaluation of our tax system was the Carter Commission of 1966. Over the half-century since then, several economic orthodoxies have come and gone and our tax code has grown into an inscrutable behemoth. The crucial public tool that is our tax system has fallen into disrepair. It’s time we took another look.
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Tags: budget, economy, featured, ideology, tax
This entry was posted on Tuesday, May 24th, 2016 at 12:18 pm and is filed under Governance Policy Context. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.
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