Professionals and many union members earn above the average income for Canadians. And yet, they can deduct their professional or union dues from their income tax. The cost to the Treasury of forgone revenue: $745-million in 2010.
University students, by and large, earn income well above the average income of Canadians once they enter the work force. And yet, students or their families can enjoy tax credits for tuition, textbooks, tax exemptions for scholarships, student loan interest and other benefits. The cost to the Treasury of forgone revenue: $1.6-billion.
Individuals fortunate enough to enjoy company health and dental plan coverage don't have to consider these benefits as income for tax purposes. The cost to the Treasury: $2.9-billion.
Canada's clergy, if they live in accommodations supplied by their congregations, don't pay income tax on the housing allowance. The measure dates to 1949. The cost to the Treasury: $86-million.
The list of exemptions from tax – so-called tax expenditures – rolls on and on. Dozens and dozens of them pockmark the tax code. Many have been there for decades, yet remain without scrutiny. Client groups have come to expect them. Remove or dilute any, and listen to the howls. And yet, at a time of large deficits, what better time to review their utility? And what better time than after a blue-ribbon panel under Open Text CEO Tom Jenkins ripped apart a range of failed corporate tax credits designed to aid research and development.
In Ottawa, a group of ministers is figuring out how to cut government spending. Departments have been required to prepare blueprints for cuts of 5 per cent and 10 per cent. Deputy ministers' bonuses will partly depend on how much they cut. In charge of the review is Treasury Board President Tony Clement, he of the G8 boondoggle spending in his riding, an example, we might think, of putting the fox in charge of the chickens. But we digress, in part because, ultimately, the Prime Minister will decide before the next budget.
While the ministers' attention centres on program spending, tax expenditures fly well below the radar. They almost never get sustained attention from anyone; indeed, the Harper government has added many new tax expenditures to a tax system already overloaded with them. Program spending is much easier to understand, for parliamentarians, the media and the public.
According to the OECD, Canada relies more on tax expenditures than almost any country. As a share of total tax revenues, Canadian tax expenditures amounted to 59.3 per cent, higher even than the United States at 57.97 per cent and way above Germany at 8.8 per cent and the Netherlands at 9.6 per cent.
These figures come from an introduction to a book of essays about tax expenditures just published by the Canadian Tax Foundation and Osgoode Hall Law School under editors Lisa Philipps, Neil Brooks and Jinyan Li. Some of these essays argue, quite plausibly, that tax credits disproportionately benefit those who need tax help the least – although try selling that argument politically to those who receive the benefits. Other tax expenditures reflect "all politics all the time," as with the Harper government's transit pass tax credit that costs $145-million a year. Initially sold as a climate-change measure to induce people to leave their cars at home, it turns out that 95 per cent of those who receive the credit were already taking public transit.
Some tax expenditures are small, as with the Harper government's next-to-useless children's fitness tax credit that costs $115-million but offers credits too low to change family behaviour. Others are huge, costly and sacrosanct, such as RRSPs that cost $7.3-billion net of tax paid after RRSP money is withdrawn. Or the medical expense tax credit (in a country with a supposedly public health-care system?): $1-billion.
The Finance Department publishes an annual report on tax expenditures, but it gets a fraction of the attention devoted to spending plans. The report is full of statistics and, therefore, boring, a bit like the public accounts that sail past the media and through Parliament. Tax expenditures also get short shrift from the Auditor-General, whose office is preoccupied with program spending rather than the "value for money" of the tax system.
Spending and tax expenditures should get the same scrutiny, since both cost taxpayers a huge amount of money. It's too bad they don't.