We asked several of our regular Economy Lab contributing economists a simple question: If you could ask for just one thing from Thursday’s federal budget, what would it be? Their wish list – ranging from tax and tariff reforms to breaks on retirement income to a new focus on sustainability and productivity, even cash prizes for innovation – has been compiled here.
Lindsay Tedds: Income tax reform
(Lindsay Tedds is an assistant professor of economics in the School of Public Administration at the University of Victoria. You can follow her on twitter @LindsayTedds)
As of 2010, the federal Income Tax Act alone amounts to nearly 2,900 pages. There are also the federal Income Tax Regulations and they amount to more than 1,300 additional pages. It is no secret that the tax system in Canada is now very complex, and few Canadian seem to be able to understand it. This is a problem because the tax system is there for all of our benefit, not our detriment.
The last time Canada engaged in a comprehensive review of the tax system was in 1962, with the Carter Commission. The commission released a six-volume report in 1966 and declared fairness as one of the most important objectives of the tax system. It aptly argued that the tax system was complicated and inefficient, and wealthy Canadians were exploiting the system to reduce their fair share of the tax liability. Unfortunately, most of the commission’s recommendations were ignored and now, nearly 50 years later, the exact same concerns are being echoed by tax experts and non-experts alike.
A big part of the complexity has arisen because of piecemeal changes that have been implemented over the past 40 years. Another contributor to the complexity is that our economy and activities have changed a lot since the Income Tax Act was first passed in 1948. As a result, our tax system has experienced haphazard changes and is a mish-mash of deductions, exemptions, credits, transfers, and rates with no unifying objective or premise.
So if I had one wish for Budget 2013, it would be that it would include an announcement that the Minister of Finance is taking leadership in this area and forming a Royal Commission that would be tasked with returning our tax system to one that respects fairness, that is uncomplicated, and that is efficient. I would also wish for the commission’s recommendations to be binding this time, to avoid a repeat of the outcome of the Carter Commission.
Mike Moffatt: Reduce tax subsidies and tariffs – together
(Mike Moffatt is an assistant professor in the Business, Economics and Public Policy group at the Richard Ivey School of Business, University of Western Ontario.)
There are literally hundreds of so called “tax expenditures” in the tax code, from textbook tax credits to deductions for clergy residences. These cost the government tens of billions of dollars each year, though for many of these deductions there is little evidence that they are meeting their stated goals. They serve to complicate the lives of Canadians, who are required to track expenditures and fill out lengthier forms in order to qualify.
At the same time, we have a number of tariffs that do little beyond keeping consumer prices high. Do we really need a tariff on imported peaches, which rises in times of national emergency? Why is a 16-per-cent tariff on orchids necessary? The government may wish to retain dairy supply management, but are tariffs of 300 per cent really necessary to preserve the stability of that system?
A grand bargain should be possible here, where the elimination of subsidies and tax expenditures is offset by a reduction in tariffs. We can make it such that every dollar of tax subsidy that is taken away is matched by an offsetting reduction in taxes and tariffs elsewhere, so there is no cost to the government. The benefits, however, would be substantial, as businesses and consumers would spend less time complying with tax laws, and tax enforcement would be made much easier. And by reducing some of our more outrageous tariffs, we send a signal to our trading partners that Canada is willing to take the steps needed to get trade deals signed.
Frances Woolley: Change the RRIF withdrawal rules
(Frances Woolley is a professor of economics at Carleton University)
There will, inevitably, be something in this budget for older, middle-class, suburban Canadians, because they are such a key Conservative demographic. Changing the Registered Retirement Income Fund (RRIF) withdrawal rules would be better than the political panders we’ve seen in previous budgets: boutique tax credits, erosion of the tax base, and pointless “tough on crime” rhetoric. Although lower required withdrawals from RRIFs would reduce tax revenues in the short run, Canada Revenue Agency will still get its take in the long run, when the funds are eventually withdrawn. Tax revenues delayed are better than tax revenues foregone.
The other reason I wish for a change in the RRIF rules is that I’m worried about my Mum. Given her genetics and her lifestyle, she could live to be 100. With the current rules, most of the money in her RRIF would be gone right around the time that she needs costly assistance with long-term care needs. That seems to defeat the purpose of having retirement savings.
I could wish for an end to omnibus budgets, a carbon tax, more funding for economic research or an announcement that, from now on, the government will make environmental stewardship a top priority. But I’m not one to wish for things I that have no hope of getting. A change in the RRIF rules would make my Dad happy – and what better use could I have for a wish than that?
Andrew Jackson: Productivity and sustainability
(Andrew Jackson is the Packer Professor of Social Justice at York University and senior policy adviser to the Broadbent Institute)
If there is one single priority for the budget, it should be to look beyond the immediate fiscal issues and set a clear direction to a new economy based upon high productivity and environmental sustainability.
The Harper government's single-minded focus on unprocessed resource extraction for export as the key driver of growth is closely related to the loss of good manufacturing jobs, our high trade deficit, continued very high unemployment, growing regional tensions, the continued marginalization of First Nations; and Canada's failure to deal with the urgent challenge of global climate change.
Concretely, the Budget can and should support innovation, especially in clean energy and energy conservation; invest in skills development, especially for youth, the unemployed and First Nations; and make long-term investments in public transit and urban environmental infrastructure.
These kinds of investments would create more and better jobs today, and a stronger and more sustainable economy tomorrow.
Linda Nazareth: Award innovation – with cash prizes
(Linda Nazareth is the principal of Relentless Economics Inc. and a senior fellow at the Macdonald Laurier Institute)
If I had to pick just one thing for Canada to focus on, I would pick innovation. And, if I had to pick just one way to do that, I’d say to run a contest and give prizes for innovation. Simple, sweet and I actually think it would work.
Canada is heading for a demographically induced slowdown, one that is going to coincide with a world facing the same thing. That slowdown is going to come on top of a heap of other problems, mostly stemming from the aftermath of the global crisis. To get through it and thrive means boosting productivity – and to do that, you need to boost innovation.
Everything from cutting red tape through to subsidizing education would help, and all should be encouraged. But a prize would raise the profile of innovation. It would start discussions. It would spur innovations, some of which would end up being produced by companies. And prizes have a track record of working. One example? In 1919, the unimaginable sum of $25,000 was offered to the first person who could fly non-stop between New York and Paris. As a result, a lot of innovations in aviation took place before Charles Lindbergh picked up his prize in 1927.
So let’s pick a number, a high one, and offer that as the prize to the company or individual who comes up with the most innovative innovation in Canada this year. (How about a pool of $10-million to be split among up to 12 recipients a year?) Someone will walk away with the money – but everyone will win.