Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Report on Business

Economy Lab

Delving into the forces that shape our living standards
Best Business Blog, EPPY awards, 2011 and 2012

Entry archive:

Economy Lab has moved

Only Globe Unlimited members will now have access to a wide range of insightful commentary
and analysis on the economy and markets previously offered on this page.


Globe Unlimited subscribers will be able to read these columns,
written by some of Canada’s most deeply respected economists,
such as Christopher Ragan, Sheryl King, Andrew Jackson, and Clement Gignac,
as part of our ROB INSIGHT section.


All of our readers will still be able to browse the Economy Lab archives and read our
broader coverage of economic data and news by accessing their 10 free articles a month.


Learn more about Globe Unlimited and how to subscribe.

Ontario Premier Kathleen Wynne speaks to the media in this file photo. (Nathan Denette/THE CANADIAN PRESS)
Ontario Premier Kathleen Wynne speaks to the media in this file photo. (Nathan Denette/THE CANADIAN PRESS)

Canada and Ontario tax systems need to smarten up Add to ...

Taxes happen. Shouldn’t they at least be smart?

As governments look to deliver on their mandates and help the ever-pinched middle class, few if any look to tax policy or tax reform as an answer.

That is a shame, because tax policy is one of the most powerful public policy levers available to government. When a tax system is smart, taxes enable governments to generate revenue while also enhancing the living standards for all citizens. Taxes create incentives and barriers for personal choices and investments. It is important that governments have an accurate understanding of the costs and benefits associated with certain tax credits.

More Related to this Story

Ontario has dramatically improved its tax system in recent years by introducing the harmonized sales tax, phasing out the capital tax and lowering corporate taxes. The result has been a marked decrease in the marginal effective tax rate, making the province a destination for business expansion and foreign direct investment. However, there are always new ways to modify tax policy in a manner that spurs growth, investment and competitiveness.

We at the Institute for Competitiveness and Prosperity have taken a close look at the areas of personal income and business taxes, at both the federal and provincial levels. Our new paper on the subject, published Monday morning, outlines several ways in which our tax system could be smarter. A smart tax system ensures taxes are proportional to one’s ability to pay and minimizes economic distortions. A smart tax system rewards actions that benefit society, such as investments in research and development and in education, and discourages actions that have hidden social costs, such as smoking or pollution.

On the personal tax side, the time has come to revise the Basic Personal Allowance so that it can truly benefit those at the lowest end of the income scale. Our tuition and education credits could be converted to grants, thereby reducing tuition by some $1,900 per student. Finally, targeted tax policy measures such as the Children’s Fitness Credit and the Ontario Clean Energy Benefit should be reviewed for effectiveness, or eliminated.

On the business tax side, much has been done to reduce corporate taxes and spur economic growth. However, the Institute recommends that governments adopt a principle of neutrality, so that all industries are seen as equal, rather than giving some a leg up. Most importantly, we should shatter the myth that our provincial economy is driven by small businesses, phase out the small-business tax deduction, and use the proceeds to provide incentives for economic growth across the board.

Tax reform is hard work, but the benefits are enormous. With fresh thinking and political courage, Ontario and Canada could have a more equitable, effective and efficient tax system that can increase our prosperity and competitiveness. With greater consideration of the broader effects of current tax measures, Ontario can ensure it rewards the right actions and puts more money back into the pockets of people who need it. If our recommendations were followed, a significant amount of funding would become available to federal and provincial governments for reallocation to meet public policy goals. That is an opportunity that could capture the minds of the public and elected officials alike.

Jamison Steeve is executive director for the Institute for Competitiveness & Prosperity and the Martin Prosperity Institute, at the University of Toronto’s Rotman School of Management

Follow us on Twitter: @GlobeBusiness

 

Topics:

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories