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(Melissa King/iStockphoto)
(Melissa King/iStockphoto)

BARRIE McKENNA

The flaw in targeted tax cuts Add to ...

Firefighters, caregivers and parents rejoice. The budget is coming - again.

Finance Minister Jim Flaherty has confirmed he'll reintroduce his low-tax plan-for-jobs-and-growth budget next month, with a few tweaks.

Almost certain to make a reappearance will be three tax gimmicks that featured prominently in the March budget. There's a $160-million-a-year tax credit for family caregivers, a $100-million credit for parents with kids in arts programs and a $15-million credit for volunteer firefighters.

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The costs aren't huge. But the trend is worrying.

The Harper Conservatives love these designer tax breaks. Pick a constituency you want to seduce and throw them some cash in the form of a tax credit. Maybe next year bike commuters, joggers or volunteer hockey coaches will get their just rewards. They're all worthy people.

But these preferences amount to worthless giveaways. They gum up a tax system that is already too complex. They're seldom generous enough to influence behaviour. And add them up, and they are a significant drain on government revenues. That's why most experts abhor them.

"Tax preferences are often good politics, but the policy impact is generally to add further complexity and opaqueness into the tax system at the price of lost tax revenues," Conference Board of Canada president Anne Golden and chief economist Glen Hodgson said in a post-election message to the Conservative government.

Once a year, the Finance Department tallies up the cost of various tax breaks and credits. The document now counts 22 pages, cataloguing billions of dollars a year worth of so-called "tax expenditures." There are breaks for union dues, political donations, sports activities, seniors, children, tuition, textbooks, artists, adult education and people who live in the North.

The tax system is equally loaded up with targeted credits and deductions for businesses. These breaks don't just drain the treasury, they make tax filing needlessly complex and time-consuming.

It's no wonder nearly seven out of 10 Canadians now rely on someone else to fill out their tax returns. More than half hire accountants or other tax preparers. A 2010 study by the Vancouver-based Fraser Institute estimated that preparing and filing personal income tax returns costs Canadians as much as $6-billion a year.

Undeterred, the Harper government has promised more special breaks once it balances the budget within four years. Prime Minister Stephen Harper's most significant campaign pledge is an income-splitting plan to reward stay-at-home moms for unpaid child-rearing work and eliminate inequities between single-income and two-income households (cost: $2.5-billion a year).

These types of special measures typically boast lofty goals - education, mothers, health and so on. But by steering benefits to one group, others must necessarily pay the price.

In the case of the Conservatives' proposed family tax cut, the benefits would flow mainly to wealthier Canadians. A family headed by someone in the top 2011 income bracket ($128,800) would save more than $6,000. Working families in which the top earner makes less than $41,544 wouldn't get anything. Nor would single people, including divorced parents.

The plan would also tilt the tax system in favour of single-income families, including childless ones, which are typically better off than other Canadians.

The families most in need are headed by single parents with children. But there's no break coming for them.

There is a better way. If and when Ottawa can afford to cut taxes, it should lower the rates across the board for all Canadians. That way the government isn't picking winners and losers. Lower taxes would spur spending and investment, which in turn generates economic growth, income and wealth.

Or, if Ottawa truly wanted to create an incentive for people to do good deeds, it should offer a sweeping volunteer tax break that allows Canadians to choose their own activity - in libraries, youth sports, churches or wherever.

A majority means the Harper government shouldn't have to resort to gimmicks to win votes. Instead, it can focus on making sure that Canada has a tax system that's transparent, fair and efficient.

Ask most Canadians and they would gladly trade in the kids' fitness tax credit ($75 per child) and a host of other designer breaks for a lower rate.

The government doesn't have to go to the polls for at least another four years. So why continue to throw meaningless baubles at voters?

It's time for a little fiscal maturity, Mr. Flaherty.

Follow on Twitter: @barriemckenna

 

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