Mostafa Askari, Kevin Page and Nishant Singh are part of the Institute of Fiscal Studies and Democracy at the University of Ottawa.
The British prime minister Winston Churchill famously said, "that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
Voters beware. It is a good bet that some political parties in Canada will be proposing higher revenues in their federal electoral platforms this fall to help pay for new spending initiatives. Has the time come for a broad review of Canada’s tax system? Yes. Should this review be a precondition for voters before a future government raises significant new tax and non-tax revenue? Maybe.
In the 2015 federal election campaign, voters saw an array of proposed policy changes across political parties. Some argued for tax cuts for small businesses; others argued for increases in statutory corporate rates (the NDP argued for both). Some argued for the review of tax expenditures (that is, credits, exemptions and deductions) to find targeted savings. The Liberals, the eventual governing party, sought changes to make the personal income tax system more progressive (that is, the rich should pay more). The Conservatives, the eventual Official Opposition party, promoted the concept of a tax lock – no future increases in income and sales taxes over the next four years. With the exception of the Green Party, no party called for a thorough review of the tax system.
In 2019, the chorus for major tax review and reform is large. The arguments cover the full range of tax policy objectives from fairness to simplicity to efficiency to competitiveness. The chorus includes international organizations such as the Organization for Economic Co-operation and Development and the International Monetary Fund, large domestic organizations such as the Chartered Professional Accountants (CPA) and heads of major business groups representing the Canadian Chamber of Commerce, the Business Council of Canada and Canadian Manufacturers and Exporters. It includes recommendations from parliamentary committees of finance from both the House of Commons and Senate. It includes a range of independent tax experts such as Allan Lanthier, Michael Wolfson and Fred O’Riordan, among others. It includes a strong majority of Canadians surveyed in recent polls.
Will political parties join the chorus and include proposals for tax review and reform in their 2019 platforms? Isaac Asimov, the late U.S. scientist and writer, said “it is the obvious which is so difficult to see most of the time.” Tax reform is contentious – there are real and perceived winners and losers. Witness the difficult time experienced by the Liberal government on small-business tax reform in 2017. Have major political parties lost their nerve?
The antidote recommended by public-policy wonks is evidence-based analysis and a sound policy process. Fact-based analysis builds support for reform. A good process must be transparent and build evidence. A number of Canadian organizations have reviewed experiences from other countries.
Unlike Canada, both Britain and Australia were able to conduct more recent comprehensive principle reviews of the future of tax given various economic and social challenges. In the case of Britain, a benchmark system was designed so that citizens have a better understanding of how proposed changes by political parties are aligned. New Zealand has made the commitment to frequent, targeted reviews to root out inefficiencies. We think Canada can do both – a long-term comprehensive review of the future of tax and annual or biennial targeted reviews.
One of our favourite lines in the Carter Commission report – the last major tax review in Canada published in 1966 – “obviously, no one wants to pay taxes: and almost everyone is prepared to argue that his/her taxes are too high relative to those paid by another.” Perhaps people do not change. The famous Carter Commission report published more than 50 years ago was in response to concerns that the Canadian tax system had become a hodgepodge patchwork stitched together in a postwar environment.
The economy has changed a great deal since the 1960s even if people haven’t. We owe it to the current generation to address problems people would say are six inches in front of our nose (e.g. a tax system that is among the worst in terms of cost of collection in developed countries). We owe it to the next generation to address tax challenges related to an economy increasingly driven by digital companies; a labour market being transformed by robotics and gig employees; and a well-established global trend toward income inequality as the knowledge economy supersedes others.