Tax cuts are coming. But does Canada have the right mix when it comes to deciding which taxes to cut?
The Conservative benches are agreed that part of next year's surplus will go to tax cuts, but there is no consensus on the details.
Finance Minister Jim Flaherty has questioned the merits of an income splitting pledge that could cost nearly $3-billion in lost personal income tax revenue a year. Prime Minister Stephen Harper seems to be standing by the idea.
Enter Finance Canada's briefing book.
After a cabinet shuffle, departments prepare thick briefing books for all ministers regardless of whether or not they are new to the position. Via an Access to Information request, The Globe obtained a copy of the briefing book presented to Mr. Flaherty following the July 2013 cabinet shuffle.
Under a section focused on tax policy, Mr. Flaherty's officials outline how Canada's current tax mix compares internationally with the 34 nations of the Organization for Economic Co-operation and Development.
"Recent evidence from the OECD suggests that growth-oriented tax policy should shift the burden of taxation toward sales (i.e., consumption) and property taxes, and away from personal and corporate income taxes," officials state in the briefing book.
In practice, the Conservative government has reduced consumption taxes, by cutting the GST from 7 per cent to 5 per cent. It has also cut personal income taxes slightly, while the corporate tax rate has dropped from 22.12 per cent in 2007 to 15 per cent in 2012.
Many economists have criticized the Conservatives for favouring sales tax cuts over personal income tax cuts, but the decision has proved to be good politics. In contrast, Manitoba's NDP government has seen a sharp drop in public opinion support since it raised the PST from 7 to 8 per cent.
Manitoba's recent 2014 budget attempts to sell the unpopular sales tax hike by highlighting the new infrastructure that will be built in the province thanks to the added revenue.
In Ontario, provincial transit agency Metrolix recommended measures, including a one-point PST hike, to help raise about $2-billion a year for transit expansion. The Globe has reported that Premier Kathleen Wynne's government rejected the idea as one that would be too hard to sell politically.
Diving deeper into Finance Canada's briefing book, the minister was informed that Canada's tax burden is below the OECD average and above the United States. It also describes the federal tax burden as being at its lowest level in 50 years.
Data tables break down how Ottawa compares in terms of its use of personal, payroll, corporate, consumption and other forms of taxation.
The figures show that when tax revenue is measured as a percentage of Gross Domestic Product, Canada's personal income taxes are at 10.8 per cent, which is above both the OECD at 8.4 per cent and the U.S. at 8.1 per cent. Payroll taxes – such as Employment Insurance – are at 5.4 per cent in Canada, well below the OECD average of 9.5 per cent and below the U.S. at 6.4 per cent.
The figures are for all levels of government and are from 2010, which the document says is the last year for which estimates are available for all OECD countries.
Canada's revenue from corporate taxes is at 2.2 per cent, which is slightly above the OECD and U.S. averages, even though the corporate tax rate in Canada has dropped significantly below the U.S. rate in recent years.
Bill Curry covers finance in Ottawa.