If all you have is a hammer, everything starts to look like a nail.
That’s never been truer than in the realm of Canadian tax policy, especially under the governing Liberal Party of the past 10 years. Whether the issue (the “hammer”) has involved climate alarmism, housing challenges, “intergenerational fairness,” taxing the rich, digital disruption, etc., the instinctive political response has been predictable: tax it or tax it more (the “nail”).
The carbon tax is the most obvious example, but the list is long: luxury taxes; digital services taxes; the now-abandoned capital gains inclusion rate hike; the four per cent increase in tax rates for the so-called rich in 2016; numerous and silly housing tax measures (such as the
and the
prohibition of deductions
on short-term rentals in certain instances).
All of these are not signs of thoughtful, evidence-based policymaking. They’re symptoms of a deeper problem: a government that views taxation less as a tool of sound economic stewardship and more as a blunt ideological instrument for social engineering and political messaging.
The Liberals are most certainly not interested in change since they want to continue using taxation policy as a blunt political instrument.
The Liberals’
only reinforced this concern. Rather than committing to comprehensive tax reform (such as the Conservatives did), they proposed to “conduct an expert review of the corporate tax system based on the principles of fairness, transparency, simplicity, sustainability and competitiveness.”
That sentence might sound good, especially if you have a cursory understanding of taxation policy. But read it again. Can you tell me what it means? I certainly have no idea what it means, but I never like it when “fairness” and taxation policy are used in the same sentence by political parties. The sentence, however, certainly doesn’t promise a comprehensive tax review or reform.
Here’s why.
for the federal government were $459.5 billion for the 2023-24 fiscal year. Corporate tax revenues were $82.5 billion, 17.9 per cent, of that total; personal tax revenues were $217.7 billion, or 47.4 per cent; and GST revenues represented $51.4 billion, or 11.2 per cent.
Why only focus on corporate tax when personal tax and GST account for almost 59 per cent of federal revenues?
Second, there are many areas of taxation that are very important, but don’t directly or materially contribute to government revenues. The proper and efficient administration of the tax system — conducted by the Canada Revenue Agency — is an example of that. It desperately
needs attention
and big fixes.
The charitable and non-profit sectors
need a complete review
and some overhaul to deal with abuses. International and nonresident taxation is another very complex area that needs a review. Ditto for the effectiveness of our taxation system on death.
Third, to solely focus a review on the corporate system is far too narrow. Corporate tax is merely a prepayment of taxes ultimately borne by individuals — whether as workers, consumers or investors. A review of one aspect of the tax system makes sense if it is obvious that it is a big problem compared to the other aspects. But it’s not. True review or reform must examine the full scope of taxation.
Fourth, instead of focusing on the principles of fairness, transparency, simplicity, sustainability and competitiveness as stated in the Liberal policy platform, any review of the tax system should ensure that Adam Smith’s four canons of a good tax system — as laid out in 1776 in
— are adhered to:
- Equity/fairness: taxes should be proportional to a person’s ability to pay. To be clear, the use of the word “fairness” in the Smithian context is a lot different than when political ideologues use it;
- Certainty: taxpayers should know how much, when and how to pay their taxes, with minimal discretion left to tax authorities;
- Convenience: every tax ought to be levied at the time or in the manner in which it is most likely to be convenient for the contributor to pay it;
- Efficiency: taxes should minimize compliance costs, administrative burdens and economic distortions.
Fifth, who will be the experts that will conduct the corporate tax review? Will it be the same people who have advised the Liberal government over the past 10 years? Those people, particularly some well-known academics who lack practical experience, are ideologues who have greatly contributed to the mess that our tax system is. It is full of
political tax gimmicks
that pander to a governing party’s voter base with little concern as to whether or not such gimmicks contribute to good overall public policy.
The Liberals have an opportunity to do what their main competitor proposed: conduct broad-based tax reform. There are many in the tax community who offer advice as to what that reform should look like, but many of those recommendations are too surgical. In other words, our income tax statute and administrative system are beyond simple fixes.
Instead, as economist Jack Mintz has often stated, Canada needs
“Big Bang” tax reform
. It’s time for big thinking: new and bold ideas to help kickstart our lagging economy and encourage our great entrepreneurs.
AC/DC
last month with their song Back in Black — a masterclass in power, precision and showmanship. Canada’s tax system, by contrast, is a cacophony of political gimmicks and missed opportunities.
If Mark Carney and the Liberals are serious about leadership, they must ditch the narrow corporate tax review and deliver the bold, broad-based reform our economy demands: a Big Bang to unleash Canada’s entrepreneurial spirit and restore fiscal harmony.
Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.
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