I believe Canada has been devastated by tax cuts and cuts to public services. We are at record lows in how much the Federal government collects in revenue as a percentage of GDP. We face huge challenges: Growing inequality is undermining our economy. Our social programs are being dismantled. Very few of those who are unemployed now qualify for Employment Insurance. Soon you will have to wait till you are 67 before collecting Old Age Security. Health transfers are due to be cut drastically. And climate change threatens our very survival. The Federal Government needs to raise more revenue in order to have the resources required to reduce income inequality, boost investments in social and physical infrastructure and tackle climate change. So when Canada’s Parliamentary Finance Committee asked for input on the next Federal Budget here is what Canadians for Tax Fairness told them:
No More Tax Cuts
A surplus in the next Federal Budget shouldn’t be an automatic green light for more tax cuts. Canada has spent $43 billion on tax cuts since 2006. What did we get for that money? There is strong evidence that corporate tax cuts did not boost investment or job creation. In reality, business investment spending in Canada has declined since the federal government began reducing corporate income taxes. Canada has the lowest corporate tax rate in the G7. That came about because, in part, voters bought the political sales job that lower rates meant companies would hire more staff, build new plants and expand their markets. That didn’t happen. Instead, Canadians were introduced to the rather disconcerting concept of “dead money”. Statistics Canada shows that CEOs are smugly sitting on pile of $630 billion in corporate cash reserves. It may make top shareholders happy in the short term - but it makes for an uninspired economy and job market. Far more jobs would have been created if the government kept the money it was originally owed and invested it in infrastructure and public services. Even a Finance Canada study showed that infrastructure spending has a 1.6 multiplier effect.
So-called “boutique” tax cuts have also been an expensive flop. Granted, the Children’s Fitness Tax credit was material for warm and fuzzy TV ads about the parental joys of sitting through pee-wee hockey practice. But analysis shows it did little do encourage participation in youth sports anywhere in the country. It went disproportionately to upper-income families. There are more much effective ways to get Canadians to exercise.
The fitness tax credit isn’t the only example of how the benefits of tax cuts are skewed in favour of the wealthy. When Canada’s Parliamentary Budget Office calculated the beneficiaries of $30 Billion in tax cuts, the realities were stark. Wealthy Canadians - those in the top 20 per cent of reported income - got more than a third of the pie - $10.9 Billion. Low income Canadians collectively got $1.9 Billion. Less than a tenth of that pie.
Tackle Tax Havens
Canadian money in offshore tax havens has reached an all-time high of $185 Billion. At the same time, the Canada Revenue Agency is laying off senior auditors and chasing down waitresses, plumbers and charities instead of battling profit shifting and other cynical tax practices. Aggressive tax planning is a big, sneaky business. Equipping the CRA and the courts to crack down has multiple benefits. It increases revenue to invest in important services like health, education and transportation. It improves the perception that the tax system is fair and the big guys aren’t scamming the rest of us.
Hardworking taxpayers are starting to realize that it isn’t just Amazon, Apple and Google who are avoiding taxes. Canadian companies like Gildan and Cameco are getting rich from the resources and infrastructure that our country provides. It is time for them to pay their fair share.
Close loopholes and ineffective tax “breaks”
It was a little late-night math-checking that changed former Finance Minister Jim Flaherty’s mind about the realities of income splitting as economic policy or a way to support families. Any way you cut it, it is people with incomes over $170,000 who get the most benefit. Shoring up votes in wealthy neighborhoods is one thing. But if supporting families is the goal, then investing in child care and community services has a much more direct impact.
The Income Tax Act is 1100-pages littered with political add-ons like the Stock Option Deduction. Federal and provincial governments lose $1 billion a year by this loophole that allows CEOs and directors to avoid paying any tax on 50 per cent of their stock option compensations. At a time of growing income inequality this policy should be kicked to the curb.
If the government is counting on tax cuts to spur consumer spending, investment and job creation then they have missed the mark. There’s very little supporting evidence to back up this claim. While middle and lower income Canadians may spend their extra money, the rich tend to bank most of their savings, and they got the lion’s share. Tax cuts are one of the least effective ways to stimulate the economy.
Want to know more? Here’s the Canadians for Tax Fairness submission to the Parliamentary Finance Committee.