(first published in the Niagara Independent)

It is often said that the only sure things in life are death and taxes. In Canada currently, one of the things that is contributing in a big way to our economic demise is our tax system. For some time, tax professionals and policy experts have been arguing for a major overhaul of our taxation system – something like a Royal Commission to take a comprehensive and independent look at our overall tax system, observe where it is doing the most damage to our economy and society, and recommend key changes that must be made so we can emerge from our economic doldrums. 

At this time of year, Canadians are starting to think about filing their taxes, often with trepidation. It’s pretty well known that we face very high tax levels in Canada when all the many taxes we pay are added up. For years, the Fraser Institute has done an annual report on taxes paid by Canadians, and one of the common conclusions of every report is that we pay much more in taxes than we do on the necessities of life such as housing, food, and clothing. There is also the question of value for money to consider such as what types of services and the quality of these services we receive from government in exchange for all the taxes we pay. 

The last comprehensive, independent review of Canada’s system of taxation took place way back in the 1960s with the Carter Commission. Since then, we have seen many piecemeal changes to our tax system with various boutique measures added on such as deductions for various types of expenditures, often included to conform with the ideologies of the government in power. Over the 60 years since the Carter Commission, all of this fiddling in minor ways with the tax system has made it a patchwork quilt of complexity and confusion. It is a rare Canadian indeed who can manage to fill out their own tax return. Although the accounting profession might view that as a plus, it doesn’t do any good for taxpayers or the economy as a whole. 

Last week, The CD Howe Institute published a study by tax expert Jack Mintz, Alexandre Laurin and Nicholas Dahir entitled “The Big Bang Tax Reform to Get Canada Back on Track.” One of the key points made in the report is that the kind of tinkering we have seen with the tax system over the last few decades must end. Instead, a comprehensive reform must be undertaken to once again stimulate investment, increase wages and restore competitiveness to our failing economy that has been severely damaged by an increasingly incoherent tax system.  

The recommendations made in the report are not timid. They include such bold propositions as reducing government reliance on income tax, greatly simplifying the system by getting rid of most of the exemptions and special treatment of particular groups or businesses, reducing corporate tax rates and removing barriers that discourage work and the formation of capital. 

High marginal tax rates on middle- and upper- income earners are singled out in the report as they discourage work, risk-taking and the retention of highly skilled employees and entrepreneurs in Canada, the type of folks who contribute significantly to our economic growth and productivity. For instance, Canada bemoans the fact we have many fewer doctors than we need. These are highly paid individuals, as they should be. Do we really think that our sky-high income tax rates on people like doctors and other professionals don’t influence how many decide to live in Canada? In addition, Canada’s comparatively high corporate tax rates make us uncompetitive as compared to the U.S. and even many European countries. Historically, Europe had higher tax rates than Canada but that is no longer true. The report suggests government rely less on the types of taxes which are most economically damaging, which will boost the economy without having to raise the total tax burden. 

To offset any losses on the personal and corporate tax sides, the study suggests a progressive payroll tax directed to healthcare funding, or possibly a slight GST increase. And of course, reducing government spending is the surest way to get budgets under control and eventually lead to balance. The federal and all provincial governments are in serious debt at present yet seem incapable of cutting back on spending. Research has shown that if tax hikes are used to try to balance budgets they never succeed as governments are just too prone to spend the additional revenue. Whereas if spending cuts are the way to work toward balance, the fiscal achievements will be more durable. 

The study concludes that our current system punishes investment, innovation and work. This has been borne out by economic data over the last decade which shows Canada in decline as compared to other developed Western countries. And although there are a number of reasons for the dismal state of Canada currently, our tax system is a key causal factor. Unfortunately, the current political situation in Canada is not one that is likely to undertake the comprehensive tax reform that is needed. The Carney government has not placed any priority on reforming taxes, and instead muses about increasing taxes on home equity, capital gains and other politically motivated taxes that will do nothing to improve our economy. Indeed, such changes will damage us further. Unless something changes substantially, Canada seems doomed to be sentenced to death by taxes.

Catherine Swift

Catherine Swift is President of the Coalition of Concerned Manufacturers & Businesses of Canada (CCMBC). She was previously President of Working Canadians from 2015-2021 & President & CEO of the Canadian Federation of Independent Business (CFIB) from 1995-2014. She was Chief Economist of the CFIB from 1987-1995, Senior Economist with TD Bank from 1983-1987 & held several positions with the federal government from 1976-1983.

She has published numerous articles in journals, magazines & other media on issues such as free trade, finance, entrepreneurship & women business owners. Ms. Swift is a past President of the Empire Club of Canada, a former Director of the CD Howe Institute, the Canadian Youth Business Foundation, SOS Children’s Villages, past President of the International Small Business Congress and current Director of the Fraser Institute. She was cited in 2003 & 2012 as one of the most powerful women in Canada by the Women’s Executive Network & is a recipient of the Queen’s Silver & Gold Jubilee medals.

She has an Honours BA and MA in Economics.

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