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Federal Budget

Keep taxes simple in the post-pandemic rebuild plan, pre-budget submission suggests

Anchoring debt, evolving with the labour market and moving toward a carbon neutral economy also highlighted in CPA Canada’s recommendations

Technician training young traineeTraining must use labour market information in consultation with Canadian employers to ensure the most relevant, in-demand skills are being developed (Getty Images/Hinterhaus Productions)

As Canada remains knee-deep in the pandemic, Canadians anticipate the federal budget on April 19 to lay the groundwork for a sustained economic recovery. 

In its pre-budget submission, CPA Canada highlights priorities for successfully rebuilding the economy.

Here is a summary of CPA Canada’s top recommendations for the 2021 budget. 

GET WISE WITH TAX

Given the government’s focus on immediate measures to continue to support Canadians, businesses and an economic recovery, now may not be the ideal time for a tax system overhaul, notes CPA Canada. 

However, a comprehensive tax review should be a priority on the government’s agenda in the medium term, as it is key to building back better. Right now, it’s about making adjustments that immediately result in a “simpler, fairer, more efficient and competitive tax system” to support recovery. 

These include: 

  • Tax simplification: tax system complexities, highlighted during the pandemic, have made it challenging getting assistance to the most vulnerable Canadians. In the short-term, CPA Canada recommends a review of tax expenditures alongside an expanded mandate that streamlines tax credits and deductions, removes tax preference inefficiencies and increases system automation. 
  • Discipline with tax increases: whether corporate or personal, tax increases should be avoided to prevent further damage to the economy in its current state, stresses CPA Canada. If tax revenue must be increased, the government should look to other means such as broadening the tax base. This could be achieved by simplifying the GST system and expanding the goods and services to which it applies. 
  • Tax changes that support recovery: tax system issues that may aid the recovery should be reviewed. For example, the government could introduce group taxation or loss transfer systems for corporations, so they can utilize pandemic losses more efficiently. 
  • Principled decision-making approach for (any) tax changes: any tax changes should be reviewed to assess whether they support the economy and operate so as to minimize disruption to taxpayers and businesses. 

“Business and taxpayers are still trying to recover from the pandemic, so any tax changes should be carefully considered to make sure an additional burden, fiscal or administrative, is avoided if at all possible,” says Bruce Ball, FCPA, vice-president of taxation at CPA Canada. 

ENACT A FISCAL ANCHOR TO DEAL WITH DEBT

In its 2020 Fall Economic Statement, the federal government indicated it would not be implementing a long-term fiscal anchor until the economy stabilizes. 

Meanwhile, according to the July Economic and Fiscal Snapshot, Canada’s deficit projection for 2020-21 is $381.6 billion and $121.2 billion for 2021-22, due to the pandemic and the government’s emergency response plan expenditures. This, combined with the existing federal-provincial gross debt of $2.5 trillion (2017), leaves a hefty debt—one that needs to be dealt with in a “transparent, accountable, disciplined and sustainable manner,” says CPA Canada. 

In response, CPA Canada is pushing for a “fiscal anchor or rule” that outlines economic and fiscal projections for the medium- to long-term. This, it argues, will limit debt financing and instill business confidence and investment. Meanwhile, to ride out the pandemic, more immediate support measures must continue for Canadians, businesses and the economy overall. 

ACCELERATE TOWARDS A CARBON NEUTRAL ECONOMY

CPA Canada supports the progress made to move Canada toward a net-zero emissions economy and continues to engage government from a business rationale and resilience standpoint on climate change adaption. 

The government recently introduced A Healthy Environment and a Healthy Economy plan to meet 2030 climate targets, which includes the development of a national climate change adaptation strategy, as well as Bill C-12, the Canadian Net-Zero Emissions Accountability Act. It also committed to establish the Sustainable Finance Action Council, recommended by the Expert Panel on Sustainable Finance

Furthermore, its Fall Economic Statement last November, Building Back Better: A Plan to Fight the COVID-19 Recession, also promoted sustainability with funding for home retrofits and electric vehicle charging infrastructure; a national infrastructure assessment; and the first government-issued green bond.

Other possible budget announcements include details on a corporate tax rate deduction of 50 per cent for companies making zero-emissions products and the creation of Canadian Centre for Climate Information and Analytics. The centre, which was recommended by the Expert Panel on Sustainable Finance and supported by CPA Canada, would make decision-useful climate data available to business and other stakeholders. 

CPA Canada emphasizes the necessity of engaging with provincial and territorial governments through the Pan-Canadian Framework on Clean Growth and Climate Change to remain aligned and on track with Canada’s national climate targets.

“Transitioning to a net-zero emissions economy presents a monumental challenge and opportunity for Canada and for Canadian business, where all sectors, including the private sector, must be engaged and play their part,” says Gord Beal, vice-president, research, guidance and support at CPA Canada.

“Sustainable growth and social development must go hand in hand. In meeting our emissions targets, Canada must proactively address the challenges faced by various sectors of the economy.”

SUPPORT CANADIANS IN AN EVOLVING LABOUR MARKET

Given the accelerated transition to a digital economy during the pandemic, the move toward a cleaner economy and the COVID-19’s impact on employment, it’s imperative that all Canadians be able to adapt and respond as the labour market evolves, stresses CPA Canada. This includes having flexible opportunities and options to develop new skills and access training in-person or online. 

In its recent Throne Speech, the government committed to creating one million jobs, and its Fall Economic Statement announced a $1.5 billion investment this fiscal year for provincial training funding, with more money to come next year for federal training programs. 

Any training, CPA Canada adds, should use labour market information in consultation with Canadian employers to ensure the most relevant, in-demand skills are being developed. Equitable opportunity and access to training are also required, it says, particularly considering the impact COVID-19 has had on employment for specific groups, including low-wage workers, women, racialized Canadians, those with disabilities and Indigenous peoples. 

“The pandemic has sharply accelerated the transition to a digital economy, but many Canadians are struggling to adjust,” says James Richardson, manager, government relations at CPA Canada. 

“Workers need access to training that improves their comfort with digital technologies and makes them more adaptable as workplaces continue to evolve. Small business owners may benefit from resources and training that help them introduce digital processes to their businesses that improve their competitiveness.” 

COVID-19 spotlighted existing inefficiencies with the Employment Insurance program, prompting the government to respond by temporarily adjusting the program (until fall 2021) and improving access to support. 

CPA Canada encourages more permanent adjustments to the EI program that accommodate the varied workforce to better serve Canadians who do not work in traditional employee-employer settings, including the self-employed, contract or gig workers. Additionally, in support of Canadian businesses struggling to survive the pandemic, CPA Canada discourages changes that may increase employer premiums. 

Lastly, the Canadian economy depends on a diverse and competitive workforce, fuelled by immigration policies that attract skilled talent. Immigration targets weren’t met due to the pandemic and subsequent travel restrictions. CPA Canada believes returning as close to those original targets as possible is key to reviving the economy. 

FURTHER BUDGET ANALYSIS

Get further insight into CPA Canada’s position and activity on the 2021 federal budget, including its submission of recommendations in full detail.