Finance Minister Bill Morneau with Prime Minister Justin Trudeau

The House of Commons Standing Committee on Finance did commit in 2016 to conduct a review, which was encouraging initially, but its launch has been postponed indefinitely. (Getty Images)

Features | From Pivot Magazine

A cry for help

Tax reform is long overdue. Ottawa seems stalled. Perhaps a little push is in order.

A Facebook IconFacebook A Twitter IconTwitter A Linkedin IconLinkedin An Email IconEmail

The Canadian government can take a page from the U.K. when it comes to making our tax system more efficient. The British government established the Office of Tax Simplification (OTS) in 2010 to provide non-partisan advice on reducing tax complexity. A year later, the Institute for Fiscal Studies released a sweeping review of the tax system, led by the Nobel Prize–winning economist Sir James Mirrlees.  

Mirrlees’s analysis included sharp critiques of the property tax system (“a mess”), of the needless complexity in benefits policy and Britain’s value-added tax (VAT), and of the lack of integration between national income taxes and insurance. It further highlighted ineffective or inconsistent taxes, and strongly urged the wholesale reform of the taxation of savings. No one could ignore the findings.  

Few would dispute that Canada is long overdue for a similar exercise, especially given the Trump administration’s tax reforms. Canada’s system hasn’t been extensively reviewed for decades, and the need for action is evident.  

There is a lack of clear direction on emerging issues, such as the taxation of digital services that may originate outside Canada but are delivered here. Ideally, we should have an equitable system that promotes prosperity and inclusive growth while recognizing dramatic shifts in the economy. Tax policies, moreover, should be straightforward, and configured to encourage Canadian businesses to grow while attracting foreign investment.  

Despite numerous calls for a comprehensive review, including the most recent one from the Senate’s national finance committee, the current federal government has been exceedingly hesitant—similar to previous administrations—and that reluctance is unlikely to change in the run-up to next year’s election.  

The House of Commons Standing Committee on Finance did commit in 2016 to conduct a review, which was encouraging initially, but its launch has been postponed indefinitely.  

The lesson from the U.K. is that it’s critical to engage a panel of independent experts and organizations—like CPA Canada, and others—in not just conducting this kind of review but designing a complex, multi-phase process for it. Anything done at the federal level must take into consideration what is happening at the provincial and territorial levels as well.  

Perhaps the most critical step is to lay out a compelling political and economic case for fixing Canada’s tax system. The federal government has already received advice from its Advisory Council on Economic Growth that a targeted tax review be launched. That would be a step in the right direction, but the ultimate objective must remain a comprehensive assessment.  

A focus on practical fixes and competitiveness seems like the best way to proceed. Many of Canada’s professional accountants, for example, can easily identify problematic rules that serve no higher purpose, such as the antiquated regulations governing the taxation of cross-border services. They can point to obvious needs, like amending the Income Tax Act so there’s a clearer demarcation between the large numbers of private corporations and the relatively small set of publicly traded companies.  

Furthermore, the process should look at finding ways to streamline the administration of the tax system, especially with an eye to making it easier for businesses to deal with the Canadian Revenue Agency by, for example, moving to automated returns and other digitization improvements. Efforts to improve efficiency would definitely be welcomed by taxpayers.  

CPA Canada has long been calling for a comprehensive review, and the number of voices echoing that same sentiment has grown significantly. Today, there are many national organizations, leading think tanks, academics, economists and a host of informed others who are willing to roll up their sleeves and lend their expertise to the process. Examples such as the U.K.’s Mirrlees review show that governments are well advised to seriously engage experts who can plot out the road map and itemize a menu of potential fixes.  

In an increasingly uncertain economic climate, jobs, future prosperity and international trading relationships are on the minds of many Canadians who are looking for practical change to help spark sustained growth. Politicians, no matter the political stripe, would be wise to take notice.