Tax reform takes centre stage

By Walter Robinson
web posted February 14, 2000

Canada's fiscal policy debate has moved from debating the merits of tax cuts to what mix and how fast they should actually occur. Recent tax proposals from the United Alternative/Canadian Alliance (CA) and the federal Tories now move this debate to a new level. Tax cuts are a given, tax reform is the new mantra.

First off the mark was the Canadian Alliance proposal for a 17 per cent single rate tax. This is an ambitious proposal that has been roundly criticized by the organized political left, the Toronto Star editorial board and even Finance Minister Paul Martin. All have summarily dismissed the idea as a "tax cut for the rich."

Given this list of opponents, surely the idea must have some merit! To start, the 17 per cent single tax idea is of most importance to 1.9 million low-income Canadians; they would be removed from the tax rolls entirely. Single tax opponents conveniently overlook this fact.

This would occur because individual taxpayers and spouses would each be allowed a $10,000 basic personal exemption (BPE). Currently the BPE for individual taxpayers is $7,131 and the spousal exemption is $6,055. And each child (whether the parents work or not) would be worth a $3,000 deduction.

So a family of four could earn up to $26,000 before federal income taxes kick in. While it is true that higher income families get a bigger tax break than lower income families, since they pay more taxes, this is only fair.

As Edmonton Sun journalist Mike Jenkinson points out, the amount of taxes paid by different groups under a single tax scenario is still "progressive." The single income earner family of four earning between $20,000 and $30,000 "would pay no federal income tax at the low end and a maximum of $680." While a similar family earning between $50,000 and $60,000 "would pay between $4,080 and $5,780 in taxes." The middle income family with twice the income of the lower income family still pays almost 10 times as much federal tax.

The single tax rate plan is ambitious and groundbreaking for Canadian tax policy, the challenge is for the CA proponents to stick with this policy over the long-term. A role model to emulate would be Mike Harris. Mr. Harris sold his 30 per cent personal income tax proposal for over 14 months before the 1995 provincial election. When it comes to selling tax reform to a skeptical public and a cynical media, consistency and persistence are key.

Also flying on the tax reform radar screen is Air Joe Clark and the federal Tories latest menu of tax relief measures. Key amongst their proposals is an increase of the BPE to $12,000 over five years, which would remove 2.5 million taxpayers from the tax rolls.

The Tories would also increase the thresholds where various federal tax rates kick in, cut corporate income taxes to the OECD average, increase the foreign content limit on RRSPs (from 20 per cent to 50 per cent) and up RRSP contribution limits to $20,000 per year (up from $13,500).

The problem here is that is the second menu of options the Tories have come out with in six months and we won't have a clear idea of where they stand until the Party's policy conference this May in Quebec City. Nonetheless, their "menu" looks appetizing.

But the most important player in the tax reform debate has yet to speak. Finance Minister Paul Martin will deliver his 7th budget later this month. Once his budget is delivered we will know if he wishes to mix it up on the tax reform front or if he is content to be a mere spectator as the next election looms. We'll get a sense of what role Mr. Martin wishes to assume soon enough …

Walter Robinson is the Federal Director of the Canadian Taxpayers Federation.

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