Every time Finance Minister Joe Oliver utters the phrase “income splitting” somewhere a Canadian economist grits their teeth. And on Budget Day, if you hear the Finance Minister say the words “doubling the limit on Tax Free Savings Accounts for hardworking Canadians” - be sure that we are all in for a huge, tooth-grinding headache in a few short years.
Sadly, it is likely that Oliver will utter those words. If there is one thing we’ve learned from the past decade, it is that Conservative budgets aren’t about good economic policies, smart math, or using Canada’s wealth wisely. They are about politics, slick television commercials and ignoring basic math.
It is no surprise that taxpayers feel the system is stacked against them. Over the years, leaders of all political stripes have used tax fairness as a slogan and not a principle. Shame on them. Because while hard-working Canadians are the engine that drives the country, smart tax policy is the fuel that keeps it going.
The federal budget loses $10 billion in revenue each year to tax havens and stock option loopholes that cater to the super-wealthy. Politicians have spent $43 billion on ineffective tax cuts since 2006. Here’s a thought: if you want a balanced budget, stop bleeding money to ineffective tax cuts.
Tax policy isn’t the stuff of wonks. It can be practical and transparent. Canadians deserve no less. A good beginning is to watch for these four measures:
Clamp down on Offshore Tax Havens: Canadian money in offshore tax havens is at an all-time high - $178Billion. Most of it untaxed. And data leaks from Swiss and Luxembourg banks contain hundreds of names of Canadians trying to game the system. Meanwhile, the Canada Revenue Agency has had more staff cuts than any federal department. Talk about false economy. That would be like selling off all your shares in a big auto company because you have a temporary shortfall. Wait. That might be a bad example. It might be like selling off all your assets in the Canadian Wheat Board at a time when food security is a valued commodity. You get my drift. The bottom line is that offshore tax evasion is a 21st century problem. This budget has to boost the capacity of the CRA to go after tax cheats and ensure everyone, including large corporations and the rich, pay their fair share of taxes. This is hardly rocket science.
Elimination of the Stock Option Loophole. With an annual loss of nearly $1Billion each year, this tax deduction enables wealthy CEOs to avoid tax on 50 per cent of income received when they cash in stock option bonuses. Canadian senators and former Prime Ministers use this loophole. So do bank CEOs and the heads of pharmaceutical companies with payouts the size of the operating budget of mid-sized Canadian cities. It is pretty straightforward to fix – a Budget Day announcement that the government has finally cancelled it.
Elimination of Income Splitting: The late Finance Minister Jim Flaherty realized income splitting for families with children would be a $2.8 Billion annual expense skewed in favour of the wealthy. So he took a deep breath and said it had been wrong to promise it in the first place. Unfortunately the political charade around this idea continues. Some Canadians may be getting a $360 pre-election cheque because the Harper government tied this tax measure to a heavily advertised Child Benefit program. It was fodder for the $7.5 million advertising budget that has become a crutch for this government. If you hear Joe Oliver say the phrase income splitting on Budget Day, it is a signal that we have a Finance Minister who has no qualms about skewing the tax system even further in favour of the rich.
Holding the Line on the Tax Free Savings Account. This program was meant to help ordinary Canadians save for retirement. But the average Canadian can barely afford to put aside the current annual $5.500 maximum contribution amount. The much publicized plan to double the limit to $11.000 a year has been called a “ticking time bomb” by financial experts on all sides of the political spectrum. That’s because lost revenue to federal and provincial governments will reach tens of billions as plans mature. Data shows that long-run benefit from doubling TFSA limits would go overwhelmingly to the wealthy.
There’s been a lot of damage done to Canada and Canadians by short-term politics and ill-conceived ideas like these. Since it is no secret that this budget is setting the stage for the upcoming federal election it is time for us to take a long hard look at the people we elect who say one thing and do another. Budget Day is a great place to start.