Tax fairness is a tricky road

Both the federal Liberals and Conservatives circled July 18 in their calendars to celebrate key moments in tax policy.

For the Conservatives, it was the second anniversary of Justin Trudeau’s Attack on Small Business. Finance critic Pierre Poilievre held court in a family-run Italian deli and warned of Liberal tax hikes to come.

Not to be outdone, for the Liberals, it was a day to publish a new analysis showing that new investment in Canada faces the lowest corporate tax burden in the G7. Not quite as colourful as the deli, but they had five charts and 17 footnotes to make their case.

My, how the conversation has changed.

When Trudeau came to power in 2015, tax policy was all about making sure the rich paid their fair share, eliminating tax loopholes and making sure the right incentives were in place to diminish the gap between rich and poor.

To those ends, he promised to find and eliminate an annual $3 billion in tax loopholes. And according to the last federal budget, the Liberals have done so.

But unlike most kept election promises that are trumpeted from the rooftops, that information and its accounting were pushed into Annex 5 of the budget, way back on page 341.

“There was no cake or champagne,” quipped University of British Columbia economist Kevin Milligan, who was probably one of the few people outside the Department of Finance to read the annex.

Priorities in tax policy are now focused on easing the burden on business and investment — partly because of a competitive challenge from the United States that was not foreseen, and that eventually pushed Finance Minister Bill Morneau to introduce tax incentives for Canadian business in 2018, and partly because the Conservatives have grabbed a megaphone in the country’s discourse over the purpose of taxation.

There’s no doubt that four years later, the tax system is more progressive. That happened by definition when the Liberals cut taxes on middle income brackets and raised taxes on the rich by putting a 33 per cent tax on income over $210,000, which is now on track to raise about $2.4 billion this fiscal year.

The $3-billion list of now-closed loopholes bolstered the progressive effects of that rejigging. The federal government, according to Annex 5, eliminated an array of deductions, special treatments for various financial market instruments, and boutique measures introduced over the years.

The Conservatives are framing their election campaign around the need to improve affordability for Canadian families, and taxation is central. They have already proposed nixing the federal carbon tax imposed on four provinces, as well as getting rid of the tax on home heating.

It’s unclear whether they could afford to cut taxes across the board and still meet their goal of eradicating the deficit within five years, but it has to be tempting.

That makes it hard, politically, for the Liberals to go further down the road of tax fairness, a road not easily taken in any case. Morneau learned the hard way that raising taxes (or closing loopholes), unless in a manner that targets only a small number of extremely rich people, is a tricky business.

However unfair or ineffective the loopholes, there will always be vociferous opposition to their closing, not least when those who have benefited most can well afford the best lobbyists.

Still, there’s a good argument that the Liberals should continue to push for a fairer tax system, especially now that they have largely dealt with the competitiveness problems with the United States.

Heather Scoffield is a columnist with Torstar Syndication Services.

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