National Post

Don’t count on tax bonus

COMMENT

- ARTHUR DRACHE Your Taxes

The

government has

announced a new approach for dealing with surpluses which might produce some tax bonuses in the future … with the emphasis on “might.”

The question is whether this approach is “full of sound and fury signifying nothing.”

The legislatio­n would change the current practice which allocates all surpluses to debt reduction. The government says that in the future, one-third of any annual surplus would go to debt reduction, one-third to new spending and one-third would go back to taxpayers.

But the first $3-billion annually would go to a contingenc­y fund for current year emergency spending.

For most people, the key element is the issue of tax relief.

The tax relief provided under the legislatio­n would be delivered to taxpayers through a onetime tax credit at the time Cana- dians receive their tax assessment. As well, the bill would “allow” the government to make the tax relief permanent, subject to the Minister of Finance’s assessment that the fiscal impact in following years is affordable. This permanent relief would be effected through adjustment­s to the basic personal amount (the amount of income that Canadians may earn without paying federal income tax) and the spouse or common-law partner amount.

We can understand why any government would be careful about how it structures such a proposal. After all, giving across the board tax cuts generates a one-time tax benefit and is hard to reverse. But this scheme has a lot of outs.

The first, of course is that the government is a master of accounting magic and it can make surpluses drop like a stone when it so desires. We’ve seen a lot of that in recent years.

Second, once a payment is actually made, it is up to the Minister of Finance to decide whether the amounts transferre­d will be added, in future years, to permanent adjustment­s to the personal tax credits.

Third, as we noted, any onetime payments still lies within the discretion of the Minister of Finance based on his or her reading of what the following year might bring.

Forecastin­g, we would note, has not been a strong suit of the Department of Finance in a couple of decades

The scheme is also only in place for five years, though obviously it could be renewed.

On balance, we see no power or obligation which the Minister of Finance did not have before. Any Finance Minister could unilateral­ly in any given year give taxpayers a bonus, as this one did with the announceme­nt of a one-time energy benefit earmarked for lower income Canadians.

This “balanced” approach using legislatio­n is just a way of giving discretion­ary personal tax relief rather than making “permanent” changes in the rate structure, while clothing the discretion­ary process with a legislativ­e look.

While we like tax cuts as much as the next person, it looks a lot like “smoke and mirrors” to us.

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