Bernier’s tax plan really isn’t so mad
Maxime Bernier has raised eyebrows with his latest promotional gambit — an Instagram invitation to Canadians to call him Mad Max, with the Conservative leadership candidate’s head Photoshopped onto an image of the unhinged road warrior.
Among the things Bernier says make him crazy is a Liberal government that “shrinks our paycheques with high taxes.” Yet there is nothing deranged about the solution he proposed Thursday.
Bernier’s plan suggests a root-and-branch overhaul of Canada’s income system, raising the personal exemption level from the current $11,474 to $15,000, thus relieving 1.5 million low income Canadians from paying federal income tax. Further, he would abolish the current tax brackets, replacing them with one 15 per cent band for those earning between $15,001 and $100,000 (encompassing more than 80 per cent of taxpayers), and one 25 per cent band for those earning six figures or more.
As a result, he said, every taxpayer in Canada would pay less.
The cost to the treasury is estimated at $30 billion to $35 billion, but that is before accounting for savings from eliminating some of the tax credits that riddle the system, or from any shifts in behaviour that may result.
“Several of these boutique tax credits are essentially politically motivated subsidies adopted to buy the support of some specific groups at the expense of the rest of the population,” said Bernier Thursday — and he should know, since he was a minister in the government responsible for creating the “absurdly complicated mess” (his words) that we enjoy today.
It is an intriguing prospect. But it is not as novel as it appears at first blush.
Paul Boothe, a fellow at the Institute for Competitiveness and Prosperity at the University of Toronto, recalls his time as deputy minister of finance in Roy Romanow’s NDP government in Saskatchewan.
The province was faced with a brain drain to Alberta, which had its own 10 per cent flat tax. Romanow’s government overhauled its system by reducing the number of tax brackets and raising the personal exemption, just as Bernier is now suggesting.
One argument against Bernier’s proposal is that it makes the tax system less progressive — that is, rates don’t increase in lock-step with income.
But Boothe said the system can be made as progressive as its proponents wish, simply by raising the personal exemption rate.
The upside, he said, is that people have an incentive to work harder and keep more of their own money.
Did it work in Saskatchewan? “Yes, I think it did,” he said. “I think we felt able to help lower-income people by raising the personal exemption and able to compete with Alberta for people.”
Canada faces its own competitiveness issues and Bernier pointed out Thursday that personal tax rates are the sixth-highest among OECD industrialized countries.
Six of 10 Canadian provinces currently have a combined federal and provincial top marginal tax rate of over 50 per cent (Nova Scotia wins the golden gouge award this year, with a top rate of 54 per cent for those earning more than $200,000). As jurisdictions around the world have discovered, such punitive rates reach a tipping point at which compliance starts to tumble.
Under Bernier’s plan, those Nova Scotian high earners would pay 46 per cent — still a reasonable contribution to the commons.
The Conservative MP said he would only launch income-tax reform once the budget of a future Conservative government is in balance. As such, the $30-billion price tag looks hefty.
But that is before any detailed examination of the tax expenditures that are woven into the system.
The Fraser Institute has estimated these credits amount to around $165 billion in foregone revenues for the federal government, and that almost $20 billion could be considered for elimination.
Those numbers seem incredible — by comparison, the federal government will raise $143 billion in income tax revenue this year.
But we do know from a past auditor general’s report that nobody knows whether the tangled web of tax exemptions, deductions and credits is working for taxpayers.
Michael Ferguson’s office said that the Finance department often has no idea whether the specific policy goals that prompted any given tax credit are being met, because it has not evaluated the measures.
Parliament reviews direct program spending, or at least it is meant to, but it plays no role in reviewing these credits. Measures are analyzed prior to their adoption but there is no ongoing evaluation. No one really knows if we still need many of the credits that were introduced for one purpose or another back when the Harper government roamed the earth.
Reducing the number of redundant tax credits and redirecting the savings to lowering income taxes across the board is so selfevident it’s a wonder the Liberals didn’t go further in the last budget when they cancelled a number of Harperera credits, such as the Children’s Art Tax Credit.
But Bernier’s plan is broader than just tapping a new revenue stream.
Lower taxes; a more simple, more fair tax system; greater accountability. Where’s the madness in that?