Our federal government is addicted to tax
expenditures—and the shell games that can be played with them.
By “tax expenditures” economists mean government spending through the
tax code. Some of the biggest and most popular examples of tax expenditures
include RRSP deductions (currently about $33 billion/year), Pension Income Splitting
($10.8 billion); charitable donations ($8.5 billion) and Child Care Expense Deductions
or CCED ($4.1 billion). Clearly, they have a role to play in a balanced
system of taxation. But in Canada, tax
expenditures take almost as much out of the revenue pie as taxes do: in 2010,
they cost $172 billion compared to $191.5 billion taken in tax revenue.
Spending through the tax system has a number of
advantages, but they are mostly political. Since tax expenditures are regarded
as “off budget” they are often seen as free benefits, especially to those who
are best situated to take advantage of them.
At election time, it can seem like the government is giving something
without taking anything. That, of
course, is highly misleading. What the government is taking is revenue that
could be allocated to public services. Its income-splitting plan, for example, dispenses
billions to middle –class families, but it does so at the expense of child care
for the young, mental health spending for veterans, and home care for the aged. For the cost of the government’s Family Tax
Proposal, we could raise the CCED from $7,000 to $12,000. Queen’s Law Professor Kathleen Lahey points
out that Canada is spending $20 billion
to subsidize unpaid work in the household—that’s almost twice what an
affordable national childcare program would cost.
One wonders whether this government, if it is
re-elected, plans health care by tax credit as well. After all, it has been
shown that in the United States the subsidization of private health insurance
through the tax code made efforts to bring about a universal health care
program more difficult (and we all know where our government gets most of its
ideas from). The same process can work
in reverse: as Canada’s federal government caps health transfers to the
provinces at what it knows is half the rate at which health costs are growing,
and provinces are forced to either raise taxes or de-list services, the feds
can ease that painful transition with tax credits for private healthcare.
Before we reach that
point, two things must be done. First, we should try to replace tax
expenditures with proper public programs, especially where basic needs of
children and the poor are concerned. Second, where we do choose to keep tax
expenditures, they should be integrated with departmental spending and
therefore included in departmental reports and estimates. We
cannot expect progressive government from the Conservatives, but greater
transparency and accountability is never too much to ask.
