Tax Policy for a New Economy
Why do we pay taxes?
To ensure our government delivers for all Canadians.
Health care. Education. Justice. National defence. Old Age Security. Parks and environmental protection. Trade. Forests, fisheries, lakes, rivers, coastlines and oceans. Indigenous programmes. Highways, railways, shipping, ports, public transit, roads and civil aviation. Employment insurance, skills and opportunity.
We depend on our government to provide or regulate all of this and more
The results are often impressive. Our tax system finances one of the world’s best, most professional public services – departments and agencies that serve Canadians well.
But even public servants know our government could be so much better. We need tax policy to power a new era of innovation, technological advancement and knowledge-driven growth.
Why have taxes risen across Canada since 2012?
Federal and provincial governments have brought in new levies on business investment, carbon, hiring and income, ending nearly three decades of fiscal consolidation and tax reductions.
In recent decades those advanced economies that have achieved high rates of growth and prosperity have cut deficits, reduced taxes and delivered government services more efficiently.
Under both Chretien and Harper, Canada did just that. Canada’s total tax revenue-to-GDP ratio fell from 34.8% in 2000 to 30.5% in 2011.[1] By 2015 it had risen to 31.9%, mostly because of provincial tax increases. The Trudeau government’s latest tax hikes are taking it higher still.
Canada’s federal tax revenues are considerably less than those of the provinces.[2] Moreover, the competitive benefit of any federal tax cut is eliminated when provincial or local taxes rise in corresponding or greater measure.
Canada’s tax collection system is relatively costly to administer relative to those of our competitors.[3] Our tax system is also complex and, in the eyes of taxpayers, lacking in transparency and accountability, especially given the scale of transfers to provincial, territorial, municipal and indigenous governments.
Moreover, many of our productivity incentives to firms for research, development, commercialization of new inventions, as well as digital innovation, are either weak, bureaucratic or ineffective. We need a new partnership to ensure companies reach new markets, flourish and grow, while creating opportunities for all Canadians.
Canada’s taxes should become simpler and lower – to make this country the best in the world for startups, research and development and business investment in all sectors. Major tax reductions should only take place once fiscal discipline has been restored.
As Leader of the Conservative Party of Canada and Prime Minister I would:
(i) immediately raise the basic personal amount not subject to tax to $15,000;
(ii) immediately lower the small business tax rate to 9%;
(iii) immediately eliminate the federal carbon tax;
(iv) after Canada’s federal budget returns to balance, lower the corporate tax rate in phases to 10%, while seeking matching reductions from the provinces and territories;
(v) reduce EI rates for small employers by 25% and introduce a rebate for youth hires;
(vi) apply a $1 million Lifetime Capital Gains Exemption for all small businesses, including farm and fishing businesses, and simplify the process;
(vii) broaden the 100 per cent Capital Cost Allowance (CCA) to a wider range of digital, clean, manufacturing and other advanced technology and equipment purchases;
(viii) establish the Canada Startup Incentive (CSI) – a 40% tax credit for early stage startup investments, up to $250,000;
(ix) significantly enhance, extend and streamline the Investment Tax Credit (ITC) as the Canada Growth Incentive (CGI) for research, invention, development, experimentation, commercialization, incubation, acceleration and intellectual property, building long-term partnerships with growing, research-driven Canadian companies to create opportunities for indigenous, new and disabled Canadians;
(x) building on the Canada Startup and Growth Incentives, unify and scale up remaining federal tax credits as the Canada Research Incentive (CRI) promoting increased business expenditure on research and development through the Canada Innovation Foundation, National Research Council Industrial Research Assistance Programme, U15, the Association of Universities and Colleges of Canada, Colleges and Institutes Canada, Networks of Centres of Excellence, Canadian incubators, accelerators, angel, institutional, private equity and VC investors, among other key players – with a view to achieving expenditures on R&D equivalent to 3% or more of GDP;
(xi) introduce a tax credit for investments in research and development or capital costs that contribute measurably and directly to Canada’s greenhouse reduction targets under the Paris Agreement;
(xii) once the budget has been balanced, reduce and simplify personal income tax using a phased approach, starting with reductions for low-income earners, with a view to achieving federal marginal income tax rates as follows: 0 to $50K – 10%; $50K to 100K – 15%; $100K to $150K – 20%; $150K to $200K – 25%; and over $200K –30%, while seeking to negotiate substantial corresponding reductions in provincial and territorial tax rates; and
(xiii) aim in the medium term to make marginal tax rates 20% for $100 to $200K and 25% for income over $200K, while seeking further provincial and territorial reductions;
(xiv) ensure income tax never accounts for more than 50% of federal revenues;[4]
(xv) reduce the cost of collection to 5% of revenue;
(xvi) simplify, automate and improve the integrity of Canada’s tax system, delivering improved service and relations with all clients, while ensuring transparency and accountability to parliament and to Canadians on the part of each government, agency or corporation that ultimately disburses each taxpayer dollar; and
(xvii) strengthen public education with regard to Canada’s tax system, as well as fiscal and financial literacy and incentives that prevent tax evasion.
[1] https://www.oecd.org/tax/revenue-statistics-canada.pdf
[2] http://www.oecd-ilibrary.org/docserver/download/4215081ec015.pdf?expires=1494608972&id=id&accname=guest&checksum=7932D326B5F8D895C71D01D1CF7DA57D
[3] http://www.oecd-ilibrary.org/docserver/download/4215081e.pdf
[4] In 2017 personal income tax accounted for 51% of Canadian federal government revenues.