Flaherty Tax Relief Measures A 'Welcome Start', Says CD Howe
Canadian Finance Minister Jim Flaherty's business tax relief goals are a welcome
start to tax relief, but should be accompanied by a broadening of the corporate
tax base to make taxes more neutral and fair and enable future reductions, according
to a report from the C.D. Howe Institute.
In the report, entitled 'Flaherty's Missed Opportunity', Duanjie Chen, George
Weston Analyst in Tax Policy, suggested that the federal government's Economic
Statement made good progress in October by promising a reduction in federal
business tax rates by 2012, from 22.1% to 15%. Even after this reduction, however, the Canadian effective tax rate on most
services will still be sixth highest among the 30 member countries of the OECD,
he revealed. More comprehensive tax reform is needed in Canada, Dr. Chen argued, suggesting
that the most critical is broadening the corporate tax system to treat taxpayers
equally, regardless of industry sector or activity. A big part of the problem,
according to the report, is provincial retail sales taxes, which five provinces
still have. If the remaining provincial sales taxes were harmonized with the federal Goods
and Services Tax, the overall effective tax rate would, by 2012, drop from 25.2%
to 18.6%, C.D. Howe suggested. Such a sweeping sales tax harmonization would
place Canada midpoint on the ranking of effective tax rates among the 30 OECD
member countries. The federal government, argued Dr. Chen, missed an opportunity to make important
changes to what and how is taxed, not just at what rate. He concluded the report
by arguing that future tax initiatives should not repeat the oversight.
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