Canada In Need Of Significant Tax Reform Says Leading Public Policy Organisation

by Mandy Robinson, Tax-news.com, London

16 May 2001

Canada's leading economic think tank, the Fraser Institute, has this week published a study entitled 'Flat Tax: Principles and Issues', the conclusions of which have led the Institute to call for Canada's federal and provincial tax systems to be reformed on the basis of a flat tax.

The Institute explained the flat tax as a comprehensive, integrated approach to taxation, applying a uniform tax rate to all sources of income, whether personal or business. Jason Clemens, director of fiscal studies at the Institute and co-author of the study, explained in a statement: 'Such a system would provide enormous positive incentives for work, savings, and investment. The research suggests that the economic benefits of implementing a flat tax system would include greater rates of economic and income growth, higher levels of capital formation and investment, and greater social welfare.'

He added: 'The issue of tax cuts has overwhelmed the equally important issue of tax reform in the national debate. Any discussion of tax reform during the 2000 federal election was riddled with misinformation that prevented an open and rational public debate about tax reform, particularly flat tax reform.'

According to the Fraser Institute, a flat tax is necessary to achieve efficiency, fairness and simplicity - which are the traditional measures of tax success. In studying the case histories of tax systems adopted by jurisdictions such as Hong Kong and the Channel Islands, the Institute claimed that a flat tax would decrease the amount of economic distortions caused by taxation and therefore increase rates of economic growth. Households with similar income would face similar tax burdens more consistently (known as horizontal equity). For instance, explained the Institute, single income and two-income households are treated much more equally under a flat tax system than under Canada's current tax regime. A flat tax also ensures that as individuals earn more, they pay more (vertical equity), and a comprehensive flat tax would substantially simplify the current tax system with its multiple rates, exemptions, deductions, and various tax credits.

'The flat tax model presented here,' declared the Institute, 'not only achieves these principles but would create an enormous tax advantage for Canada relative to our competitors. It would facilitate greater work effort, savings, and investment, and ultimately lead to higher rates of economic growth.'

For more information on the Fraser Institute's findings, go to: http://www.fraserinstitute.ca/

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