....much more needs to be done, especially on tax havens
The Tax Fairness message seems to be getting through. It was a key theme in the Federal Budget 2013. While we are pleased there were some promising first steps in closing some tax loopholes, we were disappointed there wasn't more measures to tackle tax havens.
Budget 2013 alters the Dividend Tax Credit so that it is less generous. This change is expected to bring in more than $500 million a year starting in 2014. Several other smaller loopholes were also addressed. But several loopholes were opened further. For example, the Life Time Capital Gains Exemption was made more generous by $50,000 and will cost the government $15 million in 2014, rising to $35 million by 2017.
There are many more tax loopholes they could have closed. The lucrative entertainment tax credit that pays for corporate boxes at sports events wasn't touched. That perk costs Canadian taxpayers $500 million a year. Eliminating the Stock Option Deduction would have brought in $760 million more a year. This is a tax break that mainly benefits the top 1% of Canadians.
The Budget did include some measures to combat international tax evasion (which is often facilitated by tax havens). Banks will be required to report their clients' electronic transfers of $10,000 or more. And there is a reward to whistle-blowers who report on international tax evasion.
All f these measures are expected to bring in an additional $1.5 billion in 2014-2015 and rising to $2.2 billion a year by fiscal 2017-2018. Most of the additional revenue will come from changes to the domestic tax loopholes. The government does not count on raising any additional revenue from their measures on international taxation.
Missing is any additional resources for the Canada Revenue Agency to boost capacity to go after international tax evasion. A CRA audit in 2010 reported that the compliance division was seriously under resourced and staff believed the CRA was "not doing enough to catch or prosecute tax evaders."
Canadians for Tax Fairness had hoped the government would boost CRA capacity in the international compliance division by at least $30 million as was done by the previous Liberal government in 2005. That investment increased revenues by $2.5 billion over 4 years. Instead, the Budget reduced CRA budget by a further $60 million, in addition to the big cut they already were hit with last year. It is hard to imagine how we can take the government's new found interest in going after tax havens seriously.
With a sluggish economy lowing revenue below projected levels, the government was faced with some difficult choices about how to get back on track to meet their deficit reduction targets.
An obvious option they could have chosen would have been to roll back the corporate tax cuts that did not result in boosting corporate investment or creating more jobs. They could have introduced a sur-tax on high income taxpayers as several provinces have done recently. Since a large part of the deficit is a result of ill-advised tax cuts mainly benefiting rich individuals and corporations, it would have been a reasonable course to follow.
But the Conservative government has ideological blinders when it comes to considering any revenue side solutions.
They opted instead to cut government spending even further even though last year's austerity budget has been responsible for almost a 1% reduction in our anemic economic rate of growth. Even though cutbacks have undermined our weak economic recovery and lowered revenue, they seem intent on making a bad situation worse by implementing further cutbacks.
The biggest cutback in the 2013 budget is to the Building Canada Fund where they have reduced spending to $210 million in 2014-15 from its previous level of $1.25 billion a year. They have deferred most of their spending until after 2020. This will be a big blow to municipalities that have been counting on federal support to address their crisis in crumbling infrastructure.
The cuts announced today though are not as deep as those in last year's austerity budget. Perhaps Mr. Flaherty realizes there is not much fat left on the bones of government. It may also explain why, with few options available, he has finally stumbled on closing loopholes and combatting tax havens as a way to close the budget gap.
Let's hope we can push him to take further steps in this direction.Suggest a correction