1.4 Fair taxes – fiscal reform

Most Canadians do not like paying taxes, especially if they think that the taxes are unfair or do not deliver good value for money. People do not like wasteful spending by an over-bureaucratized government. Fair enough. However, about half of Canadians say that they would not mind paying more taxes for a cleaner environment, better health care and education, and to support people in need.

Taxation and spending policies shape society by sending signals about which sectors of society governments think are important. Over the last six years, both the Conservatives and Liberals have used our tax system to benefit large corporations, reducing federal corporate taxes. Back in 2000, the general rate of taxation on corporate profits was 29.1%. By 2006, when the Harper government came into office, the corporate tax rate had been cut to 22.1%. We all remember our budgets consistently posted surpluses at that time.

No longer. Canada moved into a deficit just before the economic meltdown in September 2008. Due to cutting the GST, cuts to corporate income taxes, and increased spending, the Harper government had eradicated the surplus just in time for a recession. For the first time since former Finance Minister Paul Martin under Chretien slayed the federal deficit – at enormous cost to health care and education – Canada started running deficits. Deficits can be managed, but debt erodes public revenue through interest payments. The debt has ballooned. The federal debt now stands at more than $600 billion. An astonishing 24% of that federal debt was run up on Stephen Harper’s watch. The cost of servicing that debt is $29 billion per year.

There is an alternative to borrowing from commercial banks and paying that $29 billion to banks. Many Canadians want to revisit the role of the Bank of Canada. Monetary policy could shift to reduce the high levels of interest-bearing debt.

Meanwhile, all through the recession, the Conservatives have continued to cut the corporate tax rate. In 2008, the rate fell to 18%. By 2012, it fell to 15% – the lowest tax rate on big corporate profits in the industrialized world. Canada’s tax rate on the largest and wealthiest corporations on earth is now half that paid by corporations in the U.S.

When the corporate tax rate was slashed, the spin from the Harper Administration was that the largest corporations in Canada were ‘job creators.’ The justification for eroding government revenues in favour of greater corporate profits was that it would result in a big boost in employment.

However, the evidence is now in. Corporations have not used the extra cash to create jobs. They have not re-invested it in the Canadian economy. In the words of Mark Carney, former Governor of the Bank of Canada, the money that would have gone to pay for critical infrastructure, veterans’ benefits, and environmental research is “dead money.” It has not created jobs. It is sloshing around in the bank accounts of Canada’s biggest corporations. It is an astonishing $629 billion – 35% of Canada’s GDP.

At the same time, the cost of living has increased. Canadians save less, carry more debt, and work more hours for the same money. Even before the current recession hit, people were having a harder time providing for their families and paying for a decent place to live.

The Green Party believes in reforming our tax system to make it fairer and more in tune with Canadians’ desire for a healthy environment, a sustainable economy, and a vibrant, caring society. It makes no sense to subsidize the wealthiest corporations on Earth – the oil companies. We must remove these perverse subsidies immediately, not in the slow ‘grandfathered’ approach of the Conservatives’ 2007 budget.

The Green Party will reduce taxes on things we all want, like income and employment, and we will increase taxes on things we do not want, like pollution that harms people and our environment.

Our ‘green tax cuts’ will be progressive, with a schedule that gives industry time to gear up or gear down. The ecological fiscal reform undertaken by Greens will include carbon pricing as well as taxes on cancer-causing substances and junk food that harms our children. And they will be revenue neutral because a tax shift is not a tax grab. Income and payroll taxes will decline and the changes will help, not hurt, less fortunate members of our society. In the case of Green carbon pricing, the funds collected will never enter the general revenues of Canada but will be redistributed in full to Canadians. This system is called ‘carbon fee and dividend.’ The fee is charged at the point of production and the funds are divided equally among all Canadians, received as a cheque for your share of the carbon dividend. Those with lower incomes will receive a proportionally bigger impact as the cheque received will be a larger percentage of their total income compared to those of higher income.

To set the right prices, we have to change to a ‘true’ or ‘full-cost’ accounting method that incorporates economic, social, and environmental costs and benefits in the national accounts. Using this method, products and services are taxed, and thus priced, according to the positive or negative impacts caused throughout their lifecycle. We have already done this with tobacco products. Such taxes help consumers make more rational choices.

There are other ways to put taxes to work improving our society. Our tax system must be designed to reduce poverty, encourage environmentally-beneficial activities, and generate more wealth for the 90% of Canadian families who are currently working harder without getting further ahead.

The Greens’ fiscal plan is straightforward: gradually reduce our debt, give clear tax signals that enable companies to pursue profits on a level playing field, and shift taxes to ensure that both revenue streams and expenditures meet social, economic, and ecological goals.

Green Party MPs will:

  • Institute a full range of ‘polluter pays’ taxes, including a carbon fee and dividend designed to reduce the use of fossil fuels by sending a market signal to producers. All these taxes will be revenue neutral;
  • Apply border adjustments to ensure Canadian businesses do not face unfair competition from polluting jurisdictions. In order to maintain a level playing field for Canadian businesses with respect to foreign competitors, carbon-based tariffs will be introduced against countries that  apply no carbon tax (or other equivalent mechanism to curb GHG emissions) or apply a lower rate of carbon tax than Canada. These border adjustments will also be distributed in the ‘dividend’ to Canadians;
  • Return Corporate Tax rates, except for the Small Business tax rate, to the 2008 level;
  • Eliminate personal taxes on incomes below the low-income cut-off (no taxes on incomes of $20,000 or less);
  • Review the economic and fiscal implications of returning to borrowing from the Bank of Canada;
  • Work with the provinces to increase taxes on tobacco and alcohol;
  • Encourage use of Canada Revenue Agency’s online NETFILE tax filing system (which saves Revenue Canada money) by giving users an automatic $10 tax credit;
  • Develop a specific tax-shifting schedule to provide tax incentives and direct rebates to businesses and individuals investing in the modern clean-tech economy (e.g. installing solar hot water systems, refitting homes and businesses to conserve energy);
  • Provide increased tax breaks for Canadians who donate to registered charities.

(See Part 4: PEOPLE for more on family-friendly taxation, including income splitting)