Tax Regime Archives

Warning: If you donate to a gifting tax shelter, expect to be audited

According to a new Tax Alert published by the Canada Revenue Agency, "each year, Canadian taxpayers participate in gifting arrangements that result in donation receipts worth three or four times the actual amount donated by the taxpayer. The Canada Revenue Agency (CRA) continues to warn Canadians against these gifting arrangements and audits those who participate."

The tax alert continues its warning stating:

To date the CRA has denied over $4.5 billion in tax shelter gifting arrangement donations and reassessed over 130,000 taxpayers who have made donation claims through a gifting scheme. For most claims, the CRA has denied the gift entirely. The CRA audits gifting arrangement tax shelters that provide donation receipts three or four times the out-of-pocket cost.

Decisions in recent court cases have concluded that the "donation" made by the taxpayer was not a gift or, where it was a gift, the amount did not exceed the out-of-pocket cost to the taxpayer. In the Maréchaux case, the Federal Court of Appeal upheld the Tax Court of Canada (TCC) decision that there was no gift given as a result of the defendant's participation in a leveraged cash donation scheme. In the Lockie case, the TCC concluded that the gift in a buy-low-donate-high scheme was the amount paid by the taxpayer.

The CRA advises that anyone thinking of investing in a tax shelter gifting arrangement should get independent legal and tax advice from a tax professional who is not connected to the arrangement or the promoter.

For more information on previous tax alerts, go to www.cra.gc.ca/alert on the CRA Web site.

Taxpayers' Ombudsman Report: Right to Know

Canadian Taxpayers may be interested in reviewing the Taxpayers' Ombudsman recently-released report entitled The Right to Know.

In the report the Ombudsman makes recommendations concerning which the Minister of National Revenue has asked the Canada Revenue Agency (the CRA) to develop a plan of action and make the necessary changes.

According to the CRA website, the Minister has stated:

"Our government is committed to ensuring the fair and equitable treatment of all Canadian taxpayers. That is why we developed and introduced the Taxpayer Bill of Rights and created the position of Taxpayers' Ombudsman to report to the Minister with recommendations on how the Canada Revenue Agency can better serve Canadians. The role of the Ombudsman is to ensure that the Canada Revenue Agency is respecting the rights of taxpayers as per the Taxpayer Bill of Rights, and I am pleased to accept and act on the recommendation in his report."

For more information, see the CRA news release at:
http://www.cra-arc.gc.ca/whtsnw/tms/sttmnt1109-eng.html

or the Tax Ombudsman web site at:
www.taxpayersrights.gc.ca

Taxpayer relief deadline: December 31, 2010

In a news release on its website, the Canada Revenue Agency (CRA) reminds taxpayers and all tax registrants that they have until December 31, 2010 to file requests under the taxpayer relief provisions for the 2000 tax year and any reporting period that ended during the 2000 calendar year.

According to the CRA news release, "taxpayer relief provisions of the Income Tax Act limit the discretion of the Minister of National Revenue to cancel or waive penalties and interest, accept certain late-filed, amended, or revoked income tax elections; and issue income tax refunds beyond the normal three-year period (for individuals and testamentary trusts only). This only applies to tax years that ended within the 10 calendar years immediately preceding the calendar year in which a request is made."

Taxpayers and registrants or their authorized representatives can make a taxpayer relief request by completing Form RC4288, Request for Taxpayer Relief, or by writing to their tax services office. For more information, please see:
http://www.cra-arc.gc.ca/nwsrm/rlss/2010/m11/nr101108-eng.html?eml

New filing requirements for partnerships

According to the Canada Revenue Agency, starting in 2011 the requirement related to the number of partners in a partnership will be replaced with a new requirement based on financial activity and the requirement to file based on the types of partners will be revised. The new requirements apply to all partnerships for fiscal periods ending in 2011 and later.

In 1989, a regulation was added to the Canadian Income Tax Regulations requiring all partnerships to file an annual information return. Under certain conditions, the CRA has exempted partnerships with fewer than six partners from filing. However, over the last 20 years, the Canadian economy and business landscape have evolved, showing that business activity and assets held by a partnership, as well as the complexity of a partnership's structure, are more significant for tax matters than the number of partners.

Along with the changes to the filing requirements, the CRA will introduce a revised information return and tax guide for partnerships in 2011. For more information, go to www.cra.gc.ca/partnership.

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Scientific Research and Experimental Development: Changes

The following news release regarding Scientific Research and Experimental Development (SR&ED) is available on the Canada Revenue Agency web site.

"Changes will be made to improve the program," declares Minister Blackburn

Hamilton, Ontario, January 13, 2010... Today, while addressing the 13th Annual Tax Practitioner Information Session, the Honourable Jean-Pierre Blackburn, Minister of National Revenue and Minister of State (Agriculture and Agri-Food), announced improvements to the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program.

"Our Government understands the importance of research and innovation to our country's present and future economic prosperity. By offering generous investment tax credits, we are encouraging Canadian corporations to invest in innovation and to develop new products, services, and technologies," said Minister Blackburn.

"I am pleased to announce that the Canada Revenue Agency (CRA) will soon be implementing a number of improvements to the program. This July, the CRA will begin to report quarterly, through its Web site, on the time it takes to review an SR&ED claim from start to finish. It will improve on accuracy and on the mutual goal of achieving the timely resolution of a claim," indicated Minister Blackburn.

"CRA officials will also spend more time better explaining the SR&ED program requirements, process, and decisions to the claimants and their representatives. The emphasis on working with claimants is reflected in the new manual, which will become effective on April 1, 2010.

In addition, I am pleased to announce that when, in the course of their review, CRA officials discover that a company has not claimed work that appears to be eligible for the credit, they will now inform the claimant of their finding so that companies can resubmit their claim if within the reporting deadline. This is also reflected in the SR&ED claim review manual and will be effective as of April 1, 2010.

The issue of consistency in our decisions has often been raised by claimants and tax practitioners. I want to assure you that I have listened carefully to these concerns, and I have asked CRA officials to continue working in this area and to propose additional solutions. I will be soon be announcing further enhancements to the SR&ED program as a result," added Minister Blackburn.

The Government of Canada is building on its tradition of excellence through the SR&ED program. By investing in research and development, we are creating a stronger economy, future job opportunities, and a better quality of life for all Canadians.

The program is the largest single source of federal government support for industrial research and development. It encourages businesses to conduct research and development that may lead to new, improved, or technologically advanced processes or products. The program represents approximately 4 billion dollars distributed annually to over 18,000 Canadian businesses.

Global tax information exchange peer review

Canada ready for review by Global Forum tax information exchange peers

The followiing news release is available from the Canada Revenue Agency:

Paris, France, January 7, 2010 ... Today, after a meeting with the director of the Centre for Tax Policy and Administration of the Organisation for Economic Co-operation and Development (OECD), Mr. Jeffrey Owens, the Honourable Jean-Pierre Blackburn, Minister of National Revenue and Minister of State (Agriculture and Agri-Food), announced that Canada has volunteered to be among the first countries to participate in a tax information exchange peer review process as part of the Global Forum on Transparency and Exchange of Information.

"Canada recognizes that the advancement of transparency and exchange of information is critical to tax fairness and the integrity of the tax system, not only for Canada, but for countries around the world," said Minister Blackburn. "Today, I confirmed Canada's continued commitment to the work of the OECD in the area of tax administration, in particular regarding the establishment of international standards for transparency and the effective exchange of information."

Under international treaties, Canada cooperates with a large number of countries by exchanging information about foreign investments for tax purposes. To this end, Canada is working hard to increase the flow of information by negotiating Tax Information Exchange Agreements (TIEAs). The work of Global Forum on Transparency and Exchange of Information and initiatives in Canada's 2007 Budget have created a strong incentive for jurisdictions to enter into these TIEAs.

The Global Forum has formed a Peer Review Group to ensure that TIEAs and exchange of information provisions in tax treaties are effectively implemented. The peer review process is expected to begin in the next few months.

"By taking a leadership role and volunteering to be among the first countries to undergo the peer review process, Canada will be in a strong position to fast-track the implementation of these agreements and build on the growing global momentum that currently exists," added Minister Blackburn.

As of October 2009, TIEA negotiations have commenced with 14 jurisdictions, in addition to the signing of Canada's first TIEA with Netherlands in respect of the Netherlands Antilles on August 29, 2009.

While in Europe, Minister Blackburn is holding a series of high-level working meetings with some of his tax administration counterparts from the Seven Country Working Group on Tax Havens to further advance co-operation between Canada and its international partners on addressing tax evasion and aggressive international tax planning schemes. Minister Blackburn's tour includes meetings with his tax administration counterparts in the United Kingdom, France and Germany.

Interest rates for the first calendar quarter

The following news release is available on the Canada Revenue Agency web site.

Ottawa, Ontario, December 3, 2009 …The Canada Revenue Agency (CRA) today announced the prescribed annual interest rates that will apply to any amounts owed to the CRA and to any amounts the CRA owes to individuals and corporations. These rates are calculated quarterly in accordance with applicable legislation and will be in effect from January 1, 2010 to March 31, 2010.

Income tax

•The interest rate charged on overdue taxes, Canada Pension Plan contributions, and Employment Insurance premiums will be 5%.
•The interest rate paid on overpayments will be 3%.
•The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 1%.
Other taxes

The interest rate on overdue and overpaid remittances for the following taxes will be:

Tax and Duty | Overdue remittances | Overpaid remittances

•Goods and Services Tax (GST) | 5% | 3%
•Harmonized Sales Tax | 5% | 3%
•Air Travellers Security Charge | 5% | 3%
•Excise Tax (non GST) | 5% | 3%
•Excise Duty (except Brewer Licensees) | 5% | 3%
•Excise Duty (Brewer Licensees) | 3% | N/A
•Softwood Lumber Products Export Charge | 5% | 3%

For information on the prescribed interest rates of other calendar quarters, go to the www.cra.gc.ca/interestrates Web page.

Appointment to the Canada Revenue Agency Board of Management

A news release on the CRA web site has announced the appointment of Mr. Gerard J. Fitzpatrick to the Canada Revenue Agency Board of Management who was nominated by the Province of Prince Edward Island.

According to the CRA news release:

"Mr. Fitzpatrick's thirty years of experience as a chartered accountant and founding member of two chartered accounting firms in Prince Edward Island will contribute to the Board's role within the CRA," said Minister Blackburn. "The Board is an integral part of the Agency's unique governance structure and I am confident that Mr. Fitzpatrick's membership will be beneficial to the work of the Board in the years to come."

While the Minister of National Revenue retains full accountability to Parliament and to Canadian citizens for all CRA activities, the Board of Management is responsible for overseeing the organization and administration of the Agency and the management of its resources, services, property, personnel, and contracts. The Board brings a forward-looking, strategic perspective to the CRA's operations and fosters sound management and service delivery.

The Act to establish the Canada Revenue Agency specifies the establishment of a Board of Management. The Board comprises 15 members, including the Chair, the Commissioner, 11 directors nominated by the provinces and territories, and two directors nominated by the Federal Government. All members are appointed by the Governor General in Council. The Act requires that each director nominated by a province or a territory must be selected by the Governor General in Council from a list of nominees submitted by the minister responsible for revenue administration in the province or the territory, or by another minister that the province or the territory designates.

More information on this or other CRA news releases can be found at:
http://www.cra-arc.gc.ca/nwsrm/rlss/2009/m09/nr090929-eng.html

SRED Tax Incentives - What's New

The Canada Revenue Agency has prepared a What's New page on its web site for information on the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program Support for scientific Research and Development (R&D) in Canada.

The SR&ED program is a federal tax incentive program, administered by the Canada Revenue Agency (CRA), that encourages Canadian businesses of all sizes, and in all sectors to conduct research and development (R&D) in Canada. It is the largest single source of federal government support for industrial R&D.

The SR&ED program gives claimants cash refunds and/or tax credits for their expenditures on eligible R&D work done in Canada.

For information on what's new with the SRED program, please see:
http://www.cra-arc.gc.ca/txcrdt/sred-rsde/menu-eng.html

Canadians say personal income taxes too high, too complicated and unfair – opinion poll

CTF public opinion poll also finds 45% of respondents believe cutting personal income taxes should be given priority over other tax measures

OTTAWA – The Canadian Taxpayers Federation (CTF) released results of a public opinion poll in advance of the 2008 budget, expected later this month. The poll was conducted by Praxicus Public Strategies Inc. for the CTF to determine what Canadians think of the personal income tax burden and gauge perceptions of the tax codes fairness and its complexity.

The CTF-commissioned public opinion survey found:

65% of Canadians say federal personal income tax rates are somewhat too high (33%) or much too high (32%);

63% of Canadians believe the federal income tax system is too complicated;

57% of Canadians deem the income tax system somewhat unfair (40%) or very unfair (17%);

45% of Canadians said income taxes should be the federal government's top tax cut priority with gas taxes second (18%) with payroll taxes and GST tied for third at 10% each; and

51% of Canadians prefer broad-based tax relief over 44% who like targeted tax measures.

The survey was conducted January 4 – 8, 2008, among 1,000 Canadian adults 18 years-of-age and older. The results are considered accurate to within +/-3.1 percentage points, 19 times out of 20. The results are available online: http://www.taxpayer.com/pdf/PollResults2008.pdf

On January 17th, the CTF released a groundbreaking study urging the federal government to enact a multi-year tax reform/relief plan. The report, entitled Lower, Simpler & Flatter – Towards a Single Tax Rate for Canada, urges Ottawa to reduce personal income taxes and cut the number of tax brackets from four to two while maintaining only a handful of deductions like RRSP, spousal and child allowances. The goal is to both simplify the tax code while lowering the personal income tax burden in a manner that strengthens the Canadian economy. The tax reform/tax relief news release is available here: http://www.taxpayer.com/main/news.php?news_id=2781

“This poll indicates our tax reform/tax relief proposal correctly identified problems with the existing personal income tax system. Specifically, a majority think income taxes are too high, the tax code is too complicated, and the system unfair,” said CTF federal director John Williamson. “The Conservative government should move to two federal income tax rates of 15% and 25% by 2012 as a way to make the system fairer and less complicated. There is public support for tax reform and tax relief.”

John Williamson
Federal Director
Canadian Taxpayers Federation

Keep your records to support your tax return

The Canada Revenue Agency issued a new release on January 25, 2008 advising Canadians who plan to file their tax returns electronically, (or who do not submit information slips and receipts with their paper-filed return) to keep their tax records in case they are contacted by the Canada Revenue Agency (CRA).

Once tax returns are filed, the CRA begins work to verify the income reported, as well as the credits and deductions claimed. These reviews are an important way the CRA ensures that Canadians are paying their taxes. Last year, the tax returns of approximately 2.7 million individuals were reviewed and an additional $700 million in taxes was assessed by the CRA.

Some initial reviews of deductions and credits are conducted when returns are filed, and before taxpayers receive their Notice of Assessment. However, the majority of reviews take place later in the year, as the CRA works to verify the information on an individual's tax return and compare it with the information provided by other parties, such as an employer or a spouse or common-law partner.

For more information about on this news release and on reviews of tax returns by CRA, see:
http://www.cra-arc.gc.ca/newsroom/releases/2008/jan/nr080125-e.html

Toward a single tax rate

By John Williamson & Mark Milke

Don't believe the nattering nabobs who say Ottawa can't lower taxes. The Conservative government can – and should – table significant personal income tax relief in the federal budget.

According to the Organization for Economic Co-operation and Development (OECD) and even the federal finance department, Canada's personal income tax burden is the highest of all G7 nations. Canadians pay more income tax than the French and Italians, despite being neighbours with the lower-taxed United States. Income taxes in Canada are complex, relatively high and create significant economic distortions. There is an alternative.

Imagine a personal income tax form that could be easily completed without help from professional accountants or computer software. One that, in April of every year, allowed taxpayers to list their income; subtract basic, spousal and child deductions, and RRSP contributions, to calculate taxable income; apply a single rate to calculate tax owing; subtract the tax already paid; and pay the balance or collect any refund.

If Canadian taxpayers like the simplicity and fairness of this idea, they are not alone. Since the fall of the Berlin Wall in 1989, 15 eastern and central European countries have adopted variations of a flat-or single-tax model. In 2007, Iceland was the first western European nation to move to a single rate of income tax.

There are several reasons why Canada should aim for a single rate of tax. First, a single rate of tax if combined with vastly fewer deductions and credits would end complexity and thereby reduce compliance costs for taxpayers and administration costs for the federal government.

Second, the reality of fewer credits and deductions would allow for a lower overall single rate. Third, a single rate of tax is effectively progressive in a way that a multi-bracket system with multiple credits and deductions is not. The proponents of a multi-bracket system ignore the litany of exemptions that come with it. Those exemptions and deductions help to lower tax rates, especially for wealthy individuals.

In contrast, single-rate systems are progressive because the existence of a basic personal exemption means the higher one's income, the higher the proportion of one's income paid in tax. Consider Alberta, where the basic personal exemption was $15,435 in 2007 and where the provincial single-rate tax is 10%. At $20,000, the taxpayer paid out $456 in provincial income tax, representing 2.3% of income. At $100,000 of income, the tax paid was $8,456 and 8.5% of all income.

Two other benefits include reduced tax avoidance and superior incentives to work, save and invest under a flatter system.

To achieve such a model, the federal government will need to move in two steps. First, in stages between 2009 and 2012, the federal government should collapse the number of brackets from four to two rates of 15%, and 25% on income above $80,000. Canada currently has four income tax rates of 29%, 26%, 22% and 15%.

Over that same period, the basic personal and spousal exemptions should be raised to $15,000 each with the per child credit raised to $2,200. Concurrent with such a reform, most other deductions and tax credits should be eliminated with the exception of universal deductions and credits that pertain to charitable giving, RRSPs, seniors and a handful of disability amounts.

The tax relief is substantial. Adopting this two-rate plan will deliver $68.8-billion in personal income tax relief over four years. It is based on prudent assumptions and is achievable without running budgetary deficits.

And according to the Toronto-based C.D. Howe Institute, the federal government can accommodate such a tax regime merely by restraining federal spending to 2.5% growth per year starting in 2008. If it can slow annual spending increases, Ottawa could deliver the two-rate tax cut plan, run a surplus in 2012 and still have an additional $3-billion available for debt reduction that year.

It makes sense for Canadians to eventually pay one federal rate of tax. So the second stage, post-2012, would involve moving to a single rate as budgetary conditions allow. This cannot be done overnight, but we should begin implementation as soon as possible. A fairer tax and a healthier economy will be the result when we do.

John Williamson is the federal director for the Canadian Taxpayers Federation. Mark Milke, a former provincial director with the CTF, lectures in political science at the University of Calgary. They are the authors of Lower, Simpler & Flatter – Towards a Single Tax Rate for Canada, available at: www.taxpayer.com.

John Williamson
Federal Director
Canadian Taxpayers Federation

Two federal income tax rates of 15% & 25%

- Slow Ottawa’s annual spending growth to 2.5% and it is possible by 2012
- A pro-growth plan that will deliver nearly $70-B in personal tax relief

Budget impact costed by the C.D. Howe Institute

OTTAWA – The Canadian Taxpayers Federation (CTF) today released a groundbreaking study urging the federal government to enact a multi-year tax reform/relief plan. The report calls on Ottawa to reduce personal income taxes and cut the number of tax brackets from four to two while maintaining only a handful of deductions like RRSP, spousal and child allowances. The goal is to both simplify the tax code while lowering the personal income tax burden in a manner that strengthens the Canadian economy. The report does not deal with corporate tax reform, nor does it redefine how investment income is taxed.

The study, entitled Lower, Simpler & Flatter – Towards a Single Tax Rate for Canada, authored by Mark Milke and John Williamson, argues the federal government should embark on comprehensive tax reform with the ambition of adopting a single personal tax rate. As an immediate first step, the authors recommend that Canada move to two federal income tax rates of 15% and 25% by 2012. There are currently four tax rates of 29%, 26%, 22% and 15%.

“Our immediate objective is to usher in two tax rates on personal income so no taxpayer will pay more tax and most will pay less,” CTF federal director John Williamson said today at a news conference on Parliament Hill. “The tax relief is substantial. If this two rate plan is implemented by the federal government it will mean a $25-billion annual personal income tax cut as of 2012.”

The C.D. Howe Institute conducted an independent analysis of this plan’s fiscal impact on government revenues and its affordability by 2012. The think tank also calculated the positive tax relief generated on households that result from adopting two income tax rates while eliminating many tax credits.

Finn Poschmann, the Institute’s director of research, concluded, “The tax relief proposed by the CTF is readily affordable by 2012, provided modest spending restraint is undertaken by the federal government … Restraining federal spending to 2.5% nominal growth per year, beginning in 2008, would produce planning surpluses of $21.9-billion and $28.1-billion [in fiscal 2011/12 and 2012/13]. This implies that personal tax relief of $25-billion per year is possible by 2012, while setting aside $3.0-billion annually for debt reduction and without running a fiscal deficit.” (The C.D. Howe’s Impact of Fiscal Measures is included in the report.)

“The decisions Finance Minister Jim Flaherty makes in the upcoming budget will determine the size of tomorrow’s income tax cut,” noted Williamson. “If the Conservatives exercise modest spending restraint they will finally be able to deliver meaningful personal income tax relief. We must not forget that Canada has the highest personal income tax burden of G7 nations, yes even higher than the French.”

Under the two rate model proposed by the CTF, by 2012:

Approximately 1.4 million low-income Canadians will be removed from the tax rolls as a result of all individuals earning $15,000 or less not paying any federal income tax. Income over $9,600 is currently subject to federal income tax under Ottawa’s existing tax system;

Every category of taxpayers – one-earner and two-earner households, married people with or without children, unattached singles with or without children, and seniors – representing 30 million Canadians, will pay less income tax or the same amount;

The basic and spousal exemptions are each $15,000 and there is also a per child exemption of $2,200. As such, two-parent families with two kids will not pay any federal income tax until their combined income exceeds $34,400. Today, this household is subject to tax on income at $23,200. A single parent with three children will pay no federal tax on the household’s first $21,600 of income. Federal tax is currently applied to this family’s income above $15,600;

To ensure low- and moderate-income senior citizens pay no additional income tax there is an age credit; and

RRSP deductions remain intact along with those for charitable giving.

“This tax relief is proportional. The more an individual or household earns the higher the tax savings will be. This is welcome because the middle class and high earners pay the majority of tax in Canada,” said Mr. Williamson. “Ottawa should stop punishing people for working hard.”

According to Statistics Canada, in 2002, the top 10% of taxpayers paid 52.6% of total federal income tax, up from 46% in 1990. Entrance to the “Elite 10% Club” began at $64,500 a year.

“The system also remains progressive as a result of generous personal and family exemptions. As a result, an individual’s or household’s share of taxes rises as more income is earned,” noted Williamson. “A common economic fallacy is that only tax systems with steep multi-tax rates are progressive when a single-rate tax with generous allowances can accomplish the same objective.”

Williamson concluded, “Lowering tax rates sends the important signal that entrepreneurialism, risk taking and hard work are positive endeavours to be encouraged. This is something Canada’s current income system with punitive tax rates fails to do. This two rate tax proposal is a pro-growth plan that will deliver nearly $70-billion in personal income tax relief over the next four years. It is based on prudent assumptions and is achievable without running budgetary deficits.”

An electronic copy of Lower, Simpler & Flatter – Towards a Single Tax Rate for Canada is available at: http://www.taxpayer.com/pdf/flat_tax_2008.pdf

John Williamson
Federal Director
Canadian Taxpayers Federation

Canada’s rich not contributing fair share in taxes: study

The Canadian Centre for Policy Alternatives (CCPA) has released a study Eroding Tax Fairness: Tax Incidence in Canada, 1990 to 2005 by CCPA-BC Senior Economist Marc Lee. According to the CCPA, the study is the first comprehensive review of tax changes at all levels of government in Canada within the past 15 years. It finds the system is delivering larger tax savings for high income families.

The news release for the study and the full study itself are available on the CCPA web site at www.policyalternatives.ca and www.growinggap.ca.

Canada’s rich not contributing fair share in taxes: study

More than a decade’s worth of tax cuts have disproportionately lined the pockets of Canada’s most affluent families, says a new tax study by the Canadian Centre for Policy Alternatives (CCPA).

From the CCPA news release:

The study finds the top 1 percent of families in 2005 paid a lower total tax rate than the bottom 10 percent of families.

“Canada’s tax system now fails a basic test of fairness,” says Marc Lee, senior economist with the CCPA’s B.C. office and author of the study. “Tax cuts have contributed to a slow and steady shift to a less progressive tax system in Canada.”

The study, which is the first comprehensive review of tax changes at all levels of government in Canada within the past 15 years, finds the system is delivering larger tax savings for high income families. This reinforces the growing gap in market incomes between high income families and the rest of Canadians.

“Most Canadians will be surprised by these findings because they believe we have a progressive tax system – but looking at all taxes combined, that’s no longer the case.”

The study, Eroding Tax Fairness: Tax Incidence in Canada, 1990 to 2005, is available at www.growinggap.ca and www.policyalternatives.ca.

Shopping for lower taxes and less government regulation

There was a time, not very long ago, when finance ministers were known for challenging wooly economic thinking to improve the economic wellbeing of Canadians. Paul Martin successfully battled the deficit by rallying Canadians to support the Liberal government’s cost cutting measures. Michael Wilson was even more daring: as Conservative finance minister he abolished the old and highly inefficient manufacturers’ sales tax (MST) and replaced it with the – albeit hated – GST.

And Jim Flaherty? Well, he is hoping a meeting with the Retail Council of Canada will pressure merchants to lower prices to reflect our strong loonie. There is nothing wrong with a finance minister looking out for consumers. Yet, Mr. Flaherty has a much larger responsibility to Canadians than suggesting, as he has done, the reason domestic prices for goods and services do not match those in the United States is retailer gouging.

Minister Flaherty is well aware the strength of a currency is only one factor that determines price. Others include the tax bite, government regulations, minimum wages, tariff barriers and labour laws. The Canadian economy has more costly regulations and higher taxes and until this is changed Canadians cannot expect price parity with the U.S., which has a more dynamic, lower taxed, less regulated and therefore less costly market.

And yet for many years proponents of higher taxes and more red tape have argued the Canadian economy can absorb these costs without any economic pain. Today, dollar parity reveals the truth – somebody pays an economic price and it is the Canadian consumer.

Since finance ministers have no direct control over the dollar – or for that matter retail prices – Mr. Flaherty should concentrate on the policies he can influence as a way to help businesses adjust to Canada’s new economic environment. As such, the finance minister ought to explain the country cannot have radically higher minimum wages, higher business taxes and more costly regulations and expect prices to be the same on both sides of the border. It is simply an economic impossibility. After that is said, he should go about tackling these problems.

In order for our domestic market to offer the prices consumers obviously want, the federal government must take the lead to make the economy more productive. Of course, Ottawa cannot do it alone. It is a job for the federal government as well as provincial governments, which set minimum wages and determine labour laws, taxes and regulations. Even so, the federal finance minister can act to improve market efficiency with tax reform and lower taxes.

Mr. Flaherty’s demand for lower retail prices would be strengthened if he were to first lead by example. A good place to start is reforming Employment Insurance (EI) payroll taxes in the November budget update. Like other business inputs, payroll taxes are paid by manufacturers and retailers but they are passed on to, and paid, by consumers. Lower EI taxes will help retailers cut their costs and also benefit the exporting manufacturing sector, which is facing tough international competition. The Conservative government should act quickly to lower and harmonize employer premiums with those of employees. The tax savings will flow to consumers.

Thankfully, the Conservative government’s recent throne speech signaled its focus on targeting tax relief is over and Ottawa will soon enact broad-based tax cuts. Given the size of the federal surplus, which was $13.2-billion in 2005, $14.2-billion in 2006 and is on track to top $20-billion this year, Finance Minister Flaherty has an opportunity to combine intelligent and dramatic tax reform with significant tax relief.

Fat surpluses mean tax reform need not feed Canadians an unwanted new tax as former finance minister Wilson did when the MST was replaced. But it is the finance minister’s job to help retailers adjust when weaknesses are found in the economy. The Canadian market is not as vibrant or as competitive as it could or should be and government policy is part of the problem. Let’s get on with fixing it. For this to happen, Mr. Flaherty will first need to propose solutions. If he does, he will find taxpayers and retailers listening.

John Williamson
Federal Director
Canadian Taxpayers Federation

Three Policy Proposals for Stephen Harper’s Government

Stephen Harper has all but exhausted his policy agenda and his government is adrift. This week, the Conservative caucus landed on Prince Edward Island for a strategy meeting. The Prime Minister should use these discussions to muster a new agenda before Parliament returns in the fall. Without one, the opposition parties will continue to advance their agendas in spite of the 2006 election results.

When Prime Minister Harper seizes the policy initiative, he governs well. Indeed, credit should be given to the Conservative government for implementing most of its five election promises. Those priorities are enacting the Federal Accountability Act, reducing the GST from 7% to 6% and signalling another point chop by 2011; replacing a planned daycare scheme with a universal child care allowance; developing medical wait-times guarantees with the provinces; and advancing legislation to get tough on criminals (the Senate is obstructing passage of the crime bills).

The federal government has also prepared the legislative ground work to make the Senate democratic and promote accountability on native reserves. Conservative bills will limit Senate terms to eight years and authorize voters to elect their Senate representatives. To improve the plight of natives, another bill will expand Canada’s human rights laws to native Canadians. (Aboriginal reserve governments are currently exempt from the Canadian Human Rights Act.)

Although the opposition is blocking these sensible reforms, the government should not yield – it is one thing to tie a bill up in Parliament and an altogether different ball game to explain in an election why senators ought to remain appointed or that aboriginals are not entitled to the same legal protections other Canadians take for granted. The Conservatives are well positioned here, but it will be a protracted campaign.

Mr. Harper’s immediate challenge is to identify taxpayer-friendly goals that resonate with voters. Initiatives like a national securities regulator might improve market efficiency but will not win many votes. The same is true of selling excess government buildings.

While Canada’s second minority Parliament has been productive, it has not generated the results many taxpayers had hoped for. What is most alarming is the unrelenting rise in spending. The Conservative’s two budgets boosted spending by $24.4-billion over two-years. As a result the size of the federal government has grown by 14%.

Evidence of bureaucratic feather-nesting came in July with a government study examining civil servants’ pay. It reported Canada’s bureaucracy is bloated and the mid-1990s budget cutbacks to the civil service have been undone. Public servants are paid an average salary higher than their private sector counterparts and receive rich benefit packages. Since 1999 the cost of the bureaucracy has increased by an astounding 50%.

Agenda item one for the Conservatives should be to cut spending. Item two should be to dedicate savings to debt reduction. Canada’s debt currently stands at $472-billion. Since 1961, debt interest and service charges have cost taxpayers almost $1-trillion. Canadians would welcome a plan to pay off the debt. It can be achieved if Parliament passes a debt repayment law with annual payments of 5% of total revenues. Each year, Ottawa squanders $34-billion paying interest. As the debt is reduced, significant savings will be realized through lower interest payments.

The third policy item is to cut income taxes, since Finance Minister Jim Flaherty is not taxing to collect money to fund programs, but rather finding ways to spend money government collects. Two years ago the federal surplus totaled $13.2-billion. Last year it was $9.2-billion. The spending of surplus dollars is responsible for Ottawa’s 14% expansion.

To moderate demands for tax relief, the finance minister has again underestimated this year’s surplus figure. In July, the department of finance reported a budgetary surplus of $3.5-billion for the first two months of the fiscal year. Mr. Flaherty’s March budget pegs it at $3.3-billion for the entire year. Mr. Flaherty’s surplus denials, “tax fairness” rhetoric, and nominal tax relief proposals have become tedious. Canadians pay too much tax and all deserve relief.

That makes three new proposals for Prime Minister Harper’s team to consider. Taxpayers are unlikely to be motivated for a political party that they see as being little different than the alternative. The Liberals are seriously considering some sort of tax relief policy, perhaps even income splitting. As such, the Conservative government is in danger of being outflanked where they should not.

John Williamson
Federal Director
Canadian Taxpayers Federation

Taxpayer Bill of Rights and Taxpayers' Ombudsman

The following news release announcing the Taxpayer Bill of Rights and Taxpayers' Ombudsman is now available on the Canada Revenue Agency Web site.

The Honourable Carol Skelton, Minister of National Revenue, joined by the Honourable Jim Flaherty, Minister of Finance and Regional Minister for the Greater Toronto area, today announced two new initiatives, a Taxpayer Bill of Rights and a Taxpayers' Ombudsman, to ensure Canada Revenue Agency (CRA) is more accountable to Canadians.

“All taxpayers will be better served by these new initiatives that will enhance the services delivered to Canadians by the Canada Revenue Agency (CRA),” said Minister Skelton. “We want taxpayers to know they have rights and that we at the CRA take these rights seriously. By introducing a Taxpayer Bill of Rights, we are ensuring that taxpayers are served with a higher standard of service, and if that fails, they have a Taxpayers’ Ombudsman to turn to.”

“When it comes to taxes, this government not only believes in strong accountability, but fairness,” said Minister Flaherty. “We have introduced the Tax Fairness Plan and the Anti-Tax Haven Initiative. Our next important step is introducing a Taxpayer Bill of Rights and a Taxpayers’ Ombudsman, which will ensure fair treatment of all taxpayers by the CRA.”

The Taxpayer Bill of Rights includes 15 rights, plus 5 new commitments for small businesses. The Ombudsman is expected to be operational by fall 2007, and will operate independently and at arm’s length from the CRA. Taxpayers who are unsatisfied with the action or response from the CRA may request the Taxpayers’ Ombudsman, to undertake an independent review.

For more information, see the CRA web site at:
http://www.cra-arc.gc.ca/newsroom/releases/2007/may/nr070528-e.html

Abusive tax schemes tackled by international tax administrations

The Canada Revenue Agency has issued a news release concerning the addition of Japan to the Joint International Tax Shelter Information Centre (JITSIC).

According to the news release, "the JITSIC was formed by the tax administrations of Australia, Canada, the United Kingdom, and the United States in 2004 to address a number of common challenges with respect to abusive tax activities."

"The inclusion of Japan and the opening of the London Centre are both part of the JITSIC's plans for a measured expansion to cover North America, Europe and Asia."

According to the CRA, the objectives of the JITSIC are:

To increase public awareness of the risks associated with abusive tax schemes;
To recommend changes in tax administration practices for addressing abusive tax schemes;
To enhance enforcement efforts through coordinated “real time” exchanges of tax information;
To use Internet and other techniques to track and identify promoters/users of tax schemes;
To identify emerging trends in anticipation of the evolution of abusive tax schemes; and
To improve members' knowledge of techniques used to promote cross border abusive tax schemes.

"Canada's participation in the JITSIC is producing real results. For example, in the summer of 2006, the exchange of information between the CRA and the Internal Revenue Service of the United States led to the unraveling of an abusive cross-border tax scheme involving hundreds of taxpayers and tens of millions of dollars in improper deductions and unreported income. The number of information exchanges has been steadily increasing. While the confidentiality provisions of the Income Tax Act preclude the release of any taxpayer specific information, Canada has had some 280 exchanges of information with JITSIC countries, involving issues such as financial products, tax shelters and offshore trusts. As collaboration between member countries continues to grow, more cross-border schemes will be uncovered, shared and addressed."

For more information on this news release, please see the CRA web site at:
http://www.cra-arc.gc.ca/newsroom/releases/2007/may/nr070523-e.html

CRA criminal investigators given badges

The Canada Revenue Agency (CRA) has issued the following news release. Full text of this and other CRA news releases can be found on the CRA web site:
http://www.cra-arc.gc.ca/newsroom/releases/2007/march/nr070328-e.html

Ottawa, Ontario, March 28, 2007... The Canada Revenue Agency (CRA) has issued identification badges to its investigators.

The badge and accompanying identification card will serve as official identification only. CRA investigators' roles and powers will remain the same, as will the duties they perform.

The badges are a result of adjustments the CRA has made to its policies and procedures following a ruling made by the Supreme Court of Canada in the Jarvis and Ling decisions that CRA investigators could not rely on the same administrative powers as auditors to gather evidence for purposes of criminal investigations. While audits and investigations are both serious matters, an investigation can lead to a criminal charge. The badges will allow the public to easily distinguish between an auditor and a criminal investigator. This is consistent with the CRA's commitment to transparency.

The CRA takes any incident of deliberate abuse of Canada's tax laws very seriously. In 2005-2006, 252 income tax and Goods and Services Tax/Harmonized Sales Tax (GST/HST) investigations were referred for possible criminal prosecution. These referrals along with those from previous years resulted in 293 convictions in 2005-2006 with the Courts imposing $14.4 million in fines and sentenced offenders to a combined total of 33 years in prison.

Towards a Tax-Back Guarantee & a Taxpayers Bill of Rights

The Conservative government is set to enact a tax-back guarantee after the federal budget is tabled on March 19. The proposal is to lower taxes using interest savings that occur naturally when government debt is reduced. OttawaR17;s debt stands at $481.5-billion and annual debt interest payments are more than $34-billion. Should Ottawa make debt reduction a priority, the tax-back guarantee will be a boon to taxpayers.

The challenge for Finance Minister Jim Flaherty is to ensure the guarantee mechanism triggers tax relief automatically. If the government neglects to put in place workable legislation, the initiative will be labeled a political gimmick.

Budget ’07 affords the finance minister an opportunity to deliver tax relief to Canadians. Thanks to Mr. Flaherty’s sound decision to use last year’s budget surplus of $13.2-billion to pay down debt, Ottawa will save $700-million a year on interest payments. The surplus in the current fiscal year is projected to be $7.2-billion and despite rampant public spending, many observers expect it will top $10-billion when the books close on March 31st. If this surplus is also applied against the debt, the combined interest savings will permit Ottawa to cut taxes annually by $1.2-billion. That’s a good start.

Mr. Flaherty should go further and make deeper income tax cuts, for two reasons. First, the unexpectedly large surpluses are politically embarrassing to a government that vowed to end the practice of low-balling surplus projections. Second, a surplus is just a fancy word for over-taxation and excess tax dollars should be returned to taxpayers.

Mr. Flaherty has already pledged to reduce debt by $3-billion annually until at least 2021. Each repayment saves Ottawa about $170-million in annual interest costs. Yet a tax-back pledge is not a guarantee of a tax break. If the government is serious about this commitment it should make it law to ensure future debt reduction results in automatic tax relief – as a dividend to taxpayers – in the subsequent fiscal year.

Legislation ensures interest savings are not subject to political manipulation. Interest savings must be placed in a lock box – beyond the reach of politicians – so it flows automatically to taxpayers by raising income tax thresholds, for example. The law must also state the tax refund flowing from the guarantee is permanent and will not be repealed if interest costs rise. Should borrowing rates increase, Ottawa should not solve any shortfall on the backs of families, many of whom carry mortgages and debt of their own. Ottawa will instead need to reduce its spending.

The other predicament facing Mr. Flaherty, and his cabinet colleagues, is to control year-end spending and resist spending down anticipated surpluses. Under a tax-back guarantee if debt relief is more aggressive, the corresponding tax relief could be larger. And that’s the rub: the Conservatives are hardly better at managing budget surpluses than the Liberals. Mr. Flaherty has rebuked the old Liberal government for increasing program spending by “an average of 8.2 per cent annually.” Yet unless the government slows the “March madness” spending bender, program expenditures will climb by almost 8 per in 2006/07.

The machinations of government make controlling spending difficult. There are presently no legislative constraints on federal spending. As such, parliamentarians announce new programs, tally up the costs, and pass a budget to fund them.

One way to prevent governments from spending down the surplus before the books close at year end is to enact tax/expenditure limits (TELs). Such restrictions control spending and prevent politicians from driving the budget process off the rails. Parliament should trade off spending in priority programs with cuts in lower-priority areas. A Canadian TEL should cap each year’s spending increase at the rate of inflation plus population growth and require all revenues collected above the spending cap to be returned as tax refunds. A three per cent emergency reserve would be permitted to keep the budget balanced. Passing TELs along with a tax-back guarantee ought to be enacted as part of a Taxpayers Bill of Rights.

CanadaR17;s surpluses are certainly not a direct threat to the economy, but ongoing over-taxation by the federal government does weaken the nation’s competitiveness and leave families with lower take-home pay. High taxes and high spending removes economic resources from the private sector and impedes growth and prosperity. A balanced budget does not necessarily force lawmakers to control spending because it can happen by way of higher taxes and higher spending.

Ottawa has a revenue problem and a spending problem. Mr. Flaherty can solve the first by cutting taxes on March 19, a move today’s taxpayers will thank him for. He can fix the second by legislating expenditure limits. This will ensure government programs do not grow at unsustainable rates and force higher taxes to be paid by a future generation of taxpayers.

John Williamson
Federal Director
Canadian Taxpayers Federation

Reminder of upcoming amendments to fairness provisions in

As a reminder to Canadians, the Canada Revenue Agency (CRA) has issued the following news release:

Ottawa, Ontario, February 28, 2007... The Canada Revenue Agency (CRA) reminds goods and services tax/harmonized sales tax (GST/HST) registrants that they have until March 31, 2007, to review their records and send in any requests for penalty and interest relief under the fairness provisions for a reporting period that ended on or before December 31, 1996.

Legislative changes to the fairness provisions in the Excise Tax Act (both for GST/HST and non-GST/HST purposes) were introduced in 2006. Starting April 1, 2007, the Minister's discretion to waive or cancel penalties and interest will be limited to requests for reporting periods that ended within any of the 10 calendar years preceding the calendar year in which the request is made.

For more information on this news release, please visit:
http://www.cra-arc.gc.ca/newsroom/releases/2007/feb/nr070228-e.html

On the Dole: Businesses, Lobbyists, and Industry Canada’s Subsidy Programs

Corporate Welfare Continues to Fleece Taxpayers

- $18.4-billion in handouts given to businesses in 47,960 payments over 23 years.

- Only $1.25-billion or less than 7% has been repaid to federal government.

- By ending the subsidy game Ottawa could reduce business tax burden.

OTTAWA – The Canadian Taxpayers Federation (CTF) today released a report, entitled On the Dole: Businesses, Lobbyists, and Industry Canada’s Subsidy Programs, that details $18.4-billion in federal government handouts to businesses, associations and foundations for the period covering April 1, 1982, to March 31, 2006. It examines only tax money authorized through the federal industry department. It does not include subsidies from other departments, the three primary federal regional development agencies (Atlantic Canada Opportunities Agency, Canada Economic Development – Quebec, and Western Economic Diversification) or similar programs funded by other levels of government. The information was compiled through freedom of information requests made to Industry Canada.

“Corporate welfare programs are a sinkhole for tax dollars. Handouts serve neither businesses nor taxpayers and should be scrapped. Since 1982, billions have been given away or loaned yet repayments are paltry and many of the top recipients have taken up permanent residence at the trough,” stated CTF federal director John Williamson. “High taxes fund subsidy programs that benefit a minority of companies. If the department of industry was overhauled Ottawa could cut its corporate tax cut rate by 2 or even 3 percentage points. Such a change would benefit all businesses, improve Canada’s international competitiveness and be advantageous to consumers, workers and investors.”

The 30-page report can be viewed at: http://www.taxpayer.com/pdf/2007_corporate_welfare_report.pdf

The 809-page subsidy appendix can be viewed at: http://www.taxpayer.com/pdf/subsidies.pdf

Findings from On the Dole: Businesses, Lobbyists, and Industry Canada’s Subsidy Programs:

- Between fiscal years 1982 and 2005, $18.4-billion of assistance was authorized through 47,960 separate grants, contributions, loans, interest contributions and loan guarantees from 150 different programs. Of the total, $7.1-billion is considered repayable funding yet only $1.25-billion or 17.6% of that amount has been repaid. All said, less than 7% of the total subsidy portfolio has been recouped by Ottawa;

- Technology Partnerships Canada (TPC), which is Ottawa’s flagship corporate welfare program, has authorized $3-billion since its inception in 1996 and recovered only $169-million. This is a repayment record of less than 6%. Taxpayers were originally told every TPC investment dollar would return $1.74 in repayments from businesses;

- The Top 50 subsidy recipients have received a third of all money authorized or $5.9-billion;

- The Top 3 recipients have secured $2.6-billion in federal handouts. They are Pratt & Whitney ($1.5-billion authorized plus another $350-milion announced in Dec. 2006 that is not included in this report), Bombardier ($745-million authorized plus another $350-million announced in Nov. 2006), and General Motors Canada ($360-million); and

- Industry Canada has 2,234 lobbyist registrations and is the most lobbied department in Ottawa.

Rule-Breaking & the Transparency Deficit –

One characteristic of the subsidy game is rule-bending and rule-breaking. Audits have revealed companies routinely paid forbidden “success fees” to lobbyists in exchange for securing subsidy handouts. In addition to paying prohibited fees, audits have found lobbyists have neglected to register, which is another violation of transparency and accountability rules.

Another concern to taxpayers is the lengths politicians and bureaucrats will go to avoid checks and balances when doling out tax dollars. A glaring example of this is the fact that nearly 10% of all authorized monies under TPC are just below the $10-million mark, the level at which Treasury Board approval is not required. “Without as many checks and balances, the money flows quicker, albeit by smaller amounts, and there is less scrutiny,” said Williamson. “This makes it easier for industry officials to funnel tax dollars from government coffers to recipients’ bank accounts.”

Moreover, politicians make multi-million dollar spending announcements without first receiving approval from the Treasury Board. “This is another example of how politicians use corporate welfare as a means to buy votes in advance of an election,” stated Mr. Williamson. “It should be outlawed.”

The Conservative Government & Corporate Welfare –

The Conservative government has sent mixed messages on corporate welfare since coming to office. “While progress has been made regarding releasing TPC repayment data, the government has breathed new life into TPC and continues to make new announcements,” stated Mr. Williamson.

In opposition, Stephen Harper criticized the practice of corporate welfare saying Ottawa should “get out of the grants and subsidies game.” In 2004, he vowed to cut business subsidies and use the savings to lower business taxes. “We will only reduce business and corporate taxes further to the extent that we can reduce corporate welfare over the next term,” he told the Toronto Board of Trade. Williamson noted, “This is the right policy. Business leaders should be forced to choose between lower taxes or subsidy programs.”

A Better Way, Lower Taxes for All –

A 2005 C.D. Howe Institute study ranked Canada a dismal 30th among 36 industrialized countries in terms of combined average federal-provincial corporate income tax rates. The report also found Canada had the second highest marginal tax rate on capital. The only higher-tax jurisdiction was communist China.

“By getting out of the subsidy and regional development business, Ottawa could reduce the corporate tax burden. Savings of $2- to $4-billion could be realized annually if Ottawa recognized that corporate welfare was not a suitable role for the government,” concluded Williamson. “Ottawa’s general corporate income tax burden, which is 21%, could be reduced by 2 or even 3 percentage points. This tax reduction will benefit all companies, our domestic economy, and improve Canada’s international competitiveness.”

John Williamson
Federal Director
Canadian Taxpayers Federation

CCPA: Tax cuts causing Canada to fall behind other OECD nations

The Canadian Centre for Policy Alternatives (CCPA) has released a study entitled The Social Benefits and Economic Costs of Taxation: A Comparison of High- and Low-Tax Countries by Neil Brooks and Thaddeus Hwong.

According to the CCPA:

This important new study compares high-tax Nordic countries and low-tax Anglo-America countries on 50 social and economic measures and finds the high-tax Nordic countries score better in 42 categories. In short, tax cuts are disastrous for the well-being of a nation's citizens.

The news release for the study appears below. The complete study can be downloaded from the CCPA web site at http://www.policyalternatives.ca

FOR IMMEDIATE RELEASE
DECEMBER 6, 2006

Taxes are good for a nation's health and well-being -- study

OTTAWA--Canada is falling behind a number of OECD nations in a wide range of social and economic areas, and a study released today by the Canadian Centre for Policy Alternatives points to tax cuts as the culprit.

The study, by Neil Brooks and Thaddeus Hwong, compares high-tax Nordic countries and low-tax Anglo-American countries on 50 social and economic measures and finds the high-tax Nordic countries score better in 42 categories.

According to the study, tax cuts are disastrous for the well-being of a nation's citizens. For example, the high-tax Nordic countries have:

- lower rates of poverty, more equal income distribution, and more economic security for their workers;
- a higher GDP per capita;
- higher rates of household saving and net national saving;
- greater innovation, including a higher percentage of GDP spent on research and development;
- a higher ranking on their growth competitiveness by the World Economic Forum;
- higher rates of secondary school and university completion; and
- less drug use, more leisure time, and higher life satisfaction.

"By cutting taxes the Conservative government is taking Canada in the wrong direction," says Brooks. "It wants to make Canada more like the United States, yet our findings show that Americans bear severe social costs for living in one of the lowest taxed countries in the world."

The U.S. falls near the bottom of the 21 industrialized countries in a strikingly large number of social indicators. It also ranks as the most dysfunctional country by a considerable margin.

In contrast, Finland ranks near the top of the industrialized world in most of the social indicators and has been named the most competitive country in the world by the World Economic Forum four years in a row.

"The tax cut lobby has it backwards," says Hwong. "Not only do government social programs create a healthier society, they also create the conditions for a vibrant and competitive economy."

CCPA launches new Growing Gap project

The Canadian Centre for Policy Alternatives has launched its new Growing Gap project at GrowingGap.ca.

According to the CCPA website:

Over the next year, the CCPA will release a series of reports drawing on experts from every corner of the country – experts who will examine every facet of income inequality in Canada.

For more information, please see the CCPA website at www.policyalternatives.ca.

CRA News Release: CRA Board of Management appointment

Revenue Minister Skelton announces appointment to the CRA Board of Management

On November 10, 2006, the Honourable Carol Skelton, Minister of National Revenue, announced the appointment of Ms. Sylvie Tessier to the Canada Revenue Agency (CRA)'s Board of Management.

Nominated by the Province of Ontario, Ms. Tessier's experience has been in the banking and technology industries. According to Minister Skelton, "The Board is an integral part of the Agency's unique governance structure. Ms. Tessier's private sector skills and practices will further strengthen the Board's role and benefit the Agency overall.”

The Board of Management (comprised of 15 members, 11 of whom are nominated by the provinces and territories and appointed by the Governor in Council) is responsible for overseeing the organization and administration of the CRA and the management of its resources, services, property, personnel, and contracts.

For more information on this news release, see the CRA Web site at:
http://www.cra-arc.gc.ca/newsroom/releases/2006/nov/nr061110-e.html

Canadian Taxpayers Federation on Income Trusts

As a guiding principle the Canadian Taxpayers Federation (CTF) supports any legal means to minimize Canada’s heavy tax burden. We favour lower – never higher – taxes for individuals and businesses. Yet companies should not avoid paying any income taxes by flipping to income trusts.

We advocate a single, low rate of taxation for all individuals and businesses, not just tax relief for some. We oppose a reduction or elimination of deductions unless matched dollar for dollar by further reducing marginal tax rates.

One year ago, the CTF called on Prime Minister Paul Martin to end the double-taxation of dividends rather than impose a new tax on income trusts. With the federal government growing weary of companies switching to the income trust model, the fear was Ottawa would take the easy route by taxing more. It might slap a tax on income trusts to end the trust tax preference and thereby level the playing field with other corporations.

We argued in our October, 2005, TaxAction to supporters “income trusts are the response to a glaring problem with the income tax system: namely the double-taxation of dividends.” This double-taxation meant income earned from traditional businesses was taxed more heavily than income from trusts. In fact, we believed – and still do – the rational for converting to trusts was not based on a sound business case but rather an irresistible tax calculation.

Our TaxAction noted that “investment dollars are shifting to income trusts, not because of a better underlying investment, but because of favourable tax treatment. Income trusts, for example, are penalized if they do not pay out an adequate amount of income [to investors], thereby creating disincentives to reinvest in the business.” Our philosophy is for a tax code neutral in its application that rewards business and investment decisions on the underlying profitability.

Our demand on the federal government was “to do away with the double-taxation of dividends. Or, lower corporate tax rates. This will do two things. First, it will reduce if not eliminate the incentives to create income trusts and second, it will create opportunities for Canadian businesses to turn profits and pay higher dividends.”

Our goal was to avoid another tax grab by Ottawa – something that would see the government collect ever more revenues and, of course, spend more. Pleasantly, the Liberal government decided to not increase taxes and instead adopted the policy advocated by the taxpayers’ federation, lower dividend taxes.

It was a positive accomplishment. The change reduced the problem of double-taxation of dividend income. It also assisted in leveling the playing field, but did not eliminate it. As a result, it did not stem the corporate rush to income trusts because the tax advantage remained. (Let this be a lesson to people who say taxes do not impact behaviour.) Business giants BCE Inc. and Telus Corp. announced conversions and others were similarly eyeing the tax benefits.

Our campaign was never for Ottawa to “save income trusts.” This was the policy of the Conservative Party in opposition. And it was broken by the Conservative government on Oct. 31 when Finance Minister Jim Flaherty announced tax changes that resulted in a large stock market adjustment and a massive paper loss for some investors.

Our review considers the overall tax impact and implications to Canada’s economy.

Mr. Flaherty imposed a new tax on trusts to stop a future loss of tax revenues and ensure upcoming conversions will be based on a business rational, not a tax dodge. He also announced a reduction in Canada’s corporate income tax rate and a billion dollar annual tax cut for seniors.

The federal government will start taxing trusts in the same manner as traditional corporations. New trusts will be taxed beginning in 2007. Existing trusts will be given a four-year grace period and taxed only in 2011. Also in 2011, the general corporate income tax rate will drop one-half a per cent.

Ottawa’s revenues will not rise as a result of the new tax and ending the trust loophole means a lower income tax rate on business. The increase was matched with an overall corporate tax reduction. This will end the incentive on becoming a trust on grounds other than it being a sound business decision. Ottawa also left intact the dividend tax cut announced last year, removing investor distortions caused by the tax code.

Some suggest Ottawa could have simply eliminated corporate taxes to put all businesses on an equal footing. Government cannot have zero corporate taxes with Canada’s high personal taxes. The result would be people suddenly organizing their affairs as corporations just as corporations were structuring themselves as income trusts to avoid tax. Ultimately, the government would face a different income trust problem. People with the best lawyers would pay the least tax with remaining taxpayers stuck paying the bills.

Minister Flaherty sweetened the pot – and cooled tempers – by announcing a retroactive increase in the senior’s age credit by $1,000 from $4,066 to $5,066. This will benefit low- and middle-income seniors. Ottawa will also permit income splitting for pensioners beginning in 2007. The latter will permit senior couples to split their pension income and thereby reduce their income taxes. For example, if one spouse earns $100,000 and the other $50,000, splitting the income will mean an annual tax savings of $1,500. If one spouse earns $60,000 and the other collects no pension income, the tax relief will be $2,700. And if one spouse earns $40,000 and the other also collects no pension, the savings will be $2,500. Moreover if Ottawa permits income splitting for some citizens why not push to extend it to all Canadian families?

The investments of many, many Canadians were impacted when the stock market tumbled after Oct. 31. The finance minister corrected a corporate tax discrepancy by imposing a new tax. His reforms end the tax advantage for some investment instruments but lowers taxes on businesses as a whole. The pension splitting benefits seniors and opens a new avenue for family-friendly income splitting.

Ottawa’s overall tax bite has been reduced. As such, the finance minister’s policy prescription is – on balance – supported by the CTF. So what’s next?

The morning after Mr. Flaherty’s announcement the CTF received a call in Ottawa from the department of finance. The government official wanted to assure us the 2007 Budget will contain additional tax relief for all Canadians. And should we believe this? Increasingly it appears voters will go to the polls in the spring. Prime Minister Stephen Harper will need to give Canadians a powerful reason to re-elect his government. Significantly lower personal taxes will prove to be a powerful vote getter.

John Williamson
Federal Director
Canadian Taxpayers Federation

Sign of the Times

The Liberal-dominated Senate is in no great rush to pass the Federal Accountability Act, legislation intended to clean up Ottawa in the wake of the Sponsorship scandal. The House of Commons passed the bill in June with broad multi-partisan support. It requires approval in the Senate before it becomes law.

Senator Joseph Day, the Liberal accountability critic, says the legislation cannot be passed quickly: “We know these things do get drawn out … It could take some time.” Some time to hear from a plethora of “expert” witnesses — never mind the statement voters made in the last election. The Senate legal and constitutional affairs committee got down to work two weeks ago. But after only one week of work, the committee adjourned for a week of rest.

The Ottawa Citizen reported last week Senator Day was on a week-long parliamentary junket to the Philippine island of Cebu. Tourist literature describes tropical Cebu Island as “the perfect vacation spot for all seasons.” The brochure might consider adding “and Senators.” New Democrat MP Pat Martin observed, “They’re wasting a week of hearings on the legislation for this? They're jeopardizing the whole bill for this hog-trough junket.” Mr. Martin was speaking for the millions of Canadians fed up with business as usual in Ottawa.

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Taxpayers are not fairing much better over at Industry Canada. The federal department provides funding to Canada’s Digital Collections, which promotes Canadian content on the internet. The program’s online description is rather dull, “These fascinating Web sites range from treasures of federal institutions, such as the National Library of Canada, the National Archives of Canada and the Canadian Museum of Civilization, to the local histories and way of life of Canadian communities.” We can guess then, that The Little Black Book – A Book on Healthy Sexuality Written By Grrrls for Grrrls (sic) falls under “way of life” in downtown Toronto.

This guidebook (http://www.ststephenshouse.com/littleblackbook/#) is meant to offer teens insight on all manners of adult topics. Funded by government and written by teens themselves it offers the following advice: “Kids are growing up a lot faster nowadays (or so we are told), and it’s important that they be educated about sex, its risks, but also its pleasures and the act itself.”

The book teaches kids about sexually transmitted diseases in a cutesy way. Bisexual relations are good because they expand the dating pool. That sex without love is not always a good idea. But that’s OK because you can fall in love with someone in a week. Readers – young and old alike – will find the “gayness” chapter insightful: the author writes 80% of Canadians are bisexual, 10% are gay and 10% straight. Can taxpayers install a Net Nanny spam filter to protect their tax dollars?

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The Conservative government passed an important test in August by yanking a contract with David Rotor and Douglas Tipple. These consultants were hired to advise the Public Works Department on how to cut government costs. On a fact-finding trip to London the pair flouted government expense rules, skipped meetings with British government officials, and submitted “trip notes” cribbed from websites without attribution.

Messrs. Rotor and Tipple defend their actions. Government mandarins recommended the consultants receive strongly worded reprimand letters. Public Works Minister Michael Fortier balked at this limp-wrist punishment and ordered instead they be fired. Mr. Fortier’s decisiveness will help change Ottawa’s culture of entitlement. Public Works employees will be more respectful of tax dollars … or else.

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Bob Rae’s self-flogging has finally stopped. In a Globe & Mail profile article the Liberal leadership candidate discussed his disastrous tenure as premier of Ontario. Mr. Rae admitted to making some mistakes, such as relying on advisors’ rosy economic forecast and also being overly ambitious. “I’m the wiser for it today, but I don’t think I’m going to beat myself up forever,” said Mr. Rae of his record.

Fair enough. Politicians can live and learn from experience. The problem is that Mr. Rae has never taken responsibility for his policies. Under then-New Democratic Premier Rae, Ontario’s tax rates soared, spending ballooned, the province’s debt tripled and the state expanded while the economy shrunk. Mr. Rae’s government drove the economy into the ground. He still does not understand that economic ruin is largely the result of lousy public policies. He’s the wiser for it — so too are those Ontarians voters put out of work during his tenure in office.

John Williamson
Federal Director
Canadian Taxpayers Federation

Tax Freedom Day Arrives Monday

Tax Freedom Day Arrives Monday – More Evidence Canadians Remain Over-taxed
And StatsCan Reports Total Government Surpluses Hit $26-B in ’05

The Only “Fiscal Imbalance” is Between Governments & Taxpayers

Ottawa: The Canadian Taxpayers Federation (CTF) today responded to news from the Fraser Institute that Tax Freedom Day for Canada will occur on Monday, June 19th. Tax Freedom Day is the day of the year when taxpayers finally start working for themselves after paying the total tax bill imposed on them by all governments. The original release and calculations are available at: www.fraserinstitute.ca.

“Canadians this year will work 169 days to feed the appetite of all three orders of government, chewing up 46 per cent of average family income,” stated CTF federal director John Williamson. “Government officials insist broad-based tax relief just isn’t possible. Yet millions of Canadians recognize our politicians don’t tax to collect the money it needs, instead governments always find a need for the money it collects. Isn’t it time the requirements of taxpayers were given a higher priority?”

Statistics Canada reported on June 15, 2006, that the combined surplus for all Canadians governments was $26-billion last year (2005/06 fiscal year), the second highest level in 20 years. Governments collected revenues of $572.9-billion in taxes and spent $546.9-billion. The agency found “revenues were up 6 per cent, outpacing the 4.1 per cent gain in spending.”

“This is evidence governments of all political stripes are taxing Canadians too heavily. The StatsCan figures are based on ’05 data. The fiscal forecast for the current year is even rosier, meaning total tax revenues flowing to governments will continue to grow,” noted Mr. Williamson. “Politicians just don’t get it. If taxes cannot be reduced when Tax Freedom Day is arriving on June 19th it signals Canadian governments have a spending problem, not a revenue problem. When will this imbalance be fixed?”

John Williamson
Federal Director
Canadian Taxpayers Federation

Canada's "closed shop" election campaign

Many Canadians have come to realize that changes to Ottawa’s political structures and institutions are as important – and perhaps even more so – than the representatives that will be elected to Parliament on January 23rd. The Canadian Taxpayers Federation (CTF) will release seven commentaries during this campaign that focus on broad themes of accountability and democratic reform measures. This final commentary in the series is written by CTF Manitoba director Adrienne Batra on the subject of Canada’s “closed shop” election campaigns that limit citizen participation. Adrienne is available for media interviews or comment on this subject by calling (204) 227-5561 or e-mailing her at abatra@shawbiz.ca.

January 17, 2006

Restricting Citizens from Participating in Election Debate Unhealthy for Democracy

“Of the parties, for the parties, by the parties.” Okay … it is not exactly the perfect fit for a bumper sticker, but when it comes to describing Canada’s election laws this slogan fits perfectly.

Imagine designing an electoral system from scratch. Principles such as citizen participation, open debate, fair and transparent regulations among others would be paramount. To be sure, Canada’s Election Act contains many important rules and regulations that are central to any proper functioning democracy. However, at 250 plus pages and years of political parties writing their own rules, elections in Canada are increasingly becoming the purview of established parties and their battery of lawyers and accountants.

Consider the 1993 case – ironically – brought forward by the Communist Party of Canada. In the 1993 general election, the Communist Party of Canada lost its party status because it failed to nominate at least 50 candidates. The consequence? Deregistration, liquidation of its assets, payment of debts, and a surrender of any outstanding balance to the Chief Electoral Officer. Thankfully, the Supreme Court ruled in Figueroa v. Canada that the 50 candidate threshold "undermines the right of citizens to meaningful participation in the electoral process."

No kidding. But it is not just new political entrants – like the Green Party – the established parties seek to inhibit; it is citizens too.

Gag laws restrict – and even prohibit – the right of citizens and citizen groups from advertising during election campaigns. Failure to comply with such anti-democratic statism results in fines ranging from $1,000 and three months in prison to $5,000 and five years in prison.

Gag laws imposed by the federal government in 1984, 1994, by the B.C. government in 1996, and Quebec government in 1997 were all struck down by the courts as Charter violations against free speech. Unfortunately, Ottawa never gave up and in 2004 the Supreme Court of Canada ruled in Harper v. Canada that spending restrictions by citizens of $3,000 in each riding was acceptable. Of course, while citizens are limited to $150,000 for a national campaign, political parties can spend upwards of $18-million. And it does not end there.

Even a citizen – or citizens’ group – that spends $501 or more must file an "election advertising report" with the Chief Electoral Officer, listing the names and addresses of every individual who donated more than $200. If a group is unable to identify which donations were made "for election advertising purposes" it must report the names and addresses of every person who donated over $200 during the six months prior to the election call.

Imposing bureaucracy on grassroots activism of concerned citizens (from veterans groups to unions and taxpayers associations) with harsh penalties for non-compliance is a cold, wet blanket that stifles freedom of speech and freedom of association. Rather than risk breaking the law or even getting tangled in a bureaucratic web, most Canadians limit their participation in our democracy to quietly contemplating their vote. And of course paying taxes to fund the campaign activities of politicians.

There used to be a time when a political party would go out and earn its keep. They would develop policy and seek voluntary donations to advance their cause. Today, the established parties have become all but case-loads of the welfare state. Donate a $100 to the local United Way and you will receive a $15 tax credit. Donate $100 to “a registered political party” and you will get $75 back. Politicians should be ashamed of themselves.

Now, new rules grant political parties annual subsidies of $1.75 per vote received in the previous general election. This is on top of candidates being reimbursed 60 per cent of their election expenses if they get over 10 per cent of the vote. Add it all up and parties can expect to receive $94-million in taxpayers’ money, plus an additional $33-million in candidate reimbursements over the next four years.

Aside from the ethical issue of being forced to pay for political views you may find abhorrent, handing out tax dollars to political parties and candidates further distances them from an increasingly cynical public by removing that old-fashioned idea of having to earn support. But it appears election laws are more about entrenchment of the current players than accountability for the concepts of citizen participation, open debate, fairness and transparency. “Of the parties, for the parties, by the parties.” Indeed.

Adrienne Batra is the Canadian Taxpayers Federation’s Manitoba director based in Winnipeg.

John Williamson
Canadian Taxpayers Federation

Shining the Light on Government

Many Canadians have come to realize that changes to Ottawa’s political structures and institutions are as important – and perhaps even more so – than the representatives that will be elected to Parliament on January 23rd. The Canadian Taxpayers Federation will release seven commentaries during this campaign that focus on broad themes of accountability and democratic reform measures. This fifth commentary in the series is written by CTF federal director John Williamson on the subject of Canada’s freedom of information law. John is available for media interviews or comment on this subject by calling 613-234-6554.

January 5, 2006

Shining the Light on Government

Many Canadians want government to lower taxes. Others would like more spent on social programs, roads or the military. All are adamant that public officials – be they elected or career civil servants – waste fewer tax dollars and be publicly accountable for their decisions. But this is not happening in Ottawa because Canada’s Access to Information Act, which is the primary tool for citizens to review how money is spent, is broken.

This type of “sunshine” or “freedom of information” (FOI) law mandates that government records, administrative decisions and minutes be made available to the public. They balance the public’s right to be informed of government decisions with respect for the privacy of individuals.

Canada’s federal FOI law came into effect on July 1st, 1983, with the promise of greater government transparency. Testifying before the Justice and Legal Affairs Committee, then-Communications Minister Francis Fox said the bill “will create opportunities for a more informed dialogue between public leaders and citizens…improve the nature of government decision-making by allowing greater input from the private sector. Finally, it will impose on ministers and officials a greater degree of accountability and of responsibility for their actions and their decisions.” For a $5 fee, Canadians may request government documents and officials have a 30-day limit to provide a response.

Yet the dream of greater transparency does not fit with reality. The law is littered with loopholes and administrative barriers to keep prying eyes out. Canadians submit approximately 25,000 requests each year. Many are stonewalled when questions hit a government nerve, resulting in the Act’s Information Commissioner – who serves as Canada’s official FOI watchdog – receiving approximately 1,500 annual complaints about non-compliance. For keeping taxpayers in the dark Information Commissioner John Reid has publicly berated Ottawa for its “pro-secrecy” culture.

To determine how well government officials follow FOI laws, 45 newspapers tested the system last year. The audit – which reviewed federal, provincial and local procedures – revealed government data was released in only 1 out of 3 requests. Journalists discovered a hodgepodge of excuses and, at times, intransigent bureaucrats. Another separate study found the refusal rate for media requests was more than twice that of requests from the general public. It has been discovered that officials “red flag” politically sensitive requests made by journalists, parliamentarians, and groups like the Canadian Taxpayers Federation. Red flags are used to safeguard lawmakers from public embarrassment: There is no better way to kill a story than by withholding the release of information that backs it up.

With a single exception, Ottawa’s access law has not been updated since its inception. In 1999 it became a criminal offense to alter, destroy or conceal a record to frustrate an access request. It is disappointing that such a change was necessary. And yet bureaucrats continue to thwart requests today. Although files are no longer destroyed, Commissioner Reid has found they are, instead, just not being created in the first place. To guarantee compliance penalties must be in place to punish officials that fail to create and maintain proper records.

It is time to expose every government agency, organization, foundation and Crown corporation that spends public money to effective sunshine laws. Of Ottawa’s 246 Crown corporations and agencies only 49 are subject to the Access to Information Act. And under existing law, the numerous foundations tasked with spending $9-billion of tax money cannot be inspected by Canadians, the auditor-general or even elected parliamentarians.

The law should also include Officers of Parliament so taxpayers can assess their operation records (but not their adjudicative or case files). This would have permitted a review of former privacy commissioner George Radwanski’s lavish spending, which resulted in his dismissal.

The public interest should trump a government’s culture of secrecy. To ensure open government, departments and agencies should, for instance, disclose broader information on a webpage and in annual reports. Why are the repayment records of companies that accept government loans not publicly reported? A reformed FOI law should establish a “public interest override” for a narrow scope of exemptions and give the information commissioner powers to order government to release information.

Parliament must also ensure the FOI system is adequately funded. It currently costs Ottawa $30-million a year to administer. Meanwhile, the federal government spends $400-million on its communications efforts. A rebalancing of priorities is in order.

So long as individuals within government have the ability to hide their malfeasance, they will do so. So long as rules permit bureaucrats – working on their own behalf or that of their political masters – to delay or deny the release of embarrassing information, cronyism and poor management of tax dollars will continue.

FOI laws are a cornerstone of democracy. Rather than resist sunshine laws, governments should embrace them. Reforms to topple Ottawa’s cult of secrecy are indispensable to a well functioning government. They work to ensure greater accountability and are a tool to reduce scandals. They help build trust between citizens and lawmakers. Moreover, they are critical to ensure rules are adhered to and tax dollars are well spent. Such a change might mean fewer complaints from taxpayers when it comes to paying taxes.

John Williamson
Canadian Taxpayers Federation

"I like paying taxes"

"I like paying taxes." How many of us have ever made that statement?

"I like paying taxes" or so Neil Brooks says he does. Mr. Brooks is a Professor at Osgoode Hall Low School and a Research Associate with the Canadian Centre for Policy Alternatives (CCPA).

His recent editorial on the CCPA web site might, at first, catch you off guard as who can really claim to enjoy paying taxes? Yet, a quick read will tell you that his enjoyment of paying his fair share is grounded in the real opportunities created by the tax system.

"Taxes allow us to pursue our aspirations collectively and thus they greatly enrich the quality of life for the average Canadian family. Taxes have brought us high quality public schools that remain our democratic treasure, low tuition at world class universities, freedom from fear of crippling health bills and excellent medical services, public parks and libraries, save streets and liveable cities. None of these things come cheaply."

"Taxes also assist us in spreading our incomes over our lifetimes to maximize our well being by, for example, transferring income from our high-income years to our retirement years, from times when we are supporting children to times when we are not, and from periods when we are well and able to take care of our own needs to periods when we are ill or suffering from a disability."

"In spite of the fact that they enable us to collectively provide our most valuable goods and services, no one likes paying taxes. Therefore, promises of tax cuts are often a potent political ploy. However, before being seduced by the promise of lower taxes, Canadians ought to think seriously about the implications of a smaller public sector."

Perhaps a message easier to swallow at the polls in January than when you're filling out your tax return in March!

For Brooks' full editorial, see the CCPA web site at:
http://www.policyalternatives.ca/Editorials/2005/12/Editorial1255/

Breathing Life into Canada’s Morbid Democracy

Many Canadians have come to realize that changes to Ottawa’s political structures and institutions are as important – and perhaps even more so – than the representatives that will be elected to Parliament on January 23rd. The Canadian Taxpayers Federation will release seven commentaries during this campaign that focus on broad themes of accountability and democratic reform measures. This fourth commentary in the series is written by CTF communications director Troy Lanigan on the subject of democratic reform. Troy is available for media interviews or comment on this subject by calling 250-888-5040 or e-mailing him at tlanigan@telus.net.

December 28, 2005

Breathing Life into Canada’s Morbid Democracy

Why vote? With each passing election a growing number of Canadians are concluding that all politicians are the same, their vote does not count, and nothing ever changes up in Ottawa. Can this antipathy be reversed?

Voter turnout in Canada’s federal elections has steadily declined from a high of 75 per cent of eligible voters in 1988 to less than 61 per cent in 2004. And although we Canadians like to thumb our noses at our American neighbours, it is worth noting that registered turnout for the 2004 presidential election was 70 per cent. Predictable remedies include changing the personalities, emboldened parliamentary committees, more “free-votes” and democratizing the appointment process. Each has been promised by a generation of politicians, and their proposed “reforms” have proven to be halfhearted and insincere.

“Our national parties and institutions are deteriorating through neglect, stagnation and inbred resistance to change,” says 20-year political insider Rick Anderson, his website www.fireweeddemocracyproject.ca invites a democratic renaissance in Canada. Anderson is right. So where do we start? Here are three suggestions to put in the ear of federal politicians out on the hustling for votes:

The Senate – elect it or abolish it: A fair debate can be had been between abolition and election of the Senate. Australia has been electing its senate since 1901 while neighbouring New Zealand abolished theirs in 1951. Significant debate surrounded the decision in each of the two countries. Putting aside the question of abolition or election, any country that anoints a quarter of its lawmakers via political appointment – as Canada does – stretches credulity in calling itself a representative democracy.

Change how Canadians vote: Randomly stop 10 citizens on the street and each will agree with the statement that a majority of voters should determine who governs the country. Yet our current first-past-the-post voting system regularly translates a minority of the vote into a majority of seats in our Parliament. In most of the world’s democracies, 40 per cent support would not grant a political party 100 per cent of the power, but that is almost universally what “elects” majority governments in Canada.

The vast majority of democracies have some form of proportionality that ties vote share to seat share in their parliaments. Many of those countries – as diverse as Ireland and New Zealand – do so while retaining strong local representation. Surely the most elementary building blocks of improving voter participation and accountability require that a majority of citizens have a say in who governs them.

Recall and Citizens’ Initiative: One of the great benefits of the marketplace is that consumers are empowered. If a product or service is misrepresented not only can you get your money back, but you have the option to sue for costs or damages. Try that the next time a politician says one thing during an election and does the exact opposite after getting elected. (Take a bow Ontario Premier Dalton McGuinty.) The ability for voters to remove their representatives from office or petition for a law between elections moves accountability from a one day window every four or five years at the ballot box to a full-time dialogue between citizens and their legislators.

Political outcomes stem from rules in which Members of Parliament operate. If, for example, a politician knows that he is subject to recall, he may think twice before voting along party lines for a measure unpopular in his community. A prime minister elected under a more proportional voting system understands his 40 per cent support at the polls places limits on his ability to ram through legislation, assign committees, stack courts and appoint party hacks like David Dingwall and André Ouellet to head multi-billion dollar Crown corporations.

Of course, politicians are reluctant to change the rules that put them in office in the first place. British Columbia, for example, has a Recall and Initiative Act in name only. The province’s referendum to change the voting system won the support of 58 per cent of voters in May, but it will not be implemented by the government, which won a majority with 46 per cent of the vote. Although the reform processes in Quebec, Ontario and New Brunswick are still unfolding, in Ottawa there is no debate or discussion – a void, in other words.

Systemic reform would not end all ills, but it will create different incentives and outcomes that will lead to a more accountable, inclusive and participatory kind of politics. Sums Mr. Anderson, “We have to free up the atrophied arteries of our democracy, to make it welcoming to innovation, more encouraging of good people and good ideas.” Until such time, expect voter turn-out to continue in one direction.

Troy Lanigan is national communications director of the Canadian Taxpayers Federation.

John Williamson
Federal Director
Canadian Taxpayers Federation

Accountability on Canada’s Highest Court

Many Canadians have come to realize that changes to Ottawa’s political structures and institutions are as important – and perhaps even more so – than the representatives that will be elected to Parliament on January 23rd. The Canadian Taxpayers Federation will release seven commentaries during this campaign that focus on broad themes of accountability and democratic reform measures. This third commentary in the series is written by the CTF Ontario director Tasha Kheiriddin on the subject of judicial accountability and Canada’s Supreme Court. Tasha is available for media interviews or comment on this subject by calling 416-203-0030 or e-mailing her at tkheiriddin@taxpayer.com.

December 21, 2005

Accountability on Canada’s Highest Court

The Supreme Court of Canada is the ultimate arbiter of law and justice in our country. As evidenced by its recent decisions on the same-sex marriage reference and the health care case of Chaoulli v. Quebec (Attorney General), it can have a profound impact on laws affecting the day-to-day lives of Canadians.

And who sits on the court can have a profound impact on its decisions. This was never so clearly evidenced as in 1981, when Prime Minister Pierre Trudeau asked the Court to pronounce itself on his proposal to unilaterally patriate the Constitution. Seven of nine judges found the proposal legal; of these, all had been appointed by Mr. Trudeau. The two dissenting ones had been appointed by Prime Minister John Diefenbaker.

Yet the judges who compose the high court are selected by what is probably the least accountable and transparent process for any body of this importance. Currently, our Constitution gives the Prime Minister complete discretion to appoint whomever he chooses. There is no requirement for a review committee, no list of recommendations, and no obligation to consult anybody. Apart from regional balance (the Constitution mandates that Quebec gets three out of nine judges, by virtue of its civil law tradition), the matter of who dons the scarlet robe is completely up to the PM.

During the last round of judicial appointments in 2004, the government did constitute an all-party committee to hear about – but not from – the two proposed nominees, Rosalie Abella and Louise Charron. Neither was compelled to testify before MPs or answer any questions. Contrast this with the American system, where Supreme Court nominees must face a grueling committee hearing, complete with thorough questioning in front of television cameras, a Judiciary Committee vote, and then a full vote of the United States Senate before being confirmed. And this comes only after the president consults senators on who to nominate. Were President George W. Bush’s failed nominee Harriet Myers up for consideration in Canada, she would probably have landed on the high court instead of in hot water.

The Canadian legal community has repeatedly called for reforms to the appointment process. Voters should remind politicians, however, that justice is not the exclusive purview of lawyers and legalists. What is missing is the voice of Canadian citizens, who just happen to foot the bill for the entire justice system. And that system does not come cheap. The last time Statistics Canada checked these things in 2000/01, more than $1-billion was spent annually on the operation of Canadian courts. This included the employment of nearly 10,000 court staff and 2,000 judges, over half of whom were appointed by the federal government. Salaries and benefits paid to this judiciary totalled $382-million – an average of $191,000 per judge.

Public funding brings with it certain expectations, including accountability and transparency. But if an appointment is made behind closed doors, no one can be held accountable until after the fact – when it is too late to do anything about it. Small wonder then that Canadians are cynical about their courts. According to an Ipsos Reid opinion poll taken in March, 2003, a majority of respondents said they do not trust judges or the judicial system. Even more disquieting is the finding that two in three polled think that Supreme Court judges are influenced by partisan politics. Such a perception erodes confidence in the judicial system, and puts into question the leadership of those who appointed judges in the first place.

The Prime Minister must go further than a rubber-stamp committee if he is to increase judicial accountability and transparency. He should institute an open appointment process that lets Canadians judge the judges for themselves before they are chosen. He should also introduce term limits for judges as several European countries have done, so that no one administration can stack the bench indefinitely (Prime Minister Jean Chrétien appointed five of the current nine judges – two of them will not retire until 2022 and 2028). And to truly ensure regional representation, he should rebalance the court to ensure that Quebec does not have an over-representation in terms of population and caseload heard.

Taken together, such reforms would go a long way to restoring public confidence in the Supreme Court and ensure that Canada benefits from the best and most accountable legal system possible.

Tasha Kheiriddin is Ontario director of the Canadian Taxpayers Federation.

John Williamson
Canadian Taxpayers Federation

The Share of Income Tax Paid by the Rich

New from the Canadian Centre for Policy Alternatives, The Share of Income Tax Paid by the Rich: The Business Press Gives Another Lesson on How to Deceive with Statistics by Neil Brooks of Osgoode Hall Law School.

Despite recent reports to the contrary, Brook's report claims that Canada’s high-income earners do not pay a disproportionately large share of personal income tax. The report takes a closer look at the numbers in Statistics Canada’s “Tax Incidence in Canada” which sparked a series of news stories claiming the top 10% of income earners pay 52% of the total tax bill. Brooks finds these figures both misleading and incomplete.

The Share of Income Tax Paid by the Rich full report is available on the CCPA web site: http://www.policyalternatives.ca

2005 Tax Competitiveness Report: Unleashing the Canadian Tiger

The C.D. Howe Institute Tax Competitiveness Program has released its 2005 Tax Competitiveness Report: Unleashing the Canadian Tiger.

According to the Institute's web site, "the Report ranks the effective tax rates on investment in 36 developed and leading developing nations, and shows that Canada’s effective tax rates on investment are second-highest among the countries studied, putting future economic growth at risk."

For more information see the Institute's What's New page or access the report directly at:
http://www.cdhowe.org/pdf/commentary_216.pdf

Readers may also be interested in an e-brief released by the Institute that surveys effective tax rates on capital investment in 36 developed and developing nations.

"Attention G-7 Leaders: Investment Taxes Can Harm Your Nations’ Health, reports that most G7 nations now have tax rates on investment among the highest of all countries surveyed, and they must act decisively to restructure their tax systems and improve growth prospects"

The e-brief can be found at;
http://www.cdhowe.org/pdf/ebrief_18.pdf

New funding program for charities

The Minister of National Revenue has launched the Charities Partnership and Outreach Program, a funding program designed to support education and training projects for charities. The program has been created to raise awareness of regulatory obligations of charities under the Income Tax Act, improve the development and delivery of compliance-based education programs by the voluntary sector, and to increase regulatory compliance. Up to $3 million in funds will be available to the voluntary sector annually for education and training on charities regulation.

For more information, see the CRA web site at:
http://www.cra-arc.gc.ca/newsroom/releases/2005/may/0517charities-e.html

CTF Commentary: Reforms to protect taxpayers

Après Gomery: Reforms to Protect Tax Dollars

Voters are looking to punish the Liberal party for wasting hundreds of millions of tax dollars and breaking their trust. In the past, whenever a scandal erupted in Ottawa – over say HRDC misplacing $1-billion or the cost of the gun registry jumping from $2-million to well over $1-billion – Liberals could claim they were acting in the best interest of all Canadians although mistakes were made. This will not wash with Adscam and the party might well be drummed from office – and rightly so.

But if voters opt for a change in government, Canadians have few guarantees the next bunch of rascals will behave any better. And if the Grits manage to hang on – with New Democratic Party support – malfeasance will likely continue under the existing system.

Canada’s Parliament is in need of an overhaul. A long string of spending scandals and audits reveal there is a systemic lack of accountability. Taxpayers are too familiar with the headline-grabbing stories of financial irregularities reported by Canada’s auditor-general. But other inspections are no less damning. A December 2004 audit of Canada Revenue Agency, reported by Canadian Press, revealed a casual attitude towards protecting taxpayers and their tax data. Most alarming are four computers stolen in 2003 from a tax office, which contain information on 120,000 Canadians, including their social insurance numbers.

Canadians need a permanent system – beyond ejecting one party from office for another – to ensure greater oversight of lawmakers. Allowing more free votes, vetting major appointments to heads of Crown corporations and agencies is a start, but additional reforms are necessary.

A good start is to hand the auditor-general greater oversight powers. Crown corporations as well as the foundations tasked with spending $9-billion of tax money cannot be inspected by the auditor or even our parliamentarians. At least $7-billion is sitting in foundation bank accounts, yet no one in the Government of Canada can access the funds or review how it is spent. Likewise, Parliament must pass a whistleblower law to protect civil servants who reveal government waste or corruption from retribution by senior officials.

The many shortcomings of Ottawa’s Access to Information laws must be strengthened to include a large swath of government activity currently exempt from scrutiny. Canada’s freedom of information laws were introduced in 1985 and designed to ensure the government is open and transparent. They are the citizens’ tools to enquire how tax money is being spent. Yet this principle is being eroded as information requests are routinely rejected. Bombardier has received $772-million since 1982 in direct government aid, yet Ottawa refuses to report the aerospace company’s repayment record. So-called third party exemptions have placed 15 billion tax dollars beyond taxpayers’ prying eyes.

Another route to end the log rolling relationship between politicians and industry is to stop the practice of subsidizing companies. “No More Boondoggles” legislation will end corporate welfare and ensure politicians focus on fostering a sound economy, and not pick economic winners and losers with handouts.

It is absurd that of Canada’s 413 federal lawmakers – 105 Senate seats and 308 seats in the House of Commons – fully 25% are appointed, not elected. The Red Chamber must be reformed in a manner that gives Canadians, and not politicians, the power through direct elections to decide who will write and pass laws. Failing this, the Senate should be abolished. Recall and citizen initiated-referenda are similarly needed, as are changes to the voting system that ensure 39% of the vote does not translate into a majority government with 100% of the power.

These reforms will not stamp out government corruption, but they will improve the political system. Stronger taxpayer protection laws are an internal watchdog on politicians and bureaucrats who are tempted to believe they can spend tax money any way they wish.

John Williamson
Canadian Taxpayers Federation
www.taxpayer.com