Making all federal tax credits refundable could be a relatively straightforward way to provide a boost to low-income Canadian families and address concerns about economic inequality, according to a new paper from the University of Calgary’s School of Public Policy.
The paper examines the impact of making all tax credits refundable rather than operating a mix of refundable and non-refundable credits. It looks at a couple of different models for doing this, estimating the annual cost at between $6.6 billion and $7.2 billion — and it would benefit approximately 6.4 million Canadian families.
“Converting existing non-refundable tax credits to refundable tax credits is a modest but effective step to deliver benefits to low-income households in the fashion of a guaranteed annual income,” the paper says. “By far the largest benefits are directed to the poorest families with incomes less than 50% of the low-income cutoff.”
The paper also looks at several different ways of possibly funding this new policy, including: using forthcoming budget surpluses; eliminating certain non-refundable credits, such as the existing fitness and public transit credits; altering tax credit rates; and raising marginal tax rates on the highest earners by hiking top-level tax rates and creating a new tax bracket for the top 1%.
Ultimately, a policy change of this nature would have a net positive impact on the tax system and Canadian society, the paper suggests.
“Reductions in the incidence and depth of poverty and income inequality are evident in our results from this modest change in the structure of tax credits,” the paper says. “We therefore see the conversion of existing [non-refundable tax credits] to [refundable tax credits] as a modest but potentially important step toward fairness in the treatment of tax filers and in addressing Canadian income inequality.”