Finance committee calls for review of income taxes

The recommendation is in response to witnesses who complained to the committee about the complexity of Canada’s tax rules. One witness said tax compliance costs businesses $12.6 billion annually, the report states.

The recommendations are part of a 152-page report tabled Wednesday in the House of Commons which mostly mirrors current government thinking on taxes and spending.

That’s to be expected since the report represents the majority view of the committee dominated by Conservatives, while opposition parties filed their own dissenting reports.

In one mild surprise, the committee says the government should stick with its stated plan to cut $4 billion from departmental operating budgets by 2014. Some media reports had suggested Tory MPs were pushing Finance Minister Jim Flaherty to double the cuts to $8 billion.

But the committee’s recommendations steered away from more draconian measures, and even suggest the government may have to reverse course on austerity if conditions worsen.

“In the context of the current fiscal realities, massive new spending would be fiscally irresponsible,” the report states. “However, the government should continue to closely monitor the global and domestic economic situation and, if the Canadian economy weakens significantly, respond as necessary in a flexible and measured manner to support Canadian jobs and economic growth.”

While economists are not forecasting a severe economic downturn, many also caution that the risk remains. Canada could be plunged into another recession if the European debt contagion triggers a financial crisis, they say.

Flaherty and Bank of Canada governor Mark Carney call Europe’s ongoing difficulties the top risk factor facing the Canadian economy.

In minority reports, the NDP and Liberals stressed the need for more government action, including more spending on infrastructure, to stimulate jobs growth.

“(The majority report) is a very clear program of austerity, cuts to services (that) middle class and poorer Canadian families need. That’s not appropriate particularly at this time,” said the NDP’s Peter Julian.

He noted current cost-cutting is already translating into poorer services, citing delays in processing employment insurance claims.

Liberal finance critic Scott Brison said the majority report does not reflect what many witnesses told the committee.

“By endorsing the status quo and excluding large amounts of testimony that was critical of the government, the majority on the committee has turned this report into an expensive propaganda exercise for the Conservatives,” he said.

But given that it represents the view of the majority Tory MPs on the committee — unlike past reports when the Conservatives governed as a minority — it is likely an accurate reflection of government thinking heading into the next budget, expected in February or March.

Hence the five-pages of recommendations tabled Wednesday mirrored many current policies and intentions.

Some are virtually word-for-word out of the Finance Department song-sheet. Among other things, the Tory majority recommended that the government:

• “Limit new spending commitments” in order to eliminate the deficit in about four years. This year’s deficit is projected at $32.3 billion.
• Avoid tax increases or cuts in transfers to individuals and provinces.
• Once the budget is balanced, turn its attention to further cutting taxes through measures such as income splitting and doubling the $5,000 annual limit to the tax-free savings accounts, both promised in the last election.

Committee chairman James Rajotte rejected suggestions the majority report discounted the need for more government action to stimulate a weak economy.

“You can do both. You can both invest in innovation and research and development, and make reductions in other areas,” he said.

“However, if we are entering a period where economic growth is going to be less than expected six months or a year ago, that makes it even more important that you look at spending.”

There are also hints about possible future directions in the recommendations.

The report calls on the government to “review public sector pensions to ensure their ongoing cost and sustainability.” And it suggests examining the concept of giving natives on reserves the right to own property.