Lower taxes preferred over tax credits

Survey respondents left no doubt that when it comes to taxes, simpler is better. However, most people don’t believe that is the direction in which Canada’s system is currently pointing. “We were surprised,” says Carole Presseault, CGA Canada’s vice president of government and regulatory affairs in Ottawa, “that one in two Canadians thought the tax system was heading in the wrong direction. That was a wake-up call.”

When asked how important a simple tax system is on a scale of one to 10, with “10” being “most important,” the average survey response was a “10” _ a figure that is “very, very high” and very unusual, notes Nik Nanos, president of Nanos Research Corp. in Ottawa, which conducted the national phone survey this past spring. “It’s pretty clear that most Canadians are dissatisfied.”

The dissatisfaction with tax credits, such as those for child fitness and first-time homebuyers, goes beyond concerns about complexity, however. Canadians simply don’t think they work, says Nanos: “Fifty-five per cent said you’re rewarding people for things they’re going to do already.”

This is a valid argument, says Jamie Golombek, managing director, tax and estate planning, with Canadian Imperial Bank of Commerce’s private wealth-management division in Toronto: “There really is a question as to whether, in fact, the credits change behaviour.”

As an example, Golombek points to tax credits for public transit: “People are going to take public transit anyway.”

Furthermore, in some cases, Canadians do not have access to public transit or some of the other items for which tax credits are offered _ and that breeds resentment, Golombek says.

Still, Himmelman notes that despite the unpopularity of tax credits, they play an important role in helping to keep hard-earned money in the hands of taxpayers. “It’s money saved,” he says. “I tell my clients that tax credits are real money.”

The debate over the use of tax credits is about more than simplification; it hits at the heart of the tax system _ and its purpose. “This is a huge issue,” says Golombek. “The tax system traditionally has been used to raise revenue. In the past several years, it is also being used to effect public policy.”

CGA Canada would like that to stop. The association has been advocating a simpler tax system for several years now, and the most recent survey’s results provide more ammunition for its arsenal. “Our position,” Presseault says, “is that [tax credits] are not worth what the government spends on them.”

Now, the association is planning to foster greater discussion of the issue _ and options. CGA Canada will hold a summit on tax simplification in Ottawa later this year. On the invitation-only guest list are roughly 60 stakeholders, public officials and experts on the topic.

CGA Canada is not alone in its push for a simplified tax system. In a recent report, The Canadian Chamber of Commerce had identified the currently complex system as one of the top 10 barriers to competitiveness. And a 2011 report from the House of Commons standing committee on finance had advocated establishing an expert panel to review, modernize and simplify the tax system.

Despite the pressure to transform the tax system, many experts believe it is unlikely to happen. “Right now,” says Golombek, “there is no appetite to do this.”

Himmelman, for his part, believes the complexity of the system has become entrenched in our economy. As a result, he says, a simplified system “will never happen in my lifetime _ or my children’s lifetime, or my unborn grandchildren’s lifetime.”

Presseault is not so sure: “We have a strong sense the federal government is listening. We’re finding common ground.”

© 2012 Investment Executive. All rights reserved.