Canadians no longer see red over prospect of higher taxes

April 7, 2010

Now that Canada is in the fiscal red, taxes appear to be coming back into fashion.

A surprisingly broad swath of Canadians — and not your usual suspects — are musing aloud about the need to raise taxes to tackle the deficit and to pay for the things we care most about, such as public health care.

Almost three out of five Canadian CEOs surveyed in March say higher taxes are needed to get the country back into the fiscal black.

Recently John Manley, former Liberal finance minister and now head of the Canadian Council of Chief Executives, said it may be necessary to raise taxes at some point to erase the deficit.

At the end of the recent Liberal party thinkfest, Leader Michael Ignatieff showed that party is finally coming to grips with the reality of taxes. He said Canada can’t afford to rush ahead with any more corporate tax cuts.

For the first time in more than 15 years, Canadians are beginning to rethink the tax cut agenda that dwarfed all other public policy discussions.

It’s more out of sober necessity than anything. Tax cuts cost us more than we can afford.

The OECD estimates that between 1995 and 2005 tax cuts had reduced Canadian government revenue capacity by $50 billion per year.

Since the Harper government came to power in 2006, its super-charged tax cut agenda had reduced federal revenue by an additional $34 billion in 2009-10 alone — and that price tag keeps ballooning. To put it into perspective, the federal government’s 2009-10 deficit is estimated at $53.8 billion.

In its 2010 budget, the Harper government confirmed yet another round of corporate tax cuts that will cost the public treasury $20 billion over the next five years. To pay for those tax cuts, the Harper government is unleashing a round of public service cuts and holding back on $4.5 billion in aid to the poorest nations on earth.

Tax cuts are hamstringing our ability to pay for the things Canadians want and need while privileging those who are already doing very well.

Our research shows that over the past 15 years Canada’s tax system — federal, provincial, territorial and municipal — has undergone massive reconstructive surgery.

Our tax system used to be more progressive. The richest 10% — those best positioned to contribute to the well-being and quality of Canadian life — used to pay progressively more in taxes than middle- and low-income taxpayers.

Not anymore. It has become regressive at the top. And shockingly, the richest 1% of Canadians now pay less as a portion of their income than the poorest 10%.

The vast majority of Canadians have been the net losers. Tax cuts have compromised Canadian public services: whittling away our social safety net, diminishing the quality of our public education and health care systems, and eroding our basic transportation and communication infrastructure.

It’s time to bring fairness back into Canada’s tax system. As conservative historian Michael Bliss recently wrote:

“Inequality of compensation has soared in our time, as the rich have become much richer and much less taxed. Higher taxes on high incomes would begin to narrow the immense chasm that has opened up between the über-rich and the ordinary North American.”

The first step is to make Corporate Canada part of the solution, instead of being part of the problem. It starts with reversing broad based cuts to Canada’s corporate income tax system. These cuts do nothing for corporations whose profits have been obliterated by the economic crisis. They benefit profitable companies, notably banks and oil companies, who are more likely to build up cash balances, take over other companies or buy back their own shares instead of making real job creating investments.

The second step is bring fairness back into Canada’s personal income tax system, beginning with a new higher tax rate for those with incomes over $250,000 a year.

Reversing the Harper GST cuts is also important. The additional $12 billion a year our federal coffers would gain from restoring the GST to 7% (with an expanded tax credit to protect low-income earners) could build a national pharmacare program and a home care program for our senior citizens. It could fund a national child-care program for the next generation of young Canadians. It could plant the seeds for a green economy.

They say timing is everything. Any move to increase taxes will need to be phased in once Canada’s fragile economic recovery takes firmer root. But that Canadians are finally starting to have an adult conversation about taxation — instead of only seeing red — is a healthy sign. It bodes well for Canada’s future.

Bruce Campbell is Executive Director of the Canadian Centre for Policy Alternatives.