It has become a highly inefficient drain on the economy. Taxpayers and the government, too, could be doing something useful with the money and human resources wasted by the process.
By Charles Lamma
Filed your taxes? Unfortunately, due to Canada’s increasingly complex tax system, Canadians today face greater challenges filing their taxes than they did just 20 years ago. Things have gotten a lot more complicated.
For instance, consider the actual legislation – the federal Income Tax Act – which is literally growing in size.
As noted in a recent Fraser Institute study, between 1990 and 2014 the act’s text area (the number of pages multiplied by the size of the pages) increased by 62 per cent – from 974,050 centimeters to 1,575,537 centimeters. While the number of pages declined slightly (by four per cent), the size of the pages increased 69 per cent over the same period.
More growth. From 1991 to 2011, the number of federal personal income tax expenditures (credits, deductions, exemptions, exclusions) increased to 123 from 105. At the same time, the number of corporate tax expenditures rose to 64 from 48.
A better and simpler alternative to littering the tax code with boutique credits is to cut tax rates broadly. The added benefit, of course, is improved economic incentives for work, saving, investment and entrepreneurship.
But it doesn’t stop there. From 2001 to 2011, the federal personal income tax guide, which includes information and instruction intended to help tax preparers, actually increased in size by 25 per cent – to 70 from 56 pages.
Each new addition can add to the complexity of Canada’s tax system. And the more complex the system, the more difficult – and often, more costly – that system is to navigate.
Today, Canadian families and businesses incur significant costs just to comply with the tax system. They spend time and money collecting and organizing tax receipts, and working with accountants. If necessary, they hire lawyers. (In 2011, there were 499 court cases related to the Goods and Services Tax (GST) – up from 320 in 1993.)
Many Canadians, feeling overwhelmed by the tax system, buy computer software programs to help them weave through Canada’s tax maze.
These costs add no value to society. They don’t pay for new factories or new machinery or new jobs. They don’t improve lives through investments in education or training. And they certainly don’t increase living standards – in fact, they reduce incomes and the time available for family and friends.
Most disturbing, perhaps, is that Canada’s tax compliance costs fall disproportionately on lower-income Canadians who pay the highest share of their income to comply with the tax system.
Similarly, on the business front, smaller businesses pay a higher portion of their revenues to comply with the tax system than larger Canadian businesses.
Paradoxically, there’s also an increased cost to government as the tax system grows more dense.
So what’s the solution? Make the tax system easier to understand and less expensive. If you’re a taxpayer, this would lighten your load, reducing the amount of time and money required to meet those April 30 deadlines.
And if you’re the government, you’ll free up resources that could be used for other priorities, including growth-promoting tax relief for individual Canadians and businesses.
In the United Kingdom, they have an Office of Tax Simplification, which measures tax complexity with an eye on reducing it. There’s nothing like that in Canada. (Hon. Monique Begin, as revenue minister long ago, spent a year working with her bureaucrat’s to simplify the federal tax document – and produced a neat, understandable document.) If policymakers genuinely want to help Canadians keep more of their money, they should act now. Next year’s deadline is only 12 months away.
Charles Lammam is the director of fiscal studies at the Fraser Institute in Vancouver.