Opinion: Playing games with tax policy

Both the Conservatives and Liberals need to move beyond 'boutique' tax policy and tackle broader reform.

A middle-class tax break in action. (Getstock)

Stephen Harper’s Conservatives won the 2006 election partly with a promise to slice two percentage points from the goods and services tax. Whether the tax cut itself was a good policy can be debated, but it was undeniably a campaign promise with broad appeal. It was smart retail politics in more ways than one.

The Harper government’s first budget included the GST cut, along with changes to both corporate and personal tax rates. But the budget also contained the first of many so-called boutique tax measures, targeted efforts aimed at offering relief to narrow subsets of the population, such as parents with children who play sports, or tradespeople purchasing new tools. These tax measures increasingly became the hallmarks of subsequent Harper budgets—and Conservative election platforms.

Already in the current campaign, Harper has promised a “family tax cut,” which would allow spouses to pool up to $50,000 of their earnings to reduce their household’s overall burden. The Conservatives also proposed a $500 tax credit to allow adults to claim their gym memberships and other athletic costs, alongside an increase in the tax credit offered for kids’ fitness programs. Gone are the policies with universal appeal and application. In their place are promises carving the country into demographic fiefs.

The Liberal platform—announced on the same day as Harper’s fitness credits—is also bursting with boutique tax relief. There is money for students, for individuals caring for sick family members, and for those seeking to make their homes more energy efficient. Indeed, the Liberals boast their “green renovation” tax credit could reach a million homes over the next five years. That’s less than one family in twelve seeing any benefit from a $400-million program.

From the politician’s perspective, boutique measures have simple appeal; they allow you to offer a smorgasbord at the cost of soup and a sandwich. While the list of tax credits introduced by the Conservatives since 2006 is long, their individual costs are relatively minor. The Children’s Art Tax Credit, for example, amounted to 0.035% of the government’s projected 2011-2012 expenditures, according to economist Frances Woolley.

But the cumulative negative effects of boutique tax policy are large. They add complexity to an already cumbersome system. They have a cascading effect, where individuals excluded from a tax credit demand one of their own. (Parents of artistic children were angered in 2007 when a credit was introduced for sports programs; they got their own program the following year.) Perhaps worst of all, these policies don’t benefit the people who most need them. While only 25% of Canadians report income of $50,000 or more, two-thirds of all claimants for the fitness tax credit boast that level of income, according to a study by the Frontier Centre for Public Policy. In short, taxpayers as a whole subsidize credits for a select segment of the middle class.

None of the parties in this campaign are talking about broad changes to tax policy, like reducing the personal income tax rate overall. We need ideas with application that extend beyond the boutique to main street. Subtle is often a laudable trait in public policy, but if our politicians want to offer tax relief to Canadian families, they need to wield a blunter instrument.