Political discussions often focus on moral topics. Parties primarily distinguish themselves along ideological lines, and it is usually through ideology that citizens identify their political views. The more practical issues of competency, efficiency, and basic good governance often fall by the wayside, in part because there are few methods by which the public can actually gauge these virtues. This can result in foundational pieces of public policy being neglected. That is why I have taken it upon myself to write on the hot topic of tax reform.
I mostly have an opinion on tax reform because I worked in the UK for a few years, and I saw how much more consumer-friendly taxation could be. The thing that first struck me about taxation in the UK was… nothing. I didn’t even realize that the tax year had come to an end. This is because, for the majority of employed UK citizens, tax is deducted by their employer before they are paid. I only realized how friction-less the experience had been when I stupidly registered a Unique Taxpayer Reference to earn £50 through a contract, thereby committing myself to submitting an actual tax reform.
“But wait”, you, my most attentive and precocious reader, may say. “Don’t Canadian employers also deduct tax prior to paying employees? Well yes, they do, but we all have to submit tax returns anyway. The reason we submit tax returns is because taxation in Canada is complicated. The Income Tax Act is over a million words in length. According to a study by the C.D. Howe Institute, Canada’s tax system is too complicated to automate due to the sheer number of deductions, credits and modifiers in the system. They estimate that only a third of Canadians would be appropriate candidates for automatic filing. The Liberal Party seems to have come to a similar conclusion. In 2020 they stated they, “would work to introduce free, automatic tax filing for simple returns to ensure citizens receive the benefits they need.” This has not been mentioned since.
According to a report by CPA Canada, it has been over fifty years since Canada conducted a full-scale tax system review. Other comparable countries such as the UK, Australia and New Zealand conduct tax reviews with significantly greater frequency. New Zealand, for example, has conducted three tax-system reviews in the last thirty years.
Despite my lead in on the simplicity of taxation in the UK, tax reform cannot simply focus on ease of use. As stated by the Standing Senate Committee on Banking, Trade and Commerce, “Canada’s [tax] system requires a complete examination to ensure that changes to one area do not have unintended consequences elsewhere.” Canada would not be able to implement simple tax-filing like in the UK without significantly overhauling the tax system.
Highly granular and complex taxation theoretically allows for highly tailored and equitable taxation, but in practice can lead to two perverse outcomes. First, it places a heavy burden on vulnerable individuals who are often poorly equipped to navigate the complex taxation system to ensure they receive all the benefits they are owed. Poorer people also generally pay a greater portion of their wealth to comply with tax filing requirements. The second perverse outcome is that those who are wealthy are best positioned to exploit a complicated taxation system to minimize their personal tax burden.
I speak here primarily in generalities. I am not a taxation expert, and this was not a highly in-depth review. But, based on my research, I believe that we are due for a comprehensive taxation review.
Further readings:
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