Canada’s tax system needs a full review. We’re all on the same page.

By CPA Canada. Published on Mar 19, 2019 6:25pm

Canada urgently needs a tax system review —as a rising number of government bodies and leading organizations agree — but Budget 2019 marked a missed opportunity to get the ball rolling. Now, with a federal election around the corner, Canadian politicians have a chance to commit to tax reform and tackle a growing threat to our competitiveness and prosperity.

From think tanks to academics to business associations, there is broad consensus that the federal government needs to make tax reform a top priority. Reports from committees in both the House of Commons and the Senate, as well as the Advisory Council on Economic Growth, have made recommendations that range from tax simplification to a tax review. Similar calls have been made internationally by both the International Monetary Fund and the Organisation for Economic Co-operation and Development.

Findings from a recent Nanos Research poll show that 81 per cent of Canadians see a comprehensive tax review as a priority for the federal government. Of those, more than one in three (35 per cent) say this priority should be high.

The four national organizations that contributed to this article — the Business Council of Canada, the Canadian Chamber of Commerce, the Canadian Manufacturers and Exporters, and Chartered Professional Accountants of Canada (CPA Canada) — stand united as long-time advocates of comprehensive tax reform. Together, they represent more than 210,000 chartered professional accountants and more than 200,000 businesses in all sectors of the Canadian economy, including 2,500 leading manufacturing firms and 150 companies that account for more than half the value of the Toronto Stock Exchange.

“Canada’s tax system is not delivering for Canadians,” says Joy Thomas, President and CEO of CPA Canada. “At a time when income inequality is rising, labour force growth is slowing and our closest trading partners are shoring up their tax systems, Canada needs to ensure we continue to create jobs, attract investment and remain competitive. But our current tax system falls short on these vital measures and Canadians and their businesses risk falling ever more behind their global peers.”

The Honourable Perrin Beatty, President and CEO of the Canadian Chamber of Commerce agrees. “By any measure, Canada’s tax system is failing Canadians and the businesses that employ them by driving away investment, hamstringing our ability to attract top talent, and wasting valuable time on compliance,” says Beatty. “After 50 years of cutting and pasting, our crazy-quilt tax code adds major costs for Canadian firms, both in time and money.”

“While Canada can’t control all of the factors that influence competitiveness, we do control our domestic tax policy,” Beatty adds. “We urgently need a comprehensive review, with everything on the table, to build a modern tax structure that’s both more efficient and more fair.”

Goldy Hyder, President & CEO of the Business Council of Canada observes: “As our global competitors modernize their tax systems to meet the new realities of business in the 21st century, it is imperative that Canada advance a plan for comprehensive tax reform. Only by broadening the tax base and simplifying our increasingly complex system will we be able to compete for jobs, talent and investment.

Hyder points out: “This is not just about raising or lowering the statutory rate; rather, it is about streamlining the system so that we reduce the administrative burden on Canadian businesses of all sizes and workers in all fields, enhance efficiency and significantly reduce costs to government in collecting taxes.”

Dennis Darby, President and CEO of the Canadian Manufacturers & Exporters asserts the current system discourages investment and innovation, which are critical to the long-term success of Canadian manufacturers and exporters. “While Canadian industry wants to invest, they feel restrained by government policies — taxes and regulations — that restrict their growth,” Darby says. “Only 30 per cent of CME members believe governments are supporting their growth and a mere five per cent believe the tax and regulatory system has improved in the past three years.

Darby notes that new and increased taxes, combined with an ever increasing regulatory burden, have added to the cost and uncertainty of doing business here, leading to lower business investment in Canada and higher outward investment. He adds: “This investment shift shows up in all recent GDP and trade data – the economy is struggling and good middle-class jobs are at risk.”

In a recent series of reports, CPA Canada analyzes the current tax system’s sorry state and lays out a path toward a made-in-Canada tax review, highlighting lessons learned from recent tax reviews done by some of Canada’s key trading partners. The reports are available online at cpacanada/taxreform

Based on this research, CPA Canada’s Joy Thomas says: “The tax system plays a crucial role in supporting inclusive economic growth in the best interests of Canadians. We believe Canada should launch a full review of our tax system as early as possible — to ensure it is designed for the taxpayer, is internationally competitive, and with a goal of becoming one of the world’s fairest, simplest and most efficient.”

“The four organizations acknowledge that any comprehensive tax reform exercise would need to surmount many hurdles, both logistically and politically. But Canada’s competitiveness is at stake and time is of the essence. Canada’s political parties should commit to improve Canada’s competitive edge by making a tax system review a central plank in their 2019 campaign platforms.”

Graham Scott