The Tax System in Context
The overall Canadian taxation system is pivotal in determining the country’s economic performance, productivity growth, international competitiveness, and environmental sustainability.
The tax system does more than just raise revenues to fund government programs:
- It affects economic incentives and guides private sector investment and spending. Thus the tax system should encourage the positive entrepreneurial behaviours that are associated with a growing and innovative economy.
- The tax system also needs to be efficient, imposing the lowest possible administration and compliance costs for every dollar of revenue generated. The costs of tax compliance are regularly benchmarked in studies of international competitiveness, and Canada is slipping in the rankings.
- Finally, the tax system should also help to redistribute income in a manner that promotes economic growth—it should be a springboard, not just a safety net.
The Imperative for Tax Reform Now
The Canadian tax system has lost sight of the basic principles of efficiency, equity, and transparency due to the myriad changes that have been added over the past two decades without regard to how the entire tax system is functioning. As described in our March 2012 executive briefing Reinventing the Canadian Tax System: The Case for Comprehensive Tax Reform, it is time to examine, debate, and act on comprehensive Canadian tax reform in order to create the optimal fiscal incentives that will boost the competitive potential of our economy.