Ottawa (20 April 2022) — While the federal budget included some small steps towards tax fairness, that good news was offset by the $9 billion in planned cuts to the federal public sector that will reduce the ability of the federal government to respond in the future to emergencies like the COVID-19 pandemic. There is also concern that failing to fully recognize the role governments can play in building strong economies, Budget 2022 represents a missed opportunity to build a strong green economy where no one is left behind.
Modest tax fairness measures will generate $16.1 billion over 5 years
The tax fairness measures in Budget 2022 are far more modest than what experts on tax fairness recommended, but they will still generate an additional $16.1 billion in revenue over the next 5 years. This includes $4 billion from the Canada Recovery Dividend, which is a one-time tax on excess profits banks and insurance companies made in 2021. It also includes $2 billion from a small increase in corporate income taxes for banks and insurance companies, $4.2 billion from closing a loophole that allowed foreign corporations to be used to avoid Canadian taxes, and $3.4 billion from improving enforcement of tax rules.
“If even modest tax fairness measures can generate $16.1 billion in 5 years, you have to wonder what could be done if the federal government took tax fairness more seriously,” said Bert Blundon, Secretary-Treasurer of the National Union of Public and General Employees (NUPGE).
Making it harder for the wealthy and corporations to engage in tax avoidance
The $3.4 billion in revenue from improved enforcement is the expected result of an additional $1.2 billion in funding to deal with tax avoidance by larger corporations and non-residents. The estimated revenue may be modest because, in the 5 years after the federal government provided more funding to respond to tax avoidance by the wealthy and corporations in 2016, every dollar spent on enforcement generated an additional $5 in revenue.
The federal government will also be implementing a key measure in the agreement between the Liberals and NDP to speed up the creation of a public, accessible Beneficial Ownership Registry. A Beneficial Ownership Registry shows who really controls corporations and will make it harder to use corporations registered in Canada for tax avoidance, money laundering and funding terrorism.
Information in budget makes it clear more needs to be done on tax fairness
One of the more disturbing pieces of information in Budget 2022 was that over a quarter of people with incomes over $400,000 — the 0.5% — pay less than 15% of their income in federal income taxes. This is the same or less than many low- and middle-income Canadians pay.
Even more disturbing is that 11.4% of people with incomes over $400,000 are paying less than 5% in federal incomes taxes and 1.6% are paying nothing at all.
No wealth tax; corporate taxes still at record lows
In spite of how so many wealthy Canadians aren’t paying their share and that there has been an increase in income inequality during the COVID-19 pandemic, there was no mention of 2 tax measures that tax fairness experts have called for. These are the reversal of some of the cuts to corporate income tax rates and adding a wealth tax. There were no plans in the budget for a wealth tax and, other than a small increase for the financial sector, corporate income taxes are still at record lows.
Instead, the federal government will “examine” a new minimum tax and measures to limit aggressive tax avoidance by financial institutions.
Strategic Policy Review could result in more privatization, weaker public services
The plan for a Strategic Policy Review that is supposed to find $9 billion in cuts looks suspiciously like what the Harper Conservatives did when they were in office. When specific financial targets are mentioned for reviews the purpose ceases to be making government more efficient and becomes sneaking austerity policies in through the back door. What often ends up happening is that, instead of providing savings, public services get privatized and the ability of the federal government to respond to crises is weakened.
Government needs to do more to ensure no one is left behind by transition to a green economy
If cutting taxes for corporations was enough to build a successful green economy where no one is left behind, everyone in Canada would be doing wonderfully. In 1980, the top rate for federal corporate income tax was 36%. Today, for most types of corporations, it’s 15%. But instead of building a strong economy, cutting corporate taxes increased income inequality.
Unfortunately, the idea that cutting taxes is the key to economic success still appears to shape the thinking of the federal government. A tax cut for businesses manufacturing green technology was described as giving Canada “the lowest combined federal-provincial-territorial average tax rate in the G7.” What isn't addressed is what happens if other countries also make more cuts to corporate taxes and Canada is stuck in a race to the bottom.
Where the federal government does propose doing more than handing out tax cuts, the focus is on working with corporations. While Budget 2022 does propose consulting with labour on skills training, the federal government still hasn’t quite realized that, if we want an economy where no one is left behind, labour has to be at the table for more than just one part of the discussion.
What is also not clear is whether the federal government recognizes what is needed for a successful transition to a green economy that includes everyone. To get Canada through World War II and to rebuild after the war, the federal government took a leadership role in preparing the economic strategies needed. A similar approach is needed now if we are going to deal with the challenge of climate change.