“The art of taxation consists of plucking the goose so as to obtain the most feathers with the least possible amount of squawking.”
The statement, attributed to Jean-Baptiste Colbert, comptroller-general of finances in France under King Louis XIV, is as relevant today as it was then. Put another way: It is in the interest of government to make the collection of taxes as painless as possible — but it is not necessarily in the interests of taxpayers to leave it almost entirely up to government to fill out their tax returns for them.
And yet, in order to simplify procedures, a number of industrialized countries have adopted a system by which the government pre-fills income tax returns for the taxpayer. In Quebec, a pilot project with 100,000 tax filers was tried in 2008, then dropped. However, the Parti Québécois and more recently Finance Minister Carlos Leitão have resurrected the possibility of instituting such a system.
That’s a bad idea. International experience has shown that pre-filled (or “pre-populated”) tax returns do not necessarily reduce costs for taxpayers, and can increase them for businesses and the government.
To implement such a system, the revenue agency would have to require employers, banks and charitable organizations that receive donations to provide it with information. Administrative costs would therefore go up for these companies and organizations, which would be transformed into government subcontractors on fiscal matters. Judging by the British experience, costs would be higher for small businesses.
One might think government costs would fall thanks to simplification, which would lead, in theory, to fewer errors, less time spent by the tax authority to settle disputes, and a greater capacity to check the veracity of returns. This is doubtful. The government would need additional resources to collect and store data from third parties, calculate taxpayers’ incomes and store the data.
There is also an increased risk of errors in the calculation of income tax to be paid under such a system. Cases of computer bugs have been noted in countries with complex tax systems like Australia and France.
Technical considerations aside, consent to taxation has been a part of the democratic tradition of western countries for centuries. For there to be enlightened consent, taxpayers must be aware of the information that concerns them. With a pre-filled tax return, taxpayers risk no longer being able to correctly assess their contribution, and as a result, paying less attention to the evolution of the fiscal policies that concern them.
Such a system also reinforces the fiscal illusion — which is to say, the tendency of taxpayers to underestimate the taxes they pay compared to the services provided by the government. Already, this evaluation is not easy to make; if, in addition, we no longer make an effort to look into the question once a year by filling out our tax returns, we will be even less aware of it.
Democracy necessitates transparency in taxation. The presence of well-informed citizens is one of the best ways to ensure that they participate more actively in the public debate and have a better understanding of fiscal and economic issues. In the system that prevails in Canada, the need to fill out tax returns means that citizens at least have an opportunity once a year to sit down and think about public finances and the contribution that they must provide.
The goal of reducing the costs of tax compliance is laudable. There is, however, a less expensive, less risky and more equitable way of achieving it: Simplify the tax system as a whole, so that taxpayers can more easily understand and fill in their own returns in an informed way.
Kevin Brookes est analyste en politiques publiques à l'Institut économique de Montréal, Pascale Déry est vice-présidente, Communications et développement à l'IEDM. Ils sont les auteurs de « L’État doit-il remplir votre déclaration de revenus? » et signent ce texte à titre personnel.