Montreal, August 21, 2018 – Should the government pre-fill your tax return, as certain politicians propose? Such a system, even if its purpose is to simplify things, does not necessarily reduce costs for taxpayers, increases them for businesses and the government, and also entails several adverse effects, shows a study published today by the MEI that looks at the international experience.
“To implement such a system, the revenue agency would have to require employers, banks, and charitable organizations to provide it with information. Administrative costs would therefore go up for these organizations, which would be transformed into government subcontractors on fiscal matters. Judging by the British experience, costs would be higher for small businesses,” explains Kevin Brookes, Public Policy Analyst and author of the publication.
One might think on the other hand that government costs would fall thanks to simplification, which would lead—in theory—to fewer errors, and to less time spent on verification and settling disputes. This is doubtful. The government needs additional resources to collect data from third parties, calculate taxpayers’ incomes, transmit them, and then 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,” points out Pascale Déry, Vice President of Communications and Development.
Canada’s recent experience on a similar file is not reassuring. The implementation of the Phoenix pay system for federal government employees has given rise to a comedy of errors. This episode raises doubts about the government’s ability to manage an infinitely more complex tax collection system.
Moreover, the government would put itself in a position of conflict of interest insofar as its goal is to collect as much income tax as possible, whereas taxpayers would like to pay less.
Finally, letting the government pre-fill income tax returns would remove taxpayers’ sense of responsibility, according to the publication. “By filling out their tax returns themselves, taxpayers have an opportunity once a year to think about public finances and the contribution that they must provide. A healthy democracy needs its citizens to be able to keep the government accountable and understand the taxes they are asked to pay,” explains Kevin Brookes.
“The goal of simplifying taxpayers’ lives is a laudable one. There is, however, a less expensive, less risky, and more equitable way of achieving it: Simplify the tax system as a whole,” concludes Pascale Déry.
The Economic Note entitled “Should the Government Pre-Fill Your Tax Return?” was prepared by Kevin Brookes, Public Policy Analyst at the MEI, in collaboration with Pascale Déry, Vice President of Communications and Development at the MEI. This publication is available on our website.
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The MEI is an independent public policy think tank. Through its publications and media appearances, the MEI stimulates debate on public policies in Quebec and across Canada by proposing reforms based on market principles and entrepreneurship.
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