Montreal, April 10, 2019 – While hundreds of thousands of Canadians are completing their tax returns, a publication launched today by the MEI shows that the Canadian tax system has become much too complicated and costly to administer, and should therefore be simplified.
The Income Tax Act was 4,000 words long when it was enacted in 1917; today it comprises over 1.1 million words. That means the law is 275 times longer than when it was created. Just since 2005, it has gotten 36% longer.
“At 1.1 million words, that’s the equivalent of the seven volumes of the Harry Potter series combined!” says Kevin Brookes, Associate Researcher at the MEI and author of the publication. “A serious simplification effort is needed to make life easier for taxpayers. Despite its considerable expansion since its creation, the Income Tax Act has not been subjected to a detailed examination for a little over half a century.”
The number of personal tax credits, which represent exceptions that must be taken into account when completing a tax return, increased by 26% between 1991 and 2015. During this period, four times as many new tax credits were created as were eliminated.
Even civil servants have trouble making sense of it all: Nearly one third of responses given to taxpayers by Canada Revenue Agency (CRA) call centre agents are wrong.
“Taxpayers end up wasting time and money. On average, the cost of complying with the Income Tax Act amounted to $501 per Canadian household in 2012,” adds Mr. Brookes. “Tax complexity is also expensive for taxpayers because of the resources the government has to devote to managing its tax system.”
Indeed, from an administrative viewpoint, the Canadian system is one of the costliest among OECD countries. Canada should take some inspiration from the experiences of the United Kingdom, Australia, and New Zealand. These countries all carried out detailed examinations of their tax systems, for the purpose of simplifying them, shrinking them or abolishing certain tax credits.
“Obviously, the elimination of tax credits of all sorts should lead to an equivalent lowering of income tax rates, and not a net increase in effective rates,” concludes Mathieu Bédard, Economist at the MEI and collaborator on the publication. “This would lower the cost of tax collection both for the government and for taxpayers without affecting government tax revenues, all while making the system easier to understand.”
The Economic Note entitled “Ottawa Should Simplify the Income Tax Act” was prepared by Kevin Brookes, Associate Researcher at the MEI, in collaboration with Mathieu Bédard, Economist at the MEI. This publication is available on our website.
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