Thank you, Chair, and thank you for inviting us.
I'm going to divide my oral presentation into two parts: briefly, an expression of our concerns, which will echo several things you've already heard, and then talking about our suggestions.
In terms of our concerns, our written submission to you comes from a social policy perspective. Like many other organizations whose primary interest is social policy, we ask that changes in the tax system be examined not only in terms of economic efficiency but also in terms of their social and distributional impact. Some government and tax expenditures are simply based on an ethic of solidarity and an obligation to help those in need, not on economic efficiency.
A related concern is that the ongoing preoccupation of governments—federal and provincial—with tax cuts, particularly income tax cuts, can and maybe will undermine the capacity of the federal government to maintain the existing programs into the future and curb dramatically the potential for new initiatives, particularly when such cuts, in terms of their efficacy, have not been yet examined.
At present, there are serious gaps in federal social policy. There is no national housing strategy, there is no commitment to reduce poverty, the correctional system is underfunded, the welfare and employment insurance system is dysfunctional, labour market policies with regard to women are constrained, the development of publicly funded child care spaces has gone into slow motion, and there is a need for a national strategy on disability.
Each of these concerns is not purely social in nature. They all have implications for the tax system. Many of them have or can have an impact on productivity, investment, and economic growth. Nor does their resolution necessarily mean the resurrection of old programs. New federal approaches that put a greater emphasis on transfers and refundable tax credits for individuals rather than transfers to provinces and territories need further exploration. New approaches may also help to clarify the relative fiscal responsibilities of different levels of government.
With these observations as background, the following are the main suggestions or recommendations we would like to put forward.
First, in terms of the criteria for tax reform, in our judgment, equity and fairness should be a primary tax principle, as well as efficiency. We think here particularly of vertical as well as horizontal equity.
Second, taxation should be consistent with constitutional responsibilities, and jurisdictional overlap should be minimized as much as possible.
Third, taxes should be implemented not only to promote economic growth and efficiency, but also to assure development that is socially sustainable.
Fourth, a preference in social policy should be given to taxes with a broad base that do not impede work and are redistributional.
Fifth, we think core social and health services, as well as income security, should be funded primarily through taxes on income and payroll.
Sixth, the OECD suggests that Canada could increase value-added taxes to offset lower business taxes. While that may make sense for business, value-added taxes are generally regressive and tend, in some respects, to neutralize the progressivity of income taxes.
In terms of the second question you raised, about the appropriateness of corporate taxes, this is not an area about which we know very much of anything, but we just want to make one suggestion: given the ongoing debate about appropriate levels of corporate taxes, we recommend that the federal government follow proven international practices in order to ensure that additional corporate tax cuts will in fact lead to significant economic and productivity gains for Canada. We think that at the moment this is an unknown.
Finally, in relation to what is an appropriate form of personal taxes, we have three suggestions.
One is that the ongoing use of income tax cuts and non-refundable tax credits to benefit middle- and higher-income individuals or families is not only inequitable but compromises the capacity of future governments to finance high-quality, comprehensive services and income supports for Canadians at risk.
Two, we think these and other charges should not be a major deterrent to essential public services such as health care, social services, and education.
Then, three, we suggest that the federal government reassess its bias to cutting income taxes and examine more closely those economies that maintain high standards of public provision, along with high levels of economic growth and productivity. That is a path that, in our judgment, is more likely to sustain high standards of living in this country, and in the future, a more equitable society.
In our written brief, we give you an example of a reform that we think meets many of these criteria, and it has been put forward too, I think, by the Caledon Institute of Social Policy in relation to the reform of welfare and employment insurance. It's a comprehensive reform that, in our judgment, does two things: one, it shows new approaches in the way the federal government can deal with these things; and secondly, it clarifies jurisdictional responsibility for taxation.
