The common popular understanding of a consumption tax is associated with sales-type taxes--provincial sales taxes and the federal sales tax, which is the GST. This differs from an economist's notion of a consumption-based tax, which is much broader than that. A consumption-based tax in economic terms is one that does not distort investment and savings choices--in other words, people's choices about how to consume over their lifetime and how to allocate their savings to various forms of investment.
Viewed in that light, our personal income tax in Canada is actually very close to being a consumption-based tax. Why is that? Well, for most people the allowable contributions through your pension plan and through RRSPs are like consumption-based taxes, because you can deduct from your taxable “income” the amount that you save. What is left is consumption. And when you withdraw it, it gets added to, again, your taxable “income”. You withdraw from those funds only when you want to consume.
So that's one reason. Another is that the personal income tax does not tax savings in the form of owner-occupied housing, or principal residences. Capital gains on such homes are tax-free. Still another reason is that even for non-registered savings--in other words, savings not in an RRSP or a pension plan--when you realize capital gains on them they're taxed at a very preferential rate, at only half of the individual's normal rate.
The personal income tax in Canada, like that of some other countries, is called an income tax but it actually is much closer to a consumption-based tax for the great majority of the population. Only the top maybe 2% or 3% of the population is actually constrained by the $20,000 limit on annual contributions to these tax-deferred plans. Therefore, only—