Evidence of meeting #73 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was measure.
A recording is available from Parliament.
Liberal
Bryan May Liberal Cambridge, ON
I can't say with authority that it has not been done around the world; I'm just saying that within Canada this type of incentive for this particular training has never existed.
Liberal
The Chair Liberal Wayne Easter
Thank you, Mr. May, and thank you for your initiative and for coming before us.
Liberal
Bryan May Liberal Cambridge, ON
Thank you.
I just have something to say before you hit the gavel. I want to thank everybody here. I know this is a unique situation. I want to thank the members of the committee. They have been honest. They have been forthright. You, Mr. Chair, have been the same. This has been a very educational experience.
Thank you.
Liberal
The Chair Liberal Wayne Easter
Thank you very much, Mr. May.
We'll suspend for a couple of minutes to bring the officials in.
Liberal
The Chair Liberal Wayne Easter
We'll reconvene on PMB Bill C-240.
We have several witnesses here from the Department of Finance. We have Mr. LeBlanc, director, personal income tax division, tax policy branch; Ms. Robbins, chief, employment and education section, personal income tax division, tax policy branch; and Mr. McGowan, senior legislative chief, legislative review, tax legislation division, tax policy branch.
That's long wording. Welcome.
I'm not sure who's starting. Are you, Mr. LeBlanc? Can you give a short statement?
Pierre LeBlanc Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
Yes, it will be pretty short.
First of all, thanks very much for having us on this important issue. It's a pleasure to be here.
I think you've hit a lot of these issues already in a general way. We see ourselves as here to assist the committee in your review of this bill, and we thought it would be useful to explain the general framework or lens through which we in the tax policy branch evaluate tax credits like this one when they're presented to us.
As a general starting point, it's important to consider whether any proposal, any tax measure, is consistent with the general functions of the tax system. The primary function is to raise revenue, the revenues that finance the program initiatives that benefit Canadians.
The tax system does have secondary functions, and one of these functions—and this was touched on during your discussion—is incentives within the tax system to support economic and social objectives. They can be things like increasing savings and investment and promoting charitable giving. There are also disincentives in some cases, such as excise taxes on tobacco. There are a few activities we want less of, but there are many activities we want more of, and that's what we're talking about today.
A tax measure of the variety proposed in Bill C-240 serves one of these objectives-encouraging socially beneficial behaviours-at the expense of another-raising revenue.
In assessing such a trade-off it is important to consider whether the tax measure in question can be expected to be effective in meeting its stated goal, and whether it is efficient. That is to say, does it achieve its objective at relatively low cost compared to available alternatives? After all, the revenue forgone as a result of a tax measure could go towards government spending serving a similar end, or that supports other important government objectives.
One factor we take into account is the potential effect of the measure on the desired activity. Put simply, if the purpose of a tax measure is to encourage people to perform a particular activity, its effectiveness should be analyzed by looking at both its cost and the extent to which it causes more people to perform that activity than would have undertaken the activity in any event.
You touched on this as well. Tax measures also impose compliance costs for taxpayers and administrative costs for government, and there we're talking about the Canada Revenue Agency. These costs can contribute to reducing the overall efficiency of a measure, but it's important to consider how high the costs are and how the costs might compare to a similar measure if it were delivered as a spending program.
In addition to efficiency, equity is another criterion integral to policy analysis. Non-refundable credits provide taxable individuals with tax recognition at the same credit rate, irrespective of income level, versus a deduction, where the rate of relief increases with an individual's marginal tax rate.
There is often a strong case for making a credit non-refundable, to the extent that the measure is trying to properly account for the individual's ability to pay tax. However, non-refundable credits reduce an individual's tax payable and are therefore not useful for individuals who are non-taxable. Ultimately, the impacts of any tax measure on taxpayers at all income levels must be considered in the context of the overall progressivity of the tax system.
One final point, also of key importance when you're designing an efficient and equitable tax system and considering how the proposed measure might fit into that, is ensuring tax legislation is drafted in a manner that protects individual tax measures from being accessed in ways counter to the original policy intent.
During the course of our work on the tax policy development process at Finance Canada, legislative review and drafting of tax measures is a very integral part—Trevor is our expert—and ensures that technical issues don't arise that can inadvertently undermine the operation of the measure or of other provisions of the act.
Thank you, Mr. Chair.
Thanks to all the members of the committee.
We would be happy to elaborate further on any of these points or to answer any questions that committee members may have.
Liberal
The Chair Liberal Wayne Easter
Thank you very much, Mr. LeBlanc.
We'll try to hold this to five-minute rounds.
Go ahead, Mr. Ouellette.
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
Thank you very much, Mr. Chair.
Thank you very much for being here.
My questions concern the efficiency of tax measures.
They deal with tax incentives that we often have in the tax code. We've often heard about the Canada child fitness tax credit, the culture tax credit, the recreation tax credit. Could you give us an indication of how efficient these tax credits were in the past?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
I would say it depends. If we look at tax expenditures across the board, some have been evaluated because they're used in many countries. You asked about other countries. In the case of charitable donation tax credits, for example, there is a pretty broad body of evidence suggesting that charitable donations are sensitive to tax incentives.
You talked about the children's fitness and arts tax credits. There have been studies showing that their impact on the desired activity has been relatively weak. Again, that's in the context of those particular measures. That was taken into account when the government made its decision about—
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
When you say “weak”, are you talking about a 5% or 10% increase?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
I can't remember magnitudes. We'd have to come back to the committee with the actual citations, but there was basically no significant effect.
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
Yes, to the extent.... It's hard to separate these out from.... There was no real number attached that it increased activity by x percent.
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
That was a program that the government had, but you didn't have any statistics on whether it was going to be efficient or not.
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
I'm sorry; do you mean before those measures were introduced?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
No. It could be hard to predict. There's an objective in mind—
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
I guess my thing is that you introduced a measure and you didn't understand the levels of physical activity or the level of arts participation, and then we weren't able to measure it in the long term in a longitudinal study over the course of the whole program and analyze whether it actually had an impact or not on, for instance, fitness levels or—
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
To be fair, it can be difficult to tell, because it's hard.... You have a particular level of activity, let's say in children's physical participation or their participation in artistic and cultural activities. You may have a certain trend, but then you introduce the measure, and it's generally applicable. What's difficult in these cases is to try to tease out what changes in a trend can be due to a tax incentive and what can be due to other things.
I talked about charitable donations, for example. For charitable donations, different rates have applied to different people at different times. Because of that, you have some variation, and you can do analysis that allows you to determine—
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
I don't think many countries do this. It seems always that as policy planners we put blinders on and are flying by the seat of our pants, imagining what the long-term outcome might be of some tax proposal.
It's not a criticism. I think it's just that the whole system is a weak set-up.
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
It's a really good question. One thing is that the tax system by its very nature is of general application. I think this government has shown interest in pilot programs, in experimentation. That doesn't work very well in the tax system, because if we introduce a tax credit, it's open to everyone who qualifies; it's not the idea of having it available to some and not to others within a group, just to be able to tease out.... It's hard to see that working in a tax context.
Liberal
Robert-Falcon Ouellette Liberal Winnipeg Centre, MB
I have one more minute. I was wondering whether we know how many people would actually take this training. Have you any statistics at all?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
The statistics we had were quite similar to the ones that Mr. May.... The data is relatively limited, to be fair, so we looked at the same survey from Ipsos Reid, done for the Red Cross. It's the same thing: 18% of adults, spreading that over three years.
