Thank you, Madam Chair.
Members of the committee, it is a pleasure to participate in your pre-budget consultations.
The C.D. Howe Institute is an independent, non-partisan public policy research institute based in Toronto. Each year, we publish approximately 50 studies, which undergo a rigorous peer-review process.
The institute also publishes its own annual pre-budget recommendations document, titled “Shadow Budget”. In our pre-budget document, we have often emphasized two things: the need for greater fiscal discipline to limit the growth of public debt, and the need for tax reforms to stimulate economic growth and investment.
Today, I will focus my remarks on the issue of tax reform.
Last March, Jack Mintz, my colleague Nicholas Dahir and I published a study proposing an ambitious reform of the Canadian tax system. The study is titled “‘Big Bang’ Tax Reform: Unleashing Growth in the Canadian Economy” and is available on our website. Since the study is in English, let me continue my remarks in English, as it is much easier for me.
As you know, Canada's economic performance over the past 10 years or so has been weak. Business investment is also low and productivity growth is weak. Gross national income per capita is not growing fast enough. I'm sure you've heard that many times already.
Our message in our tax reform study is simple: The country doesn't need another small tax change here and there. What we need is to send a strong message through a major structural tax reform. We rely more on income tax than any other G7 country. High income tax reduces incentives to invest, work more, take risks and grow businesses in Canada. I'm sure you've heard that before.
High taxes also encourage tax planning instead of productive economic activity. We are also running large government deficits. Any tax reform needs to be revenue-neutral, at least in the short term. We're not proposing large new deficits. We're proposing a better tax structure for growth.
Our proposal has four main parts to be implemented at the same time. I'll go through them very quickly.
First, lower personal income tax. We propose reducing income tax rates and reducing the number of tax brackets from five to three.
Second, we need to simplify the personal income tax system. We propose a new, simplified $10,000 credit allowance that would replace most credits and deductions. This optional allowance would allow a simplified tax return that would fit on a single page. I must also say that lower-income households would benefit disproportionately from that allowance.
Third, we need a more neutral corporate tax system. We propose reducing the general corporate income tax rate to 10% while eliminating most special preferences and carve-outs. Another option would be to tax profits only when they are distributed, not when they are reinvested in the business. There are two options there.
Fourth, we would need to raise less economically harmful taxes to cover the revenue shortfall. We would raise the GST or introduce a new payroll contribution, with an exemption at the lower-income level.
Our goal is straightforward: It is to encourage growth in the Canadian economy. Our estimates suggest that our reform would raise Canada's GDP by roughly 2.5%, which would support wage growth and higher government revenues in the long term. Our estimates suggest that the reform would be distributionally neutral at the household level and would not increase inequality. That was an important result for us.
In short, if Canada wants stronger growth and higher living standards, small tax tweaks will not be enough. What we need is a real tax reset.
Thank you. I would be happy to take questions.