Commentary

Highlights of interprovincial tax comparisons: Bilan de la fiscalité au Québec 2021 Edition

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The first part of this 2021 edition of the Bilan de la fiscalité au Québec presents the tax announcements made by the Québec and federal governments, and by those of the other provinces, since the previous edition of the report. The next two sections compare Québec against the other Canadian provinces in terms of taxation. The fourth section presents an overview of tax expenditures in Québec and evidences the choices made regarding the different sources of tax revenues. Then, two sections examine taxation from different angles, namely, households (net tax burden) and individuals (profile of Québec taxpayers). Finally, the last section looks at various indicators of income inequality and how governments reduce inequality through taxation. Read this articleHighlights of interprovincial tax comparisons: Bilan de la fiscalité au Québec 2021 Edition→

It’s time to increase taxes on capital gains

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To address wealth inequality, and to improve functioning of our tax system, tax rates on capital gains income should be increased. The current tax preference for capital gains costs upwards of $15 billion annually. To equalize the tax treatment of gains and other income, the inclusion rate for capital gains on shares of small businesses should rise to 90% from the current 50%, and the inclusion rate for gains on shares of large corporations should rise to 70%. This would constitute a simpler, more efficient way of taxing high-wealth individuals compared to other recent proposals for a novel tax on wealth, and would likely raise more revenue as well. Read this articleIt’s time to increase taxes on capital gains→

Large Corporate Groups that Received CEWS Payments

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We identified over 4000 recipients of the Canada Emergency Wage Subsidy that are part of large corporate groups with at least $600 million in assets. This list includes 190 companies owned by Canadian billionaires, including the Thomson, Irving, Rogers, and Péladeau families, and 1829 companies in foreign-controlled multinational enterprises. These and other examples in our data suggest that CEWS funds may not be well targeted. Read this articleLarge Corporate Groups that Received CEWS Payments→

The Taxation of Capital Income in Canada Part III: Bringing it all Together

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This is the final commentary in a three-part series examining possible reforms to Canada’s approach to taxing capital income. In this third commentary, I bring the material from the first two commentaries together and describe a tax reform package applied to the two sides of the capital market that would make Canada’s income tax system more attractive when viewed through the lens of the equity-efficiency trade-off. Key to the analysis is the decoupling of the supply and demand sides of the market in a small open economy like Canada. Read this articleThe Taxation of Capital Income in Canada Part III: Bringing it all Together→

Fiscal Risks and Government Debt in Canada: The Implications of Interest Rate and Growth Rate Volatility

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This commentary examines recent differences in growth rates and interest rates at the federal and provincial levels in order to estimate the future paths of public-sector debts. The results provide a novel perspective on a recurring theme in Canada’s debt sustainability debates—namely, that Ottawa is in a better position than most provinces to stabilize the debt-to-GDP ratio. Read this articleFiscal Risks and Government Debt in Canada: The Implications of Interest Rate and Growth Rate Volatility→

Overcompensation of Income Losses: A Major Flaw in Canada’s Pandemic Response

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The federal government has overcompensated Canadians for their lockdown-related income losses. The amount of money involved is substantial. Although overcompensation does not seem to have been a policy objective at the outset, it has been embraced. This expensive flaw in Canada’s response to the COVID-19 pandemic compromises fairness and limits options for using fiscal policy to strengthen the recovery. Read this articleOvercompensation of Income Losses: A Major Flaw in Canada’s Pandemic Response→

News about CEWS

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Federal emergency wage subsidies are poorly targeted, resulting in a fiscal cost of about $14,500 for each person-month of employment saved through the program, or $188,000 per job year. Reductions in subsidy rates which began in September had only small impacts on employment, while reducing the fiscal cost of the program substantially. More recently, the government has backed away from those reforms, freezing subsidy rates and extending the program in 2021. The decision to back away from the September reforms was a mistake and a gradual phaseout of subsidies should start again now. Read this articleNews about CEWS→

Canada Should Repeal the Small Business Deduction

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Canadian government support for small and medium-sized businesses includes tax preferences, one of which is the small business deduction. This article argues that there is little evidence supporting the efficacy of the small business deduction, that equivalent benefits are generally not available in other countries, and that the small business rate should therefore be repealed. As a result of the repeal, we could reduce the general corporate tax rate and eliminate some of the distortions and complexities in our dividend gross-up and credit rules. Read this articleCanada Should Repeal the Small Business Deduction→

Tax, Spend, Repeat: 55 Years of Public Finance Data for Canada

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Today, Finances of the Nation releases an updated and expanded version of its Government Revenue, Expenditure, Assets and Liabilities (REAL) data. Covering 55 fiscal years from 1965/66 to 2019/20, the REAL data give a detailed picture of the finances of federal, provincial, and territorial governments in Canada. Read this articleTax, Spend, Repeat: 55 Years of Public Finance Data for Canada→

Fiscal Anchors for Canada’s Post-COVID Economy

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As the Trudeau government prepares its fall fiscal update after months of record spending to address the health and economic crisis of the COVID-19 pandemic, recent progress toward a vaccine should sufficiently mitigate uncertainty to enable a fiscal plan that shows Canadians how Ottawa will achieve its policy goals while maintaining fiscal discipline. Read this articleFiscal Anchors for Canada’s Post-COVID Economy→