AND THE QUEST FOR TAX REFORM
Jean Soucy, Economics Division
Marion G. Wrobel, Senior Analyst
Revised 27 March 2000
Changing Trends in Revenues by Source
Federal Policy and Revenue Sources
The Carter Commission
Tax Reform 1970s Style
Tax Reform 1980s Style
Other Taxation Issues
Administration and Compliance Costs
The Case of the Corporate Income Tax
Sales Tax Harmonisation
Federal Budgets and the December 1992 Economic Statement
The 1993 Federal Budget
The 1994 Federal Budget
The 1995 Federal Budget
The 1996 Federal Budget
The 1997 Federal Budget
The Debate about EI Premiums
The 1998 Federal Budget
The 1999 Federal Budget
The 2000 Federal Budget
AND THE QUEST FOR TAX REFORM*
In 1970, federal revenues
amounted to just over $15,000 million, which represented less than 17.2%
of Gross Domestic Product (GDP). Today the dollar amount of federal
revenues is much higher, about $162,000 million; however, as a percentage
of GDP, these revenues are approximately 16.9% in 2000-2001. Yet in
nearly three decades much has happened to the amount of revenue that the
federal government collects, the way in which it is collected and our
understanding of the economic consequences.
This review examines the
trends in federal revenues since the Carter Commission Report of 1967.
It discusses the quest for higher revenues in the early 1970s and the
reform measures of that decade which later substantially reduced government
revenues, and goes on to the Conservative governments deficit reduction
measures, which increased the level of taxes, and efforts at tax reform.
The role that revenue growth played in eliminating the federal deficit
is also considered. This review also considers several analytical issues
related to taxation.
Changing Trends in Revenues by Source
Figure 1 portrays the pattern
of federal revenues, expressed as a percentage of GDP, since fiscal year
1970-71. It is based upon the Public Accounts presentation of federal
government transactions and data presented in the 2000 budget.
The largest source of federal
revenues is the personal income tax (PIT). In fiscal year 1992, it exceeded
9% of GDP. It is now steady at about 7.5%. At one point in 1979,
personal income taxes accounted for only 6% of GDP. Indeed, one can argue
that the latter half of the 1970s was a period of personal income tax
reform which was eroded through the 1980s. Stage I reform of the Progressive
Conservative government, on the other hand, had only a slight and shortlived
impact on the increasing use of personal income taxes as a source of federal
revenues. At almost 50% of federal revenues, the personal income tax is
more important as a source of federal revenue today than it has been in
the last two decades. Figure 1 understates the importance of PIT revenues
by close to 10%. The Canada Child Tax Benefit, although essentially a
spending program, is delivered via the tax system and its cost is subtracted
from PIT revenues.
The second largest source
of federal revenues has traditionally been sales and excise taxes. These
taxes have varied enormously over time. In the early 1970s they amounted
to close to 5% of GDP and provided almost 30% of federal revenues. By
1983, they were providing about 17% of federal revenues and amounted to
4% of GDP. They increased in importance slightly through the 1980s, when
federal budgets made significant use of them as a source of revenue. The
introduction of the Goods and Services Tax (GST) was expected to maintain
this trend, although receipts in the early years were less than expected.
Since 1983, corporate income
taxes (CIT) have been fairly constant at about 2% of GDP and 12% of revenues.
Through the 1970s these taxes accounted for about 15% of federal revenues.
The recent recession, however, has had a very dramatic impact on corporate
income tax revenues. By 1994 such revenues had fallen to 1.3% of GDP,
accounting for only 8.1% of total revenues. The recovery of corporate
profits has led to increases in tax revenues to more normal levels.
Employment Insurance (EI,
previously UI) premiums increased substantially, and constituted the second
most important source of federal revenues in the early 1990s. In 1971,
these premiums were less than half as important as they were to become.
The CIT and the GST have overtaken EI premiums in importance. They
now account for more than 11.2% of revenues and stand at about 1.8% of
Federal Policy and Revenue Sources
The Carter Commission
Any analysis of Canadian
taxation cannot ignore the work of the Carter Commission (The Royal Commission
on Taxation), which issued its report in 1967. That report was guided
by several important and, at that time novel, precepts. These included
the belief that fairness required the use of a comprehensive income base,
including virtually all additions to wealth; that vertical equity (i.e.,
the notion that those with greater ability to pay should be subject to
higher taxes) is best achieved via a progressive income tax with a maximum
rate of 50%; that horizontal equity (i.e., the notion that those in similar
economic circumstances should pay the same amount of tax) should be an
important part of the tax system; and that taxes are paid by people, not
corporations. This last precept called for a full integration of the corporate
and personal income tax systems so as to avoid double taxation of corporate
Additionally, the Commission
favoured the use of the family, rather than the individual, as the taxpaying
unit, since the former measured economic well-being better than the latter.
In recognition that annual income is not a perfect interval for assessing
taxes, five-year averaging was recommended. The Commission also favoured
income taxes over other types of taxation, yet recognized that income
tax rates would have to be far too high if they were to meet the needs
of the government to raise revenue. This point is interesting, coming
as it did at a time when government spending and taxation were far lower
The Carter Commission was
not silent on the manufacturers sales tax; indeed it viewed that
tax as a problem area. The suggested alternative closely resembled the
options that the Progressive Conservative government considered for Stage
II of tax reform, i.e. some variant of a Value-Added Tax (VAT) or a national
sales tax. In fact, however, the Commission considered the most efficient
form of tax to be a retail sales tax, preferably to be administered by
It is clear that the federal
and provincial tax systems have generally gone against many of the Carter
Tax Reform 1970s Style
The Carter Commission report
met with only mixed success as a consequence of the vehement opposition
that some of its recommendations attracted. In the end, one-half of capital
gains were made subject to tax, rather than the full taxation that had
been recommended. There was also movement toward integrating the personal
and corporate income taxes, with the implementation of a dividend gross-up
and credit system. The top federal rate declined to 47%, implying an average
total top tax rate of about 60%, down from the previous high of 80%. A
new general tax-averaging provision was also introduced to offset some
of the higher taxes that variable income produces in a world of progressive
The major change to come
out of the 1970s was the indexation of the personal income tax system,
whereby the tax brackets and major exemptions were fully indexed to the
rate of inflation, albeit with a lag. Inflation, especially a high rate
of inflation, automatically increases the real income tax burden of taxpayers
by pushing them into higher tax brackets even though their real incomes
remain unchanged. The impact of this phenomenon, known as "bracket
creep," is most pronounced on lower income individuals, because it
is at these lower income levels that marginal taxes on income increase
A fully-indexed personal
income tax system would take in a constant proportion of GDP (as a proxy
for the personal income base) in the event of no real income growth per
capita. But personal income taxes as a percentage of GDP declined
substantially from 1975 to 1980. Other changes which accounted for this
decline in tax revenues included the $1,000 exemptions for investment
income and pension income, the introduction of the Registered Home Ownership
Savings Program (RHOSP) and the increase in the level of allowable contributions
to Registered Retirement Savings Plans (RRSPs). During this period, the
government also introduced and expanded the use of a tax reduction credit,
which had the effect of removing lower income taxfilers from tax liabilities.
Tax Reform 1980s Style
In June 1986, the Minister
of Finance, the Hon. Michael H. Wilson, released his White Paper on Tax
Reform. The reform process was to comprise two distinct stages: the first
to deal with income tax reform and the second to deal with sales tax reform.
Income tax reform on the
personal side did two things. It reduced the number of tax brackets from
ten to three, and it converted a number of exemptions and deductions into
non-refundable tax credits. It also lowered the top marginal tax bracket.
On the corporate side, tax reform lowered marginal tax rates in general
but it also removed a number of tax preferences so that the base was broadened;
in fact, the proportion of corporate income subject to tax increased from
72.4% on average to 84.1 %. This represents a 16% increase in the base.
This early stage of tax
reform was to shift emphasis away from the personal income tax towards
the corporate income tax and the sales tax. According to the White Paper
on Tax Reform, personal income tax revenues were to decline by $10,300
million over four years, 1988-89 to 1991-92 inclusive. Over the same period,
corporate income tax revenues were to increase by $3,845 million and sales
tax revenues were to increase by $4,785 million. The sales tax increases
were to be maintained once the Goods and Services Tax was implemented.
The introduction of the
Goods and Services Tax (GST) was initially seen as a move even further
away from the use of the PIT as a revenue tool. Stage I of reform established
three federal income tax rates: 17%, 26%, and 29%. As part of the Stage
II reforms, the middle rate was to have been reduced by one percentage
point, as suggested in the August 1989 technical paper on the GST and
by as much as three percentage points as hinted at earlier. This idea
was later abandoned. In the 2000 federal budget, the middle rate was
finally reduced by two percentage points, effective 1 July 2000.
This rate is to be further reduced to 23% over the next five years.
Starting in 1985, federal budgets had introduced and increased personal
income tax surtaxes independently of the tax reform process. These surtaxes
were to have been eliminated with Stage II reform, but their elimination
began only with the 1998 federal budget. Not until the 1999 federal
budget did we see the 3% surtax completely eliminated and the 5%
high income surtax is still in place, though it is to be eliminated over
five years. With the 2000 federal budget, the income threshold for the
5% surtax was increased from $65,000 to about $85,000.
The GST represents Stage
II of reform. The government originally envisaged a 9% tax rate, but subsequently
chose a 7% rate, in response to recommendations made by the House of Commons
Standing Committee on Finance. The Canadian variant is not nearly as complicated
as some European variants of the Value-Added Tax (VAT), but the federal
government did not choose to follow the simpler New Zealand route with
its broad base, limited exemptions and zero-rated products.
One tax change of the 1980s
which is not usually viewed as a reform, was the decision to limit indexation
of tax brackets and credits to the rate of inflation, less three percentage
points. This loss of full indexation, ostensibly a deficit reduction measure,
goes against the very grain of the developments of the 1970s by reintroducing
an element of non-neutrality into the workings of the personal income
Tax reform by the Progressive
Conservative government of Prime Minister Brian Mulroney cannot be viewed
independently of the desire to control and reduce the deficit, a problem
which plagued that government since it first came to power in 1984. The
abandonment of full indexation, the introduction of a variety of surtaxes
and the increased sales and excise tax rates are all examples of this
policy. Indeed, the GST was dubbed a new money machine by some commentators,
and was viewed by the government as a necessary tool for deficit reduction.
It proved to be neither.
The full indexation of
the tax system was restored in the 2000 federal budget, retroactive to
1 January of this year.
Other Taxation Issues
Everyone thinks the tax
system should be fair and equitable, yet the public has no generally accepted
and well articulated definition of fairness to draw upon. It is easy to
say that two individuals in similar economic circumstances should pay
the same tax; it is far harder to determine when economic circumstances
are the same if sources of income, age, family structure, etc. differ.
It is easy to say that rich individuals should pay more tax than poor
individuals; it is far harder to say how much more they should pay.
The concept of horizontal
equity requires that similarly situated individuals pay the same tax,
whereas the concept of vertical equity requires that the tax burden be
linked to ability to pay. The latter concept receives far more prominence
in policy debates than the former. Much of the tax incidence literature
(studies purporting to show how the burden of taxation is linked to income)
is concerned with vertical equity.
If we believe that a tax
system should be "fair," over what time period do we judge its
fairness? If we recognize that a day or a week or a month are inappropriate
time periods, do not the same problems plague the annual estimation of
tax equity? These questions are important because recent research indicates
that the lifetime incidence of taxes differs substantially from its annual
counterpart. Taxes viewed as regressive when considered on an annual basis
may be proportionate or even progressive when viewed over an individuals
The perception that there
is a need for a minimum tax takes on a different dimension if the yearly
test for equity is abandoned. Annual snapshots of the tax and income relationship
indicate that some taxpayers have been able to use tax preferences to
pay little or no tax in certain years, even though their apparent gross
incomes are relatively high. Yet on a lifetime basis it will usually be
apparent that such an advantage was temporary, with long-term taxes bearing
the appropriate relationship to income. On a lifetime basis, no need for
a minimum tax exists.
Revenue Canada has attempted
to analyze the extent to which rich Canadians can consistently avoid paying
tax; unfortunately the data are not current. Nevertheless they do demonstrate
the temporary nature of this phenomenon. For example, between 1977 and
1981 inclusively, there were 896 instances of individuals with more than
$200,000 of income (expressed in 1981 dollars) who paid no income tax.
However, 84% of all such taxpayers avoided tax for only one year out of
this five-year period; 12% avoided paying tax for two years, and no one
was able to avoid paying any income tax for all five years.
The more important reason
for abandoning annual accounting is the fact that lifetime calculations
might give a better indication of the desirability of certain types of
taxation. The relative income position of taxpayers changes over their
lifetime. They start their working lives with relatively low incomes,
little wealth and high rates of consumption. As they age, their incomes
increase and their savings patterns change, and in the process they accumulate
wealth. By the time they retire, their incomes are again relatively low
and consumption is high, but now the accumulated wealth can be drawn upon
for that purpose.
An annual snapshot of income
distribution picks up two types of individuals, those for whom annual
income is a good indicator of their lifetime income and those for whom
it is not. There are, of course, rich individuals who will always be relatively
rich and poor individuals who will always be relatively poor. But for
many, the annual snapshot reveals only the temporary position in which
individuals find themselves.
Lifetime tax incidence differs
from annual tax incidence because it is less affected by temporary income
fluctuations. The measure of fairness is whether those with low lifetime
incomes pay less tax than those with high lifetime incomes (vertical equity)
and whether individuals with the same lifetime income pay the same tax
A Canadian study of tax
incidence on a lifetime basis indicates several areas in which our views
of taxation need to be reconsidered. The apparent progressivity of taxes
can change dramatically. Taxes usually thought of as progressive, such
as the corporate and personal income taxes, continue to be progressive
on a lifetime basis, but to a lesser extent than an annual view would
suggest. Sales and excise taxes, which are normally viewed as highly regressive,
turn out to be only moderately so and might even be considered proportional.
This view of tax incidence
based on lifetime income might also be more reliable. Tax incidence studies
are notorious for the extent to which the results can vary dramatically
as the basic assumptions change. Using lifetime income makes the results
more robust in the sense that changing initial assumptions have less effect
on final results.
What is the effect on the
economy of $1 of additional tax revenue? The private sector obviously
has $1 less to spend and the public sector $1 more, and macroeconomic
discussions of tax policy rarely go beyond such simple arithmetic. Yet
we know that the effects on the economy are far more pervasive.
In general, one dollar of
tax revenue received costs the private sector more than one dollar because
of a misallocation of resources in the economy. This is the concept of
the welfare cost of taxation, whereby resource use is altered in such
a way as to reduce the well-being of individuals and families. The higher
the tax, the larger is this burden and it is conceivable that the welfare
cost of taxation could far outweigh the revenues government received from
a particular tax.
For example, the government
might view a fountain pen excise tax as a particularly desirable tax.
The chosen tax rate might be so high, however, that the sale of fountain
pens in Canada fell to zero. No revenue would be received, yet clearly
a welfare cost would be imposed. The price Canadians are willing to pay
for fountain pens would normally make it profitable for someone to supply
those pens. Consumers would see this as an efficient use of their income
and producers would see this as an efficient use of their resources, but
government intervention in the market via the excise tax might eliminate
this opportunity for mutual benefit.
There is much public debate
about who bears the burden of taxation, that is, the incidence of the
direct revenue cost. This issue is dealt with elsewhere in this paper.
There is very little debate, however, about these welfare costs of taxation
and it is not at all clear that the distribution of these costs would
be the same as the distribution of the direct costs. The fountain pen
example used above is clearly extreme, but it does indicate an important
aspect of taxation which incidence studies cannot tackle. Our conclusions
about the apparent fairness of certain taxes might be incorrect.
There exists a welfare cost
for all taxes because they all distort relative prices and consequently
affect economic behaviour. Given the current tax system, the marginal
welfare cost of additional taxes is very high; every time the government
tries to raise an additional dollar, about forty to fifty cents disappear
from the economy via a variety of disincentive effects. In high-tax jurisdictions
such as Sweden, the marginal welfare cost is estimated to be many times
the tax revenue collected.
After World War II, the
federal government imposed very high marginal tax rates on the wealthiest
of citizens, almost 100%. This has changed as the "disutility"
of such confiscatory rates has become apparent; they raise small amounts
of revenue yet have a high welfare cost.
Since the early 1970s, the
federal government has continued this tendency of decreasing its highest
marginal tax rate, from 46% in 1970 to 29% today. What high income earners
have gained from the federal government, however, they have lost, to some
extent, to provincial governments.
These marginal tax rates
exclude the variety of surtaxes that had been imposed by the federal government
and several provincial governments on taxes otherwise payable (not on
tax rates for the rich are often favoured because they suggest that the
tax system is progressive. But, as has been argued here, high tax rates
have a high associated welfare cost. The negative consequences of behaviour
induced by high taxes can outweigh the beneficial, distributional consequences
of a very progressive tax system.
Administration and Compliance Costs
Every time the government
imposes a $1 tax on the economy, the private sector incurs costs well
in excess of the amount of tax revenue transferred to the government.
The previous section on efficiency dealt with an intangible and difficult-to-measure
source of costs to the economy. This section deals with more obvious costs,
those imposed on governments who collect taxes and those imposed on taxpayers
who comply with these tax laws.
The costs of administering
federal tax laws comprise the cost of running the Department of National
Revenue, related costs incurred by the Offices of the Auditor General
and the Comptroller General and any costs incurred by other levels of
government who might collect federal taxes; for example, the government
of Quebec is now collecting the federal GST in that province.
Taxpayers also incur costs.
Employers must calculate and withhold the Personal Income Tax and a variety
of payroll taxes on behalf of their employees. Employers must also determine
the appropriate amount of tax payable on their own account. Financial
institutions must print and distribute to clients information slips on
their taxable income and tax preferences according to the Income Tax
Act. Finally, individual taxpayers must prepare PIT returns, or hire
someone to do this for them.
A study prepared for the
Canadian Tax Foundation concluded that the cost in 1986 of administering
and complying with the federal personal income tax, Canada/Quebec Pension
Plan payments and Unemployment Insurance premiums totalled $5,500 million.
Only 13% of this total was borne by the federal government, while 36%
was borne by individuals and 51% by employers.
Another study, conducted
in 1993 for the Department of Finance, examined 200 small businesses across
the country to determine the size of their GST compliance costs. The study
indicated that these costs are substantial. For firms with sales in excess
of $1 million annually, they average 2.65 cents for every $1 of GST remitted.
For firms with sales under $100,000 annually, the cost is 17 cents for
every dollar remitted. According to the authors, there was virtually no
representation by firms with sales under $50,000 per year, the firms that
would likely face exceptionally high costs.
The majority of participants
expressed a desire for harmonization of the federal and provincial sales.
Ironically, the strongest support came from businesses in Quebec, even
though that province has come closest to harmonizing its tax with the
The Case of the Corporate Income Tax
It is often claimed that
the corporate sector does not pay its "fair" share of taxes.
The effective rate varies substantially over time, peaking during a recession,
when profits plummet. This is not particularly desirable in a tax base;
the tax take is unpredictable and the effective tax rate is highest when
the taxpayer is least able to pay.
About 75% of changes in
the revenue share of the CIT can be accounted for by changes in the importance
of corporate profits. Part of this change is cyclical, while another part
is due to a longer term trend to reduced profits because of a greater
reliance by corporations upon debt financing.
But when the question of
corporate taxation arises, we often forget about the ultimate incidence
of the tax. This matter is well put in the following quotation:
Taxes are paid by people.
They are not paid by corporations, partnerships, gifts, bequests, estates,
trusts, sales, transfers, investments, savings, property, consumer expenditures,
or any of the long list of things we usually list as subjects of taxation.
Taxes imposed on these subjects are only a means of taxing people. (J.
Harvey Perry, A Fiscal History of Canada - The Postwar Years,
Canadian Tax Paper No. 85, Canadian Tax Foundation, Toronto, 1989, p. 286)
The matter of corporate
tax incidence is not completely settled. But in calling for greater or
lesser amounts of corporate taxation, policymakers must answer two questions:
1) whom do they wish to tax? and 2) where, in their opinion, does
the incidence of the CIT lie?
As noted above, the federal
government abandoned full indexation of the personal income tax system
as of 1985, before restoring it in 2000. Because inflation was generally
below 3% per year in the 1990s, however, the system could be thought of
as effectively de-indexed in those years.
This has had a very profound
effect on governments and families. By 1995, the federal balance was about
$6,400 million more than it would have been had full indexation been in
place over the past ten years. Taxes were $5,700 million higher, while
spending was $700 million lower. De-indexation also applies to provincial
taxes; as a result, the disposable income of Canadians in 1995 was $9,500
million lower than it would have been with full indexation.
The OECD has also commented
upon the negative effects of de-indexation. It estimates that the basic
federal tax rate increased by 13% between 1988 and 1998, from 10.8% to
12.2%. The effect of this increase was proportionately greater for lower-
and middle-income taxpayers. It trebled the average tax rate of those
with incomes below $10,000. The average tax rate went up by one-third
for those with incomes between $10,000 and $25,000, while it increased
by only 2% for those with incomes in excess of $150,000.
Furthermore, the OECD has
concluded that, over ten years, partial indexation pushed 1.4 million
low-income individuals on to the tax rolls. An even larger number, 1.9 million
individuals, were pushed from the lowest to the middle tax bracket, while
600,000 were pushed from the middle bracket to the top bracket.
This lack of full indexation
has contributed to the fact that Canada relies more on personal income
tax than do other G-7 nations. It has also hurt Canadas competitive
position with respect to the United States, a position that has worsened
over the past two decades. Moreover, while the tax burden is well known
to be greater for Canadians than Americans at upper income levels, this
is also the case for those with more modest incomes. The marginal tax
rate of Canadians earning the average production wage is 50% higher than
it is for their American counterparts.
Sales Tax Harmonisation
In its 1998 Economics
Surveys, the OECD suggests that improvements should be made to the sales
tax. There are only four provinces Nova Scotia, New Brunswick,
Newfoundland and Quebec where sales taxes have been harmonised.
Elsewhere, distortions to business inputs and traded products exist as
a result of non-harmonisation; however, provincial governments are apparently
unwilling to intervene to change this situation. This is unfortunate,
considering that sales tax harmonisation could improve Canadian competitiveness.
This same lack of co-operation between the federal and provincial levels
of government also hampers reform in other tax fields.
Federal Budgets and the December 1992 Economic Statement
The 1991 federal budget
proposed little in the way of new taxes, with the following two exceptions,
a significant hike in tobacco taxes, expected to raise almost $1,000 million
the following year, and a $2,000 million increase in UI premiums.
The recession was expected
to have little impact on federal revenues but a much greater impact on
federal expenditures. In 1991-92, total revenues were forecast to fall
by less than 1% on account of the recession. While corporate income tax
revenues were expected to be 20% below the previous years forecast,
increased personal income tax revenues were expected to offset most of
this decline. When policy initiatives on the revenue side are taken into
account, total revenues in 1991-92 were expected to be $2,500 million
higher than was originally forecast in the 1990 budget.
The picture painted in the
1991 budget was completely revised in the 1992 budget. The poor performance
of the economy was cited as the cause of a $5,700-million shortfall in
revenues for 1992, growing to a $7,500-million shortfall in 1993. The
largest absolute decrease is expected in the personal income tax, but
the largest proportional decline will be in the corporate income tax.
Even this bleak picture
proved to be excessively optimistic. For 1992-93, the Minister of Finance
saw revenues as $8,000 million below the estimates presented in the 1992
budget - more than $15,000 million below the figure originally cited in
the 1991 budget. In 1993-94, revenues were expected to be $10,000 million
less than the projections in the 1992
The economic statement proposed
no tax increases. Instead, it contained a variety of measures that would
cost the government about $1,000 million in reduced revenues over a three-year
period. Such measures included a one-year extension for the use of RRSPs
for first-time home buyers, a moratorium on UI premiums for new small
businesses and a cap on UI premiums for small business that increased
employment. Small business firms were also granted a 10% investment tax
The 1993 Federal Budget
The 1993 budget contained
no new taxes and no new tax increases. It did include several tax measures
which were expected to reduce federal revenues by $400 million over the
next five years. These included an elimination of the annual limit on
the use of the investment tax credit, new capital cost allowance rules
for patents, an extension of the Scientific Research and Experimental
Development Program to allow firms with taxable income in excess of $200,000
to earn refundable credits, and an amendment to regulations which would
allow corporations enhanced write-offs of rapidly depreciating equipment
such as computers.
But the real message of
that budget pertained to the continuing decline in federal revenues as
a consequence of the economys weak performance. Revenues in 1992-93
were estimated to be $1,200 million less than predicted in the December
1992 Economic Statement and, consequently, $9,200 million less than predicted
in the 1992 budget. Revenues for 1993-94 were also expected to fall short
of the prediction made in the December Economic Statement.
Figure 1 shows the impact
of the recession on corporate and personal income tax revenues. Corporate
taxes fell dramatically through the recession and will recover only slowly
through the rest of the decade. The same is true of personal income taxes,
although the decline has been more moderate. Part of this decline is,
however, illusory as the Child Tax Credit is treated as a tax expenditure
assessed against the personal income tax even though it largely replaced
the Family Allowance, which was treated as a program expenditure and accounted
for over $2,000 million in spending.
The other significant trend
in Figure 1 shows that UI premiums have overtaken the corporate income
tax as a source of revenue. In 1993, UI premiums at about 2.5% of GDP
were almost five times as high as they were in the first half of the 1970s.
The 1994 Federal Budget
The striking element in
this budget was the recognition that federal revenues had been declining
significantly over the past few years. In 1991-92, federal revenues equalled
18.1% of GDP. In 1993-94, they were equal to only 16.1% of GDP, a very
significant drop. With the exception of the reduction in the surtax announced
in the 1992 budget, there were no significant tax policy changes to account
for this drop.
One recent policy change
affecting revenues was the amalgamation of the family allowance, refundable
child tax credit and non-refundable dependent credit into a new child
tax benefit. This reform changed some program spending into tax expenditure
and hence resulted in a trend to lowered revenue. The reformed system
cost the federal government more than was originally anticipated. At the
time the system was proposed, costs were estimated at $4,900 million per
year, up from the $4,500 million of the old system. The child tax benefit
was, however, expected to cost $5,500 million in 1993-94, an amount to
decline only slightly over the next two years. Since the programs
benefits are determined by family income, the overall cost is sensitive
to the state of the economy; thus, part of this increase could be attributed
to the recession and slow recovery. The transition costs were also high,
however. Because of the timing of benefit payments under the various child-related
programs, the two systems overlapped in calendar year 1993. This overlap
reduced revenues by $2,500 million over two fiscal years.
Other one-time and extraordinary
events conspired to reduce revenues in 1993-94. Nevertheless, the relationship
between the status quo level of revenues and GDP weakened substantially
in that year. The budget pointed to specific economic circumstances that
contributed to this decline, such as slow growth in personal incomes coupled
with a relatively high indexation factor for the PIT. It was predicted
that this relationship would strengthen to its pre-recessionary levels
only after a couple of years.
The 1995 Federal Budget
In 1993, federal revenues
were $121,452 million, only 7% higher than in 1990. While personal income
tax receipts over that three-year period were up by 12%, to $58,300 million,
corporate income taxes were down by 36% and total sales and excise tax
revenues were down by almost 7%. The only other area of strong revenue
growth, which in this case indicated poor economic performance, was that
of premium revenues from unemployment insurance, which grew by 63%.
In 1994, revenues dropped
precipitously to $116,000 million on account of the state of the economy,
some one-time events and, most importantly, the introduction of the child
tax benefit, which had the effect of converting some spending programs
into tax expenditures and thus lowering revenues. The transitional costs
associated with the move to the child tax benefit were also high. By 1995,
revenues had increased to $125,000 million and were expected to remain
in the range of 16.7% to 16.9% of GDP over the following two years. Over
this period, unemployment insurance became the second largest revenue
source for the federal government, accounting for 15% of all revenues.
With continuing improvement in the economy, however, GST revenues were
expected to overtake UI premiums within two or three years. The personal
income tax continued to grow in dominance, although part of this trend
was masked by federal program and accounting changes.
The 1995 budget introduced
little in the way of new tax measures. Excise taxes on gasoline and tobacco
were increased, to raise $500 million and $65 million respectively each
year. The large corporations tax and the corporate surtax were both increased
quite substantially, and a special, temporary capital tax was imposed
on large deposit-taking institutions. The financial institutions tax was
expected to raise $100 million over two years and the first two taxes
were expected to produce over $250 million in revenues each year.
At the personal level, the
measures were described as tightening up the system and making it fairer.
RRSP contributions were restricted slightly. The deferral of tax on business
income was also restricted, to generate $300 million in annual revenues
by 1998 while the tax treatment of family trusts was tightened up somewhat.
All these revenue measures were expected to raise over $3,600 million
over the following three years.
In addition, the government
altered the timing of UI premium income so that premiums would not fall
as fast as they would otherwise have done. It is the intention of the
government to let the UI account amass a cumulative surplus of $5,000
million by the end of calendar year 1996, prior to letting premiums fall
in line with expected UI benefits.
The 1996 Federal Budget
The 1996 federal budget
contained no new taxes and no increases in tax rates. There was both good
and bad news in this. For those who were seeking the end of the GST, the
budget had nothing concrete to offer in terms of a new and, better tax.
All it offered was the promise that negotiations were continuing with
the provinces to seek a reform and harmonization of the GST with provincial
sales taxes. Tax rates were not increased but changes to tax rules were
introduced which would affect the tax liability of individuals and corporations.
On the personal side, the
changes could be categorized into three themes: retirement, education,
and social development. The federal government tightened up rules governing
Registered Retirement Savings Plans, by denying the deductibility of fees,
by controlling the limits on tax-assisted savings, and by reducing the
age limit for maturing plans. The budget also reduced the amount of tax
assistance for investments in labour-sponsored venture capital corporations,
by lowering the tax credit as well as the contribution limit. Because
of the generous tax credits available to these investments, as well as
their eligibility for RRSPs, they had become extremely popular and were
representing a large drain on government revenues. The government also
allowed an unlimited carry-forward of unused RRSP room.
In recognition of higher
tuition costs in the future; the government provided more generous tax
treatment of tuition and education costs; the credits were increased,
as was the amount that could be transferred. Registered education savings
plan limits were raised and the child care expense deduction altered to
make it more beneficial to students with children.
On the social side, the
tax system became more favourable to charitable donations, as recommended
by the Finance Committee. Tax support for home care was raised and the
Working Income Supplement doubled in two stages to $1,000. This last measure
was by far the most costly of the tax changes. Arguably the most controversial
measure was the change in the tax treatment of child support. Under new
rules, the custodial parent would not pay tax on support payments received
and the non-custodial parent would lose the deduction on payments made.
The new rules applied to court orders or support agreements made as of
1 May 1997, or where existing agreements were changed on or after
These personal tax measures
would have little net effect on revenues. One reason was that the government
felt it could obtain increasing revenues from the underground economy
(as much as $100 million in 1989-99).
The government also introduced
corporate tax measures, the most notable of which was the extension of
the temporary tax on large deposit-taking institutions (the banks).
Some very significant revenue
items were not in the budget. As mentioned above, GST reform/elimination
was not achieved. In addition, the budget made no statement on a substantial
reduction of employment insurance premiums. Indeed, the statistical information
in the budget suggested that such a reduction would not take place during
the planning horizon for this budget.
In addition, the government
altered the timing of employment insurance premium payments to make it
consistent with the practice for CPP premium payments. Previously, weekly
premiums were based on the lesser of maximum insurable earnings or actual
earnings. As of January 1997, weekly premiums were based upon actual weekly
earnings; once the maximum annual premiums were reached, further premium
payments ceased. Those who earned maximum insurable earnings or less continued
to pay premiums over a 52-week period. Those who earned more paid their
premiums over a shorter period of time. Someone earning $80,000 per year
paid all of his or her premiums in the first half of the year and nothing
in the latter half.
This administrative change
had no effect on total premium liabilities of employees and employers.
But the timing change did affect the reported government deficit. By advancing
premium payments, starting in 1997, the deficit for 1996-97 could be $1,500
million to $1,800 million less than stated in the budget. The impact
on future fiscal years would be neutral. Nevertheless, this one-time administrative
change could also reduce future debt servicing costs by about $100 million
Nor did the budget take
into account proceeds from the sale of assets in 1996-97, in particular
the sale of grain hopper cars and the air navigation system. The budgetary
impact of these sales depended upon the amount received as well as the
accounting treatment of the assets. Newspaper accounts suggested that
the gains from sale could be $1,500 million.
The 1997 Federal Budget
This budget offered little
in the way of tax measures. The temporary tax on large banks was extended
for another year and tobacco taxes were increased somewhat, as announced
prior to the budget. Selective tax measures were expected to cost the
government about $1,000 million per year by 1999-00. These measures included
more favourable tax treatment of education expenses and savings for education.
Tax support for Canadians with disabilities was enhanced and the tax treatment
of charitable donations was made more generous by increasing the limit
for allowable donations and reducing the capital gains tax inclusion rate
for certain gifts of appreciated capital property.
The most expensive measure,
however, was the enhancement to the Working Income Supplement of the Child
Tax Benefit. This was expected to cost the government $600 million
per year by 1999-00. The budget altered the WIS by making it conditional
upon the number of children in a family -- previously the benefit had
not taken the number of children into account. This change was somewhat
controversial because some one-child families received less under the
revised system than they would have received under the previously promised
enhancement to the old system.
The new WIS was complicated
because it aimed to limit benefit increases to families with family net
income of $25,921 or less. It was seen, however, as only a temporary measure
to last until July 1998, when a new National Child Benefit System was
expected to be established in co-operation with the provinces.
This budget went to a great
deal of effort to rationalize the then existing system of taxes at the
federal level. Annex 5 of the budget contained about 25 pages of material
explaining and justifying the distribution of the tax burden and the features
of the tax system. The Ministers budget speech spent two pages explaining
why broad tax cuts were not being offered at this time but suggesting
that the government would reduce personal income taxes when it had more
fiscal room to manoeuvre.
Annex 5 addressed a variety
of concerns that Canadians had expressed about the tax system. It talked
about the relative burden faced by corporations and indicated that, contrary
to popular belief, the effective tax rate on corporations had not declined
appreciably in the last three decades; rather, a greater reliance on corporate
capital taxes had had the effect of establishing a minimum tax on corporations
that had stabilized the effective rate.
The personal income tax
was shown to be progressive, especially if the Child Tax Benefit and the
GST credits benefiting primarily low income families were taken into account;
as family income increased, so did the absolute and relative burden of
the income tax. Also in this vein, the budget defended the absence of
a wealth tax; taxes on investment income were said already to be high
and since such a tax would be primarily aimed at the rich, the government
felt it was felt it was better to use other measures to ensure that the
tax system was fair. Cases where high income individuals paid no tax were
explained as exceptional and temporary occurrences that did not change
the basic characteristics of the PITs incidence.
The most interesting aspect
of the Annex was its discussion of payroll taxes. The federal government
had been under intense and persistent criticism for its apparent change
in policy with respect to EI premiums. It had originally planned to allow
the cumulative EI Account surplus to reach about $6,000 million so as
to provide a buffer for any upcoming recession. It now appeared that the
surplus would reach about $12,000 million by the end of 1997-98; however,
neither the new budget nor previous budgets gave any indication that significant
premium cuts were in the offing. Thus the surplus was expected to continue
to grow by close to $5,000 million per year. (Every $0.10 cut in premiums
costs the federal government $700 million in lost revenues.)
Annex 5 showed clearly that
Canadas use of payroll taxes paled in comparison to that of many
other countries -- it was even less than that of the United States. The
annex also argued that the job-killing aspect of payroll taxes resulted
not from their level but from the tendency to increase rates during a
recession, something that would no longer be expected to happen with Canadian
EI premiums because of the accumulated surplus. The federal government
seemed to be hinting broadly that future EI premiums could constitute
just another form of tax, contributing to overall revenues rather than
just funding EI-related programs. An efficient and flexible tax system,
according to these documents, was one that relied upon a variety of sources
to collect revenues.
The Debate about EI Premiums
The governments use
of EI premiums in combating the deficit came under increasing attack,
as these payroll taxes were frequently viewed as "job killers."
It was expected that the EI account might achieve a cumulative surplus
of $20,000 million by the end of 1998, unless premiums were reduced. The
governments chief actuary counselled that a cumulative surplus in
the range of $12,000 million to $15,000 million would protect against
the necessity of raising premiums during a future recession, thus undermining
a major rationale for keeping premiums high. The actuarys report
further stated that premiums could be reduced to $2 from the current $2.90
(costing about $6,500 million) and still guarantee against future increases
during a recession. Thus it seemed the government would soon be faced
with the prospect of making EI premiums a tax like any other, or significantly
lowering their rate to make premiums consistent with annual costs.
The government maintained
its position that any major tax reduction would not come until the budget
was balanced. EI premiums had been reduced slightly in the past and a
further reduction of at least 10 cents was slated for 1998, though this
was far less than critics were demanding. In the 1998 budget, the federal
government succeeded in eliminating its deficit. Surpluses have been used
to pay down the debt, to eliminate the surtax and to increase specific
program spending. Together, the 1998 and 1999 budgets will give workers
a $1,100 million cut in EI premiums. These reductions mean that, after
reaching a peak of $3.07 per $100 in 1993, EI premiums were reduced to
$2.40, effective 1 January 2000.
The 1998 Federal Budget
Revenues for 1997-98 were
nearly 9% higher than in the previous year with economic growth unexpectedly
high at the beginning of the year. Moreover, the unemployment rate saw
one of its lowest levels in eight years and consumption spending increased,
explaining the high growth in revenues.
Though this budget offered
more in the way of tax relief than the budget of 1997, the extent of relief
was still very limited. The temporary tax on large banks was again extended
and tobacco taxes were increased somewhat, as had been announced prior
to the budget. General tax relief measures were expected to cost the government
a cumulative total of $12,815 million to the year 2001-2002.
The maximum child expense
deduction was increased to $7,000 for children under the age of seven
and $4,000 for older children. Most of the targeted measures were for
post-secondary students or graduates, and their families. There was tax
relief for interest on student loans, tax-free RRSP withdrawals for lifelong
learning, and tax relief for part-time students. Measures were also introduced
to assist caregivers, people with disabilities, and volunteers. This budget
permitted the unincorporated self-employed to deduct the cost of supplemental
health and dental insurance premiums from their income, thereby putting
them on a par with incorporated self-employed individuals.
The promised increase in
Child Tax Benefits was introduced, accounting for 15% of all tax relief.
But is this really tax relief? The CTB could rather be viewed as program
spending delivered, merely as a matter of administrative convenience,
via the tax system; it could just as easily be delivered in the form of
monthly benefits from Health and Welfare Canada. The fact that it is subject
to an income test makes it no more of a tax measure than the Guaranteed
Income Supplement. In fact the previous government had considered the
benefit in just this way; by reducing the program spending limits under
the Spending Control Act to offset the effects of converting the
Family Allowance (a spending program) into the Child Tax Benefit, it was
recognizing that the CTB constituted a form of disguised spending.
Although the CTB
is provided for in the Income Tax Act, the benefits are in no way
linked to taxes otherwise payable; it is a refundable tax credit, with
much of the benefit going to those who pay no income tax. Does the concept
of tax relief have any meaning, if it can be targeted to those who pay
The 1998 budget also appeared
to be inconsistent in its treatment of the CTB. If the proposed increase
in benefits is considered to be tax relief, then logic dictates that the
existing benefits also be viewed in that way. It is claimed that a budget
measure that increases by $500 the amount that can be earned free of income
tax would remove 400,000 Canadians from the tax rolls and reduce the tax
payable by another 4.6 million Canadians. These low-income individuals
said to be removed from the tax rolls, however, were typically net beneficiaries
of the tax/transfer system; if we think it as one "tax" system,
they were already off the tax rolls.
The two measures that provided
general tax relief in this budget were the supplement allowing low-income
Canadians to earn an additional $500 before paying tax and the provision
that reduced or eliminated the 3% surtax for the majority of taxpayers.
The impact of the two measures
can be thought of as follows: 1) no change to the basic structure of the
personal income tax or its surtaxes; 2) a lump sum gift of $85 to anyone
earning $6,956, reduced by 0.68 cents per dollar of income above that
level; and 3) a lump sum gift of up to $250 for a taxpayer with $8,333
in basic federal tax, with this gift reduced by 6 cents for every dollar
of tax above this amount.
According to this view,
taxpayers could be said to be better off, in the sense that they paid
less tax overall; yet, at the same time, they were facing a higher tax
rate on any additions to their income. This is an example of how marginal
tax rates can be increased by using a complex mechanism to reduce average
tax burdens. The strategy is reminiscent of the features of the proposed
Seniors Benefit (now withdrawn) under which seniors with low and middle
incomes would have been as well off as before, or even better off, but
would have faced substantially higher marginal tax rates, with serious
adverse effects on their incentives to save for retirement.
In the federal governments
quest to keep general tax relief away from higher income taxpayers, the
1998 budget introduced further complexity into an already complex income
tax system and created further disincentives to work and save.
The 1999 Federal Budget
In view of the previous
years good news about elimination of the deficit, taxpayers this
year were anticipating some tax relief. Obviously, the federal government
saw things differently, even though the 1999 budget was balanced. Warning
that Canada should continue to be careful, since the world economic turmoil
was not over, Finance Minister Paul Martin did not announce the tax reduction
for which Canadians were waiting, though he introduced some new tax measures.
In July 1999, the 3% surtax that had been put in place to finance the
deficit was eliminated for everyone, for a total tax reduction of $7.7 billion
over the next three years. EI premiums, a payroll tax, also decreased
to $2.55 $0.52 less than when premiums peaked in 1993.
The federal government proposed
spending considerable amounts on healthcare, some $11.5 billion over the
next five years. From this total, $8 billion was to go to the Canadian
Health and Social Transfer (CHST) and $3.5 billion was to serve as an
immediate one-time supplement to CHST. As noted by the Finance Department,
the value of CHST tax transfers was expected to reach a new high by 2001-2002,
passing their level prior to the imposition of restraints in the mid-90s.
Total program spending was to account for 12.6% of GDP this year.
Even with this new spending,
the federal government said that the downward trend with respect to the
deficit and the debt would be maintained, the budget should be balanced,
and a surplus could perhaps be expected. According to these expectations,
the debt/GDP ratio should decrease from 65.3% in 1998-1999 to 62% in 2000-2001.
This situation was in marked contrast to that of 1995, when the debt/GDP
ratio was 71.2%.
The 2000 Federal Budget
The budgetary process started
on a promising note with the presentation in November of the 1999 Economic
and Fiscal Update. The Minister of Finance announced budgetary surpluses
that would increase over a five-year horizon under the current tax structure.
Taxpayers benefited from
significant tax relief in the 2000 budget, which introduced the most important
structural changes in tax policy since the tax reform of 1987. The Minister
took this opportunity to present a five-year tax plan dealing mainly with
personal income tax, worth about $58 billion over the next five years.
The most significant measure
was the restoration of full indexation to tax brackets and basic exemptions,
effective retroactively to 1 January 2000. This measure was also
extended to the Child Tax Benefit and GST Credit.
The middle tax rate was
lowered to 24% from 26%, effective 1 July 2000. Also effective at
that date, the income threshold for the 5% surtax will be raised to about
$85,000. The 5% surtax itself will be not entirely eliminated before 2004.
Additional budgetary measures
included an increase in the foreign content allowed in registered retirement
savings plans (RRSPs) and registered pension plans (RPPs) to 25% for 2000
and 30% for 2001.
Even though priority was
given to personal income tax, business tax changes were also included
in the budget. For the next five years, the general corporate tax rate
will be lowered from 28% to 21%, starting with a one-point reduction to
27% effective 1 January 2001.
Another major initiative
is the reduction in the percentage of capital gains subject to tax, from
75% to 66%, effective for capital dispositions realized after 27 February
To lighten the effect of
taxation, gains on certain employee stock options in public company shares
will be taxed when the shares are sold (instead of when the option is
As a result of the measures
effective in 2000, tax revenues were projected to experience slower growth,
with budgetary revenues falling to 16.2% of GDP.
The public debt-to-GDP ratio
is expected to fall to 50% by 2004, a goal that can be achieved if the
present good economic conditions continue.
in the funding of government spending typically involves the examination
and passage of legislation arising from government budgets, which are
usually presented once a year. The tax reform legislation that Parliament
proposed in the latter part of the 1980s did not arise from budgets.
- The Royal Commission on Taxation was established under the Chairmanship
of Mr. Kenneth Carter.
1967 - The Carter Commission submitted its report. It proposed a dramatic
restructuring of the Income Tax Act to broaden the base, lower
maximum rates and integrate personal and corporate income taxes.
1969 - The federal government tabled a White Paper on Tax Reform in response
to the Carter Commission.
1973 - The Minister of Finance introduced a permanent system of indexation
for income tax brackets and exemptions.
1974 - The Minister of Finance introduced the Registered Home Ownership
Savings Plan (RHOSP), provisions to shelter pension income and dividend
income from tax, and increased the personal income tax reduction.
1978 - The government announced the introduction of a refundable Child
Tax Credit to be delivered to families eligible to receive the family
allowance. The CTC essentially delivers a targeted form of family allowance.
It is not considered to be an expenditure in the usual sense of the word;
rather it is a tax expenditure.
1979 - The Conservative governments aborted budget introduced two
notable tax-related measures: an increased tax on gasoline (18 cents per
gallon) and a measure of mortgage interest and property tax relief for
federal income taxpayers. Neither measure passed into law. That budget
also contained, for the first time, an analysis of federal tax expenditures.
1981 - The Minister of Finance attempted to eliminate a number of tax
shelters but had to retreat in the face of much opposition.
1982 - In line with the governments attempts to control inflation,
indexation of the tax system was limited to 6% for 1982 and 5% for 1983.
1982 - The Minister of Finance was presented with a proposal to shift
the manufacturers sales tax to the wholesale level.
1983 - The flow through research and development tax credit was introduced;
this would prove to cost the government far more in lost revenue than
originally anticipated. Deductions for RHOSP contributions were made significantly
more generous for purchasers of homes or appliances and furnishings in
1983. The deduction for child care expenses was also increased.
1985 - Partial indexation of the tax system was introduced.
1986 - The federal government tabled its White Paper on Tax Reform.
- Stage I of tax reform was implemented. The proportion of capital gains
subject to tax was increased from one-half to three-quarters, starting
1989 - The government introduced its Technical Paper on the Goods and
1989 - The government introduced Bill C-62, which would implement the
1990 - Bill C-62 passed third reading in the House of Commons and was
subsequently sent to the Senate where it was referred to the Standing
Committee on Banking, Trade and Commerce for study.
1990 - The Standing Senate Committee on Banking, Trade and Commerce tabled
its Report on Bill C-62 with a recommendation that the Senate reject the
1990 - The Senate passed Bill C-28, which provided for a special tax on
OAS and family allowance benefits received by higher income Canadians.
This bill also introduced a tax which had the effect of imposing a minimum
tax on large corporations.
1990 - The Senate passed Bill C-62 without amendment. It received Royal
Assent within one week.
January 1991 - The GST came into effect as planned. The Quebec retail
sales tax on goods was harmonized with the GST, although the Quebec government
offered a tax rebate on the purchase of books.
The federal budget contained little in the way of tax initiatives. Taxes
on tobacco products were increased substantially and UI premiums for employees
were raised to $2.80 per $100 of insurable earnings. The employers
share was increased to $3.92 per $100 of insurable earnings.
1992 - The Minister of Finance tabled an economic and fiscal statement
in the House of Commons which admitted to a net debt increase over two
years of $17,000 million over projections in the 1992 budget.
1997 - The GST and provincial sales taxes were harmonized into a 15% HST
in Newfoundland, Nova Scotia and New Brunswick.
2000 - Broad tax relief was initiated in Budget 2000, over a five-year
period. Full indexation of tax rates and credits was restored.
J.R. et al. "The Effects of Tax Reform and Post-Reform Changes
in the Federal Personal Income Tax, 1972-75." Canadian Tax Journal,
Vol. XXVI, No. 1, January-February 1978, p. 1-30.
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Tax Paper No. 76. Canadian Tax Foundation, Toronto, 1984.
W. Neil. Ed. The Quest For Tax Reform - The Royal Commission on Taxation
Twenty Years Later. Carswell, Toronto, 1988.
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J., F. St. Hilaire, and J. Whalley. "Some Calculations of Lifetime
Tax Incidence." American Economic Review, Vol. 74, No. 4,
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John F. "The New Zealand Goods and Services (Value-Added) Tax - A
Model for Other Countries." Canadian Tax Journal, Vol. 36,
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A. M. Tax Reform in Canada: The Process and Impact. The Institute
for Research on Public Policy, Halifax, Nova Scotia, 1989.
OECD Economic Surveys - Canada, 1997. Paris. 1997.
J. Harvey. Taxation in Canada. Fourth edition. Canadian Tax Paper
No. 74. Canadian Tax Foundation, Toronto, 1984.
J. Harvey. A Fiscal History of Canada - The Postwar Years. Canadian
Tax Paper No. 85. Canadian Tax Foundation, Toronto, 1989.
Finn. "How Do I Tax Thee? Choices Made on Federal Income Taxes."
C.D. Howe Institute, 25 February 1998.
D.D., and C. Smith. "Fiscal Policy in Canada: 1963-1984. "In
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Toronto, 1986, p. 1-42.
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F. The Administrative and Compliance Costs of the Personal Income Tax
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Canadian Tax Foundation, Toronto, 1989.
The original version of this Current Issue Review was published in May
1990; the paper has been regularly updated since that time.