Fair taxation and a liveable income

GPC 2015 platform background paper

The Green Party is deeply concerned about the widening income gap, and the steadily increasing numbers of people trapped in the low-wage economy – workers, especially our young, who are struggling to survive with part-time, non-standard precarious employment.  In the last year, part-time jobs accounted for 80% of net job creation. The bottom 40% of those employed has been losing ground since the early 1980s.  In the last 10 years, this bottom 40% has taken home on average about 12% of all income.  

Canada’s income tax system is riddled with exceptions, special case, and limited exemptions that are at best inconsistent and at worst profoundly unfair. Some wealthy individuals and many businesses get breaks they don’t need, while average and low-income wage earners are held back by counterproductive rules and regulations. Restoring a fair and progressive tax regime will benefit the economy and society, help mitigate the widening income gap, and support the steadily increasing numbers of workers, especially our young, who are struggling to survive with part-time, non-standard precarious employment. The Green Party advocates both root-and-branch tax reform and federal-provincial overhaul of our tax and benefit systems to create, among other things, a Guaranteed Liveable Income. Serious reform is also needed to ensure that other taxes – from consumption to corporate – are designed to better support a dynamic, sustainable economy and to generate, together with income taxes, the revenues required for programs and benefits that really help all Canadians participate in the economy and succeed in doing so.


Oliver Wendell Holmes Jr. famously said: “Taxes are the price we pay for a civilized society.”  We pay taxes so that governments can fund public services — ones that individual Canadians and the private sector can’t or won’t provide efficiently. Taxes pay for roads and sewers, police and the military, health care and education, and many other benefits we take for granted. Taxation in Canada is progressive, meaning that those who are more successful and earn more income are expected to shoulder more of the burden of paying for public services. In a progressive system, revenue from taxes also directly or indirectly helps lower-income Canadians and gives them the opportunity to improve their quality of life themselves. Taxation should be fair, efficient, and effective.

Today these fundamental principles are being distorted. The Green Party believes in living within our limits, ecologically and fiscally. We are committed to realistic, balanced, thoughtful action that will balance the budget and reduce the national debt.1

Balanced budgets are, of course, a good thing, but good governments must also budget for the long-term. Deficits can be positive by keeping a weak economy from stalling. The ultimate goal will always be living within our means. It won’t be easy. To pay down the debt while supporting programs and services that meet immediate social, economic and environmental needs, we must maintain a healthy level of taxation and we must ensure that Canadians get good value for our tax dollars. The time is overdue to undertake comprehensive reform of our tax system to make it fairer and more compatible with Canadians’ desire for a healthy environment, a sustainable economy, and a vibrant caring society.

Income tax

Let’s start with the income tax system. An alphabet soup of exemptions and tax credits has vastly increased the income tax system’s complexity. What’s worse, more often than not these measures benefit those who need them least. As Scott Clark and Peter deVries succinctly observe: “The last Auditor General’s report said the Finance Department has no idea whether these tax credits are doing what they’re supposed to do, or how much they cost.  They’re distorting economic decisions, misallocating resources and reducing market efficiency and productivity.  A root-and-branch review of the tax code could save Ottawa billions of dollars a year – money that could be spent on infrastructure and broad-based tax cuts, both of which could boost employment and growth.”  The Green Party could not agree more.

The Green Party is deeply concerned about the widening income gap and the steadily increasing numbers of people trapped in the low-wage economy – workers, especially our young, who are struggling to survive with part-time, non-standard precarious employment.  In the last year, part-time jobs accounted for 80% of net job creation. The bottom 40% of those employed has been losing ground since the early 1980s.  In the last 10 years, this bottom 40% has taken home on average about 12% of all income.  

In contrast, income gains go disproportionately to the higher earners. The top 10% of earners increased their income share from 34% in 1982 to 42.5% in 2007.  The top 1% accounted for one-third of all income growth from 1997 - 2007.  Many CEOs have stock options that are considered capital gains, which means that 50% of these options go untaxed.  High-income earners benefit most from sheltering significant untaxed capital gains on their principal residences and, in the absence of an inheritance tax such as the one used in Canada in the early post-WW2 period, they simply pass much of their wealth on untaxed to succeeding generations. These are not the Canadians who need a tax break.A good way to begin a root-and-branch review of the tax code would be to establish a parliamentary committee dedicated to the project which would start work immediately after the next election. The Green Party supports eliminating a wide array of tax expenditures that serve narrow partisan purposes. These do not help low- or middle-income Canadians to keep more of their earnings. Instead, the boutique micro tax credits introduced since 2006 for everything from children’s music classes to workers’ tools, benefit only persons with income over $50,000 who would have made these types of purchases anyway. 

Similarly, the income splitting permitted between parents of children under age 18, recently implemented by the Harper administration, disproportionately benefits a single-earner two-parent family earning over $120,000 which receives 32% of the benefit. About 52% of the benefits goes to two-parent families earning between $60,000 and $120,000. Only 17% goes to two-parent households earning less than $60,000. Nothing goes to the low-income Canadians who pay no taxes, or to single parent families. Likewise, the taxable Universal Child Care Benefit (now set at $160 a month for each child under age 6 and at $60 a month for each child aged 6-18), disproportionately benefits parents who do not even claim child care expenses and does nothing to expand affordable child care.  The Green Party will eliminate income splitting and the UCCB.

In contrast, Tax Free Savings Accounts (TFSAs) are useful. The existing annual deposit limit of $5500 for tax emption, indexed for inflation, makes it a savings vehicle accessible to all Canadians.  Over 90% of Canadians would be able to shelter their annual savings with this limit. But the Harper Conservatives’ decision in Budget 2015 to increase the annual limit to $10,000 means that TFSAs become more of a vehicle for wealthier Canadians to shelter their income, than a means to help people to save for retirement or other exigencies. Over time, this increased limit will regressively erode the federal government’s revenue base by billions of dollars. The TFSA limit should remain at $5500.

The Working Income Tax Benefit (WITB), which is supposed to help Canadians in low-paying jobs, also needs reform and expansion. The WITB is a refundable tax credit like the Goods and Services (GST) credit, which means that individuals can claim it and are entitled to a payment from the government even if they have no tax liability (as long as their working income is at least $3000.) The WITB is an increasingly important provision in light of the projections that, at least in the foreseeable future, more and more jobs will regrettably be lower-paid and lower-skilled.2  Currently, a single person working at a fast-food outlet for minimum wage and making $343 a week, or less than $18,000 a year, earns too much to be eligible for the WITB.  However, if he or she is less productive and reduces his or her hours by half, he or she will not only receive the WITB, but will also retain provincial benefits for the working poor such as prescription drug coverage. Clearly such individuals are better off working fewer hours.

The Green Party believes we should systematically remove such disincentives to employment from the tax system.  We should work with the provinces to get rid of rules in the welfare system that interact with federal programs like the WITB to discourage recipients from making the transition to regular employment.  This all-important intergovernmental collaboration on tax and benefit policies should be a significant focus of the proposed Council of Canadian Governments [Governments can get along and get things done].

Indeed, if we are genuinely committed as a nation to the goal of eliminating poverty, then the time is overdue for a truly innovative initiative – a Guaranteed Liveable Income (GLI). The Green Party’s GLI is a version of the so-called guaranteed annual income (also known as a negative income tax) that has been proposed for many years.  It is an idea whose time has come.  The principle is to establish an income floor below which no Canadian could fall, but with incentives for recipients to continue working and to earn more. 

The GLI would replace federal transfers for social assistance (welfare), disability supports, the Old Age Supplement (OAS) and the Guaranteed Income Supplement (GIS) for the elderly, the Canadian Child Tax Benefit (CCTB) and the National Child Benefit Supplement (NCB) for parents with children, and the Working Income Tax Benefit for the poor – all of which are already very GLI-like. (In this regard, the recent proposal of the Liberal Party of Canada to combine the CCTB and the NCB, and to eliminate the Harper Conservatives’ regressive child care benefit (UCCB) could be considered as a step towards a GLI program.) The GLI would not impact Employment Insurance (EI) [Invest in workers and workplaces], the Canada Pension Plan (CPP), child care subsidies, social housing [Federal fiscal transfers with purpose: equalization, housing, childcare, PSE], drug benefits, or dental care [A prescription for healthier health care].

Once started, the biggest challenge in implementing a GLI will be jurisdictional: to get all levels of government to work together on this initiative.  In particular, provincial governments would have to use their authority in some areas of income support to collapse programs or to integrate them into a single program. Total federal-provincial spending on income support in Canada reached $185 billion in 2013, equal to 1/10th of our Gross Domestic Product (GDP).

There is an enormous and persuasive amount of research which demonstrates that the multiplicity of income support programs – overlapping, confusing, and riddled with perverse incentives – is a huge problem.  The basic idea of the GLI would be to replace separate federal and provincial programs with a single, universal, unconditional cash benefit delivered through the tax system.  Establishing the base amount would depend on the measure of poverty used.  The Green Party recommends using the OECD’s Low Income Measure (LIM) that has been adopted by Ontario. (Note that about 1/3 of Canadians have a yearly income lower than $20,000.)  As money is earned above the minimum GLI level, it would be taxed back gradually. Benefits like free dental care or prescription drugs for low-income Canadians would continue.

The simplest way to begin the transition to a GLI and to put more income into the hands of the poorest Canadians would be for the federal government to make all tax credits refundable (like the WITB, CCTB and GST). This would impact the personal credit, the spousal credit, the caregiver credit, as well as some deductions like the child care expenses deduction (CCED) which would be converted to a credit.  In this connection, it should be noted that there has been some useful but limited federal-provincial coordination in select areas in recent years, such as the consolidation of the hodge-podge of tax credits – sales, property, energy – into a more effective monthly payment delivered quarterly through Ontario’s Trillium Benefit and Québec’s Solidarity Tax Credit. British Columbia has similarly consolidated its Climate Action Tax Credit with the federal GST credit and provincial HST credit, but so much more action is needed.

The introduction of a GLI payment would provide a regular minimum payment to every eligible Canadian adult and child.  The payment would not be “clawed back” by any level of government.  The GLI would be designed to be reduced gradually as a recipient earned additional income, in such a way as to be phased out completely once an upper threshold of income earned, say, $60,000 was achieved. The overall cost of the program would depend on the rate of reduction as the recipient’s employment income increased to the upper threshold. 

Consumption taxes

The Green Party is dedicated to profound reform of the income tax system.  At the same time, we are committed to a simultaneous review of consumption taxes with a view to shifting more of the overall tax burden from income to consumption. As a general principle, the Green Party believes that as a society, we should reduce taxes on things that help Canadians – income and employment - and increase taxes on things that are harmful such as pollution that damages people and the environment, and dangerous toxic substances.

We should consider the revenue advantage of an increase in the GST/HST, especially to help finance the GLI discussed above, with the caveat that ideally we need to exempt the services portion of these taxes so as not to further burden working Canadians who are trying to earn a living by selling their services in a very challenging economic environment.  Naturally, any increase in the GST/HST would be accompanied by a commensurate increase in the refundable GST credit for low-income Canadians.

Corporate taxes 

Corporations have benefited substantially from increasingly lower tax rates. In 2000 the general federal rate of taxation on corporate profits was 29.1%.  By 2006, when Stephen Harper first became Prime Minister, the corporate tax rate had been cut to 22.1%.  During this time, our budgets at least posted consistent surpluses. Budgets shifted into deficit just before the economic meltdown in September 2008, thanks to the ill-advised cuts to the GST and additional reductions to corporate taxes which further lowered the taxation level to 18%.  Then the federal debt ballooned.  It now stands at over $600 billion with an astonishing 20% of that debt run up under Stephen Harper’s watch.  The cost of servicing that debt is $29 billion per year or $93 million a day and this will increase substantially as interest rates eventually rise in the future. Meanwhile corporate taxes have now dropped to 15%.  To add to further disparity in terms of corporate taxation, different sectors are treated differently: for example, the natural resource industries generally enjoy relatively favourable treatment.

The official justification of the steady decline in corporate tax rates was that the largest corporations in Canada were “job creators” and needed encouragement to boost employment. However, the evidence is now in.  Corporations have not used the extra cash to create jobs.  They have not reinvested it in the Canadian economy.  In the words of Mark Carney, former Governor of the Bank of Canada, corporate tax savings are “dead money.”  They have not created jobs, and business research & development spending in Canada has dropped significantly from $16.5 billion in 2006 to $15.4 billion in 2012.  These revenues are sloshing around in the bank accounts of Canada’s biggest corporations and are estimated to be an astonishing $629 billion. 

The Green Party supports raising corporate taxes over four years from the current level of 15% back to the level set in 2009 – 19%.  We are well aware of the familiar argument that higher corporate taxes are inevitably passed on to consumers via increased prices for goods and services.  However, in light of the evidence of hoards of cash accumulated by corporations after the financial crash of 2008, then used too often for mergers or to buy back shares which benefitted executive bonuses rather than being spent on employment and increasing productivity, this rings hollow. Raising the corporate tax rate to 19% would still leave some $595 billion in corporate coffers. (It is estimated that each percentage point increase in the federal corporate tax rate raises $1.5 billion in revenue.)

We also believe that Canada’s small businesses deserve fiscal incentive to growth and development. The Green Party supports the proposal in Budget 2015 to reduce the federal small business tax rate to 9% by 2019.

In addition, the Green Party supports a longer term review of the structure of corporate taxes, not just the tax rate.  Some European countries have successfully implemented a reform that changes the Corporate Income Tax (CIT) into a “rent” tax, so that the tax cannot be said to act as a disincentive to investment and innovation. Among other things, this Allowance for Corporate Equity tax (ACE) enables firms to deduct the cost of borrowing and equity for their own investment. 

Tax subsidies to businesses and industries create another form of fiscal distortion. Even in a time of austerity, the Harper government continues to lavish tens of billions of dollars in tax breaks on favoured interests, from the nuclear industry to those companies involved in fossil fuel extraction, to the various regional development programs.  The Green Party supports the elimination of these tax subsidies.

New sources of revenue

The Green Party supports closing loopholes on offshore tax havens estimated to be sheltering at least $12 billion from Canadian tax authorities. In addition, the Greens also support introducing an estate tax on estates worth more than $5 million.  This would yield $1.5 billion a year in additional revenues.

Canada should join like-minded nations in Europe such as France and Germany in promoting and implementing an international financial transactions tax (popularly known as the “Tobin tax”). This is a very tiny tax rate per transaction, but it yields substantial revenues due the volume of financial transactions. Such potential sources of income are discussed in [Canadian economic union].

A similar proposal to generate additional tax revenues was put forward by Bill Gates to a recent meeting of the G-20: a tax of 1/10th of a percentage point on the sale of equities, and 1/50th of a percentage point on transactions involving bonds.  It was estimated that this would raise approximately $48 billion. In addition, a small tax similar to the “Tobin tax” could be imposed on foreign exchange transactions.

Whatever steps might be taken by the federal government to promote prosperity through creativity and innovation, our tax system needs to get back to basics: financing good public services for all Canadians, helping the most vulnerable to achieve more fulfilling lives, and operating with fairness and transparency.


1 In contrast, the recent so-called balanced budget legislation introduced by the Conservative government is a cheap election trick, designed to distract lazy thinkers from Stephen Harper's budgetary mismanagement that has added $150 billion to the national debt. (Canada’s national debt increased from $492.3 billion in 2006 to $616.1 billion in 2015.)  In reality, this law is not actually about balanced budgets. It's about short-term thinking.

 2 Note that the CRA’s accounting system for the WITB, like the Old Age Supplement, the GIS, and refundable tax credits like the GST credit, is carefully designed to contain administrative costs.  So the payment schedule is based on the previous year’s income (or experience). If someone is overpaid, the repayment is calculated once a year and a reasonably manageable schedule of payments is set up.  Where recipients are underpaid, a cheque to cover the difference is sent.