(This column originally appeared in the Toronto Sun on January 20th, 2017)
In last year's federal budget, Finance Minister Bill Morneau announced that the Liberal government would embark on a review of federal tax credits. Many groups--including the Canadian Taxpayers Federation - voiced their support.
It's not hard to see why. Canada's tax code is a beast; the Income Tax Act alone is 3,314 pages long. Simplification is a good idea. Canada's tax code is festooned with all kinds of special carve-outs and credits which make it frustratingly complex, inefficient and nearly impossible for a regular citizen to file their own taxes. And while the Liberals have already eliminated certain Harper-era tax credits--such as the children's fitness and arts credits--they have also introduced some of their own, including a school-supplies credit for teachers. Much work remains to be done.
Unfortunately, there are worrying signs that Minister Morneau's real intent is to use "simplification" as political cover to hike taxes by stealth for millions of Canadians.
Among the biggest proposals being floated are changes to make Canadians pay taxes on the value of employer-provided health and dental plans. Currently, they are non-taxable benefits. The policy reasoning behind this is clear: on the employee side, they're not actually getting paid cash, so it's not really income, and on the employer side, by making these benefits non-taxable, employers have extra incentive to provide them (as they don't require additional Canada Pension Plan and Employment Insurance contributions).
All of this results in more Canadians having health and dental benefits through their employer. On this front the policy seems to be achieving its objective: according to the Canadian Life and Health Insurance Association, in 1990, only 50 per cent of employed Canadians had employer-provided health benefits; by 2015, this figure had risen to 75 per cent.
Perhaps the best argument for a change in how health and dental insurance are treated is one of fairness: under the current system, those who received these benefits from employers get a break, while those who don't receive them from employers and must to purchase them out of pocket do not. The solution, the government proposes, should be to make all such benefits taxable, in exchange for introducing a partial tax credit available to all Canadians.
There are at least two big problems with this roposal. First, it would still mean a tax hike for millions of Canadians, including those of limited means. Second, it would likely result in fewer Canadians having supplementary health benefits, as some employers would drop their plans and those affected are either unwilling or unable to then purchase their own. It is hard to see how either of these are desirable outcomes.
While identifying a legitimate inequity, the government has overlooked the fact there is more than one way to level the playing field: rather than forcing everyone to pay tax on these benefits, the government could simply introduce a new tax credit (or expand an existing one) for those purchasing health insurance out of pocket.
One possibility is expanding the Medical Expenses Tax Credit (METC), which gives a credit to Canadians with hefty medical bills. Lowering the credit threshold--currently, Canadians can only claim a credit if they spent over $2,237 on medical expenses--would provide additional relief for those buying their own health insurance.
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The catch, of course, is that such an move would reduce the amount of tax paid to the government. If you're a money-hungry politician, this is framed as a bad thing. A cynic might even argue that it suggests the governments' commitment to policy fairness is a lesser concern than its fear of loosening its grip on Canadians' wallets.
Accordingly, Minister Morneau should tread carefully. Simplification of the tax code is a good goal for the government--but it is not the only goal. Above all, the government should not exploit "simplification" as a convenient pretext to sneak in tax hikes on millions of Canadians.
