Winnipeg, MB – The Frontier Center for Public Policy released today a new study entitled Harper’s Boutique: Rethinking Tax Expenditures in a Time of Deficit. The report briefly surveys the tax policies of the Harper government, and takes a closer look at the targeting and effectiveness of two ‘boutique’ tax breaks: the Public Transit Tax Credit and the Children’s Fitness Tax Credit. These two non-refundable tax credits are evaluated in function of their stated government objectives, the reduction of greenhouse emissions and the encouraging of Canadian children to become more physically active.
The study also looks at these tax breaks in the context of tax expenditures. Taxable monies that governments choose not to collect are “Tax Expenditures.” They may come in the form of tax deductions and credits, for example. In Canada, tax expenditures related to personal income tax total $100-billion per year. Non-refundable tax credits typically provide a greater benefit to higher income tax filers.
The study is authored by Ben Sand and Peter Shawn Taylor. Sand is an assistant professor in the economics department at the Copenhagen Business School. Taylor, an editor-at-large of Maclean’s magazine, is a Senior Fellow with the Frontier Centre.
Their study finds that while only 25 per cent of individual tax filers report annual income above $50,000, this income group represents a disproportionate percentage of claimants for these two boutique tax breaks. For the Children’s Fitness Tax Credit, 65 per cent of claimants have income above $50,000. For the Public Transit Tax Credit, 39 per cent have income above $50,000. These tax breaks are thus skewed toward middle- and upper-income earners. While the existence of such tax credits may create a political benefit for the federal government, this alone does not represent an appropriate use of taxpayers’ resources.
The tax breaks in question also fail to meet their stated policy objectives. “The Children’s Fitness Tax Credit was shown to have limited effectiveness in encouraging greater physical activity by children, particularly those from low-income families,” says Taylor. “The Public Transit Tax Credit,” in turn, “has been criticized for failing to reduce greenhouse gas emissions.”
Upon carefully scrutiny, given the government failure in meeting their stated objectives, the authors recommend the elimination of these two poorly targeted and ineffective tax breaks. Doing so, they argue, could save the federal government $164-million annually.
Ottawa could then use the money for deficit reduction, more-efficient forms of tax relief, or policies that better target those who may need the help the most, lower income Canadians. Far greater changes would be possible with the elimination of a broader selection of tax expenditures, the authors conclude.
For a copy of Harper’s Boutique click here
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Peter Shawn Taylor