Harper’s Tax Boutique

Rethinking Tax Expenditures in a Time of Deficit

Executive Summary

• In an era of fiscal austerity, it makes sense to scrutinize Ottawa’s tax expenditures (tax credits and deductions) with as much rigour as one uses to scrutinize direct government spending. Tax expenditures related to personal income tax total $100-billion per year.
• This 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. Both are non-refundable tax credits. Non-refundable tax credits provide a greater benefit to higher income tax filers.
• 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 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. The Public Transit Tax Credit has been criticized for failing to reduce greenhouse gas emissions, which is its objective.
• Eliminating these two poorly targeted and ineffective boutique tax breaks could save the federal government $164-million annually. This money could then be put toward deficit reduction, more-efficient forms of tax relief or policies that better target lower income Canadians. Far greater changes would be possible with the elimination of a broader selection of tax expenditures.

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Peter Shawn Taylor,

is currently Editor at Large of Maclean’s magazine. He earned a Master’s degree in Economics from the University of Alberta in 1989; and was senior analyst for the Alberta Liberal Caucus in the early 1990s under Liberal Leader Laurence Decore. Since then he has worked extensively in journalism. He has been a staff member of Alberta Report, Canadian Business and the National Post, where he was a founding member of the editorial board in 1998, as well as Maclean’s. In addition, he has written widely for publications including Reader’s Digest, Saturday Night, Equinox, MoneySense, Canadian Geographic, Prospect, Globe and Mail, Vancouver Sun and National Post Business. He has given presentations and is a frequent media commentator on public policy issues including daycare, family taxation and poverty.