Ill-advised tax breaks are not healthy now or for the future

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It bears repeating that our tax system is filled with legislation and related administration that are motivated by simple, silly and, in most cases, awful politics, such as the federal government’s egregious and obnoxious stunt to temporarily eliminate the sales tax on certain items.

Cloaked in cheesy language, the proposal was announced as “More money in your pocket: a tax break for all Canadians.” Assuming the measure gets passed, the GST/HST will be zero on a long list of items from Dec. 14, 2024, until Feb. 15, 2025.

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How this list was determined is a mystery, but I can imagine a bevy of out-of-touch politicians, staffers and bureaucrats hastily concocting it. To be at that table, one should have a minimum of five years experience working at a managerial level in a private-sector business in order to have a tiny bit of empathy when drafting nonsense such as this.

Why do I say that this group and this government are out of touch? Well, for one thing, in this day and age of electronic point-of-sale registers, the effort to update such systems to adjust the sales tax will not be insignificant nor instantaneous. Larger retailers may have an army of staff that they can afford to spend time on this, but most will not and they may have to hire expensive external consultants to update their systems and then revert back in February.

What will happen if such systems are not properly implemented and retailers collect too much tax? Will consumers be able to demand refunds? Will retailers be charged penalties for overcharged amounts? Presumably, the yet-to-be-released draft legislation will deal with this.

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There was another political stunt announced at the same time: “Working Canadians will also get some cash back. We’re doing this by providing a new Working Canadians Rebate. That means, Canadians who worked in 2023 with net earnings up to $150,000, will see a $250 cheque in their bank account or mailbox, starting early spring.”

Again, draft legislation has not yet been released, so there are many questions. Will the bribe — whoops, I mean rebate — be taxable to the recipient? What does “earnings” mean? If a person has investment income, but no employment earnings, will they be eligible to receive the rebate? Will a person, such as a stay-at-home parent, who has no income be eligible?

The available information seems to indicate that if you claimed Canada Pension Plan or Employment Insurance (EI) credits on your 2023 tax return or you reported EI income, then you’ll be eligible. That would carve out a lot of people from eligibility for the bribe — whoops, there I go again, I mean rebate. You’re also supposed to be a resident of Canada on March 31, 2025, and not deceased on April 1, 2025. I’m not sure how the Canada Revenue Agency will know that before they distribute the cheques.

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Unfortunately, these types of political manoeuvres are not unusual. There was no shortage of federal cash handouts during the COVID-19 era. The pathetic 2023 Grocery Rebate was another recent example. Ontario’s government is handing out $200 to 15 million people soon. The Conservative Party’s 2021 election platform contained a proposed GST holiday for a brief period of time. British Columbia sent out one-time “climate action dividends” to its residents in 2008. Alberta sent out $400 in “Ralph bucks” to its residents in 2006. During the Great Depression, the federal government handed out cash administered by municipalities.

All these stunts are not a good use of taxpayer money. Some may be well-intentioned, but most are simple vote-buying attempts.

In the present case, the federal government’s stunts will cost Canadian taxpayers at least $6.3 billion, if not more. You don’t think that’s a lot of money? Well, it is. Considering that such money will need to be borrowed, it will come with tremendous interest costs as well, which your kids and grandkids will ultimately pay for.

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Instead of using our tax system as a political wedge, it would be much wiser to introduce long-term productivity and prosperity measures.

An analogy to illustrate this would be the simple acorn. It’s a small seed that can grow into one of the most impressive trees known to man, the mighty oak tree. During an oak’s lifetime, which can be hundreds of years, it can provide excellent shade and produce thousands of acorns that can produce forests of oak trees. Once its life is complete, the resulting hardwood can be used for numerous purposes, such as the construction of homes and furniture.

Our politicians should consider this example with respect to our taxation policies and resulting administration. We need to be planting acorns.

Instead, measures such as the proposed GST/HST holiday and the Working Canadians Rebate are like handing out candy. Once the candy is consumed, there will be a resulting sugar rush and then a collapse with zero lingering benefits.

One of my sons recently quoted to me a purported ancient Greek proverb: Society grows great when old men plant trees whose shade they know they shall never sit in.

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Good leaders know that their actions — planting trees — will often have impacts that they will not see during their tenure. Canada needs political leadership, including on tax policy, that thinks beyond their tenure.

Yes, I know that is asking a lot, but hopefully Canadians who don’t already know that getting hooked on tax sugar rushes is simply not healthy will wake up to that fact soon.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody. 

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