The dope on tax expenditures

Government taking revenue that could be allocated to public services

By Mark Crawford

Our federal government is addicted to tax expenditures – and the shell games that can be played with them.

By “tax expenditures,” economists mean government spending through the tax code. Some of the biggest and most popular examples of tax expenditures include RRSP deductions (currently about $33 billion/year), Pension Income Splitting ($10.8 billion); charitable donations ($8.5 billion) and Child Care Expense Deductions or CCED ($4.1 billion).

Clearly, they have a role to play in a balanced system of taxation. But in Canada, tax expenditures take almost as much out of the revenue pie as taxes do; in 2010, they cost $172 billion compared to $191.5 billion taken in tax revenue.

Spending through the tax system has a number of advantages, but they are mostly political. Since tax expenditures are regarded as “off budget,” they are often seen as free benefits, especially to those who are best situated to take advantage of them.

At election time, it can seem like the government is giving something without taking anything. That, of course, is highly misleading.

What the government is taking is revenue that could be allocated to public services.

Its income-splitting plan, for example, dispenses billions to middle-class families, but it does so at the expense of child care for the young, mental-health spending for veterans, and home care for the aged.

For the cost of the government’s Family Tax Proposal, we could raise the CCED from $7,000 to $12,000.

Queen’s Law Professor Kathleen Lahey points out that Canada is spending $20 billion to subsidize unpaid work in the household – that’s almost twice what an affordable national child-care program would cost.

One wonders whether this government, if it is re-elected, plans health care by tax credit as well. After all, it has been shown that in the United States the subsidization of private health insurance through the tax code made efforts to bring about a universal health care program more difficult (and we all know where our government gets most of its ideas from).

The same process can work in reverse: as Canada’s federal government caps health transfers to the provinces at what it knows is half the rate at which health costs are growing, and provinces are forced to either raise taxes or de-list services, the feds can ease that painful transition with tax credits for private health care.

Before we reach that point, two things must be done.

First, we should assess where universal programs are most needed to protect children and the poor. Second, where we do choose to keep tax expenditures, they should be integrated with departmental spending and, therefore, included in departmental reports and estimates.

We cannot expect progressive government from the Conservatives, but greater transparency and accountability is never too much to ask from anyone.

Mark Crawford is a former public servant and now teaches political science at Athabasca University. He can be reached at

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