One Comment About Taxation – Automatic Tax Filing in Canada – Part Deux

 

I have previously written in this newsletter why I believe it’s long overdue for Canada, through the Canada Revenue Agency, to introduce automatic tax filing for low-income taxpayers and for those that have straight-forward tax situations.

Why? Well, in my view tax is intimidating for most people but particularly for those who are vulnerable, disabled, single parents, elderly and others who are simply trying to scrape by.  With Canada’s system of significant income re-distribution through various cash hand-outs (like the Canada Child Benefit, the GST Credit, nationalized dental care, pharmacare and the newly re-branded “Canada Carbon Rebate” – come on, let’s call it what it is…it’s a carbon tax rebate), it is a requirement to timely file income tax returns for people to be eligible to receive such credits.  While one can debate whether the tax system and / or whether such income redistribution plans are good overall, the simple fact is that what Canada has today – which will hopefully improve down the road – is a complex maze of credits that, again, one can only qualify for by timely filing tax returns.

Of Canada’s roughly 29 million taxpayers, the bottom 50 per cent of income earners in 2020 (representing more than 14.4 million taxpayers) earned $40,700 or less and paid only 6.5 per cent of Canada’s overall personal income tax revenues (which conversely means that the top 50 per cent of income earners paid 93.5 per cent of all personal income taxes). I think it’s a fair assumption that most – but obviously not all – of this 50% population would have straight-forward tax filing situations.

Canada has a system where most of the income paid to people – especially through government credits, employment income, pension income, basic investment income, etc – is annually reported by the various payers to the recipients of such income and to the government of Canada through various information return fillings. This is why all employees receive T4 slips that reports their annual earnings.  The government of Canada also receives a copy of such information from the employer.

This fact is important since critics of automatic tax filing are often passionate in their abhorrence of giving the government more data or enabling them to deal with such data.

Believe me, I’m not a big fan of government having your data as well.  But basic information such as earned income has been in the hands of government for decades and in my view it is entirely appropriate for them to have such information.  The debate is whether or not they should be able to take such data that is already at their disposable and automatically file a tax return for you.  Critics say “no”.  I say “yes” as long as taxpayers have unfettered access to such data and the ability to correct for any obvious errors in the calculations / preparations.

The idea of automatic tax filing in Canada has been around for well over a dozen years and has been introduced in other countries, like the U.K. and the U.S. has also been toying with the idea of introducing it as well.  Critics often point out that the U.K’s experience with automatic tax filing has not been good and is error prone.  My rebuttal is that any such system will, of course, produce errors and 100% accuracy should not be the goal.  Instead, the goal should be convenience, improved overall compliance and taking care of the people who are intimidated with the current system.

Canada’s latest attempt at automatic tax filing was announced in the 2023 Federal Budget with a simple comment that it “…will pilot a new automatic filing service that will help vulnerable Canadians who currently do not file their taxes receive the benefits to which they are entitled. Following consultations with stakeholders and community organizations, the CRA will present a plan in 2024 to expand this service even further.”

Well, a short update from the 2023 Budget announcement came about 2 weeks ago on March 4, 2024 when the CRA announced that it would be expanding its SimpleFile by Phone service to more Canadians by “inviting” them to participate.  In addition, the announcement states that:

“Starting in Summer 2024, the CRA will also pilot SimpleFile digital and paper options in all the provinces and territories. These new services will target lower-income individuals who do not file their tax returns or who have a gap in their filing history, and therefore are not receiving the benefit and credit payments they could be entitled to.

The CRA plans to consult with stakeholders, community organizations, and tax professionals on the next phase of Canada’s automatic tax filing plan beyond 2025.”

Two quick comments. First, the SimpleFile program is NOT automatic tax filing. Why?  Well, it requires the participation and consent of the vulnerable population in order to get their tax returns done.  And that is likely going to continue to be a problem.  Why would a person who hasn’t filed tax returns for years all of a sudden accept an invitation to participate in SimpleFile?  The fact that the invitation list has been expanded doesn’t deal with that foundational issue.  I see problems…including when expanded digital and paper options are introduced later.

Second, the consultation with stakeholders is long, long overdue and the plan to consult should have been occurring years ago.  At the very least, almost immediately after the 2023 Budget announcement so as to try to fulfill the 2023 Budget promise quickly.  To plan a consultation for automatic tax filing “beyond 2025” (which means 2026 or some other future year, forward) seems like a lame attempt to try to fulfill a 2023 Budget promise.

Come on Canada.   Let’s get automatic tax filing done.

 

One Comment About Leadership – “Don’t Respond to Every Barking Dog”

 

Recently, I was chatting with a couple of friends about some of the feedback I get from the material that I publish.  While most of the feedback is positive and constructive, I regularly get rude personal attacks from keyboard warriors.  I was explaining to my friends that sometimes I’ll respond to such feedback and both of them said “don’t respond to every barking dog”.

That line resonated with me and I thought that it must originate from somewhere and it turns out it does.  One of my favorite leaders of all time, Sir Winston Churchill, stated the following:

“You will never reach your destination if you stop and throw stones at every dog that barks.”

Sir Winston was very wise, a quote machine and a leader to emulate.  While I don’t have all of his voluminous quotes quite memorized yet, I was fortunate to be recently instructed by my friends and Sir Winston.  They’re right…a lot of time and energy can be wasted by responding / throwing stones at every dog that barks.  Patience is something that I continue to work on and will for the rest of my life.

Leaders, are you too responding / throwing stones at barking dogs?  If so, perhaps it’s time – like me – to continue to practice restraint and patience.

 

One Comment About Economics: Canada’s Parliamentary Budget Officer’s March 2024 Economic and Fiscal Outlook

 

On March 5, 2024, Canada’s Parliamentary Budget Officer released its March 2024 Economic and Fiscal Outlook.  Below is a reproduction from the executive summary:

The Parliamentary Budget Officer (PBO) projects growth in the Canadian economy to remain sluggish through 2024. Restrictive monetary policy is expected to restrain growth in consumer spending in the first half of the year and to dampen residential investment over the course of this year. Inventory investment is projected to subtract from growth as businesses pullback on their stock building.

As excess supply in the economy increases and commodity prices continue to weaken, PBO projects that Consumer price index (CPI) inflation will return to its 2 per cent target by the end of 2024. With CPI inflation on track to return to target later this year, we continue to expect the Bank of Canada to start lowering its policy rate in April.

PBO projects the budgetary deficit to rise to $46.8 billion (1.6 per cent of the Gross domestic product (GDP)) in 2023-24 from the $35.3 billion (1.3 per cent of GDP) deficit recorded in 2022‑23. Assuming no new measures are introduced, and existing temporary measures sunset as scheduled, the deficit is projected to resume its downward trajectory, falling to $16.9 billion (0.5 per cent of GDP) in 2028-29.

PBO projects the federal debt-to-GDP ratio to increase from its 2022-23 level of 41.7 per cent, reaching 42.4 per cent in 2023‑24 and 42.5 per cent in 2024‑25. Assuming no new measures and existing temporary measures sunset as scheduled, the federal debt ratio is projected to fall to 39.2 per cent in 2028‑29 but remain well above its pre-pandemic level of 31.2 per cent of GDP in 2019‑20.

PBO projects the debt service ratio (that is, public debt charges relative to total revenues) to rise from 7.8 per cent in 2022‑23 to 10.2 per cent in 2023‑24. As the effective interest rate on debt edges higher in 2024‑25, we project the debt service ratio to increase further and average 10.7 per cent through 2028‑29—well above its pre-pandemic record low of 7.0 per cent in 2018-19.

While there is some good news in the above – inflation returning to more normal levels – the bulk of the message is simply alarming.  Our federal budget deficits remain out of control. If there is a fiscal anchor, it is a mystery to me.

The report is worth a read if you have the time and energy.  Bottom line is Canada needs to control its spending, get its debt / deficit in order and return sanity to its overall budget.

 

Bonus Comment – Quote From Dale Carnegie – Famous Author and Lecturer – About Responding to Criticism

 

“Any fool can criticize, condemn, and complain but it takes character and self-control to be understanding and forgiving.”

 

Yep, totally agree!  Leaders, are you practicing self-control, understanding and forgiveness?

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