If all you have is a hammer, everything starts to look like a nail.

That’s never been truer than in the realm of Canadian tax policy—especially under the governing Liberal Party of the last 10 years. Whether the issue (the “hammer”) has involved climate alarmism, housing challenges, “intergenerational fairness”, “tax the rich”, digital disruption, etc, the instinctive political response has been predictable: tax it, or tax it more (the “nail”).

The carbon tax is the most obvious example, but the list is long. Luxury taxes. Digital services taxes. The now abandoned capital gains inclusion rate hike. The 4% increase in tax rates for the so-called rich in 2016.  Numerous and silly housing tax measures (such as the “flipping” tax and the prohibition of deduction on short-term rentals in certain instances). All of these are not signs of thoughtful, evidence-based policymaking. They’re symptoms of a deeper problem: a government that views taxation less as a tool of sound economic stewardship and more as a blunt ideological instrument for social engineering and political messaging.

When viewed in that light, why would there be a need for comprehensive tax reform despite the loud calls of many for the last 15 years or so?  If you’re the Liberals, you most certainly would not be interested in change since you would want to continue to use taxation policy as a blunt political instrument.

The Liberal Party’s latest election platform only reinforces this concern. Rather than committing to comprehensive tax reform (like the Conservatives did), they have proposed to “Conduct an expert review of the corporate tax system based on the principles of fairness, transparency, simplicity, sustainability, and competitiveness.”. That sentence might sound good. Especially if you have a cursory understanding of taxation policy.  But read it again.  Can you tell me what it means?  I certainly have no idea what that statement means. And I never like it when “fairness” and taxation policy are used in the same sentence by political parties.  I will state, however, this sentence certainly doesn’t promise comprehensive tax review / reform.

Let me explain why.  For the 2023-24 fiscal year for the federal government, the total revenues were $459.5 billion. Corporate tax revenues were $82.5 billion of that amount or 17.9% of the total. Personal tax revenues were $217.7 billion or 47.4%.  GST revenues represented $51.4 billion or 11.2%.  Given the above, why only focus on corporate tax, 17.9% of overall revenues, when personal tax and GST account for almost 59% of federal revenues?

Second, there are many areas of taxation that are very important but don’t contribute directly or materially to government revenues.  The proper and efficient administration of the tax system – conducted by the Canada Revenue Agency – is an example of that.  It desperately needs attention and big fixes.  The charitable and non-profit sectors need a complete review and some overhaul to deal with abuses.  International / non-resident taxation is another very complex area that needs a review.  Ditto for the effectiveness of our taxation system on death.

Third, to focus a review solely on the corporate system, as the Liberals propose, is far too narrow.  Corporate tax is merely a prepayment of taxes ultimately borne by individuals—whether as workers, consumers, or investors. I can understand a review of one aspect of the tax system if it was obvious that aspect was a big problem compared to the other aspects of the tax system.  But it’s not. True review / reform must examine the full scope of taxation.

Fourth, instead of focusing on the principles of fairness, transparency, simplicity, sustainability, and competitiveness as stated in the Liberal policy platform, any review of the tax system should instead ensure that Adam Smith’s four canons of a good tax system – as laid out in his landmark 1776 writing – The Wealth of Nations – are adhered to: 1. Equity / Fairness (taxes should be proportional to a person’s ability to pay).  And to be clear, the use of the word “fairness” in the Smithian context is a whole lot different than when political ideologues use it; 2. Certainty (taxpayers should know how much, when, and how to pay their taxes, with minimal discretion left to tax authorities); 3.

Convenience (every tax ought to be levied at the time or in the manner in which it is most likely to be convenient for the contributor to pay it); 4. Efficiency (taxes should minimize compliance costs, administrative burdens, and economic distortions).

Fifth, who will be the “experts” that will conduct the corporate tax review?  Will it be the same people that advised the Liberal government over the last 10 years?  Those people, in particular some well known academics who lack practical experience, are ideologues who have contributed greatly to the mess that our tax system is.  It is full of political tax gimmicks that pander to a governing party’s voter base with little concern as to whether or not such gimmicks contribute to good overall public policy.

The Liberals have an opportunity to do what their main competition – the Conservatives – proposed.  To conduct broad based tax reform.  While there are many in the tax community who offer advice as to what that tax reform should look like, I find many of those recommendations are too surgical.  In other words, our income tax statute and administrative system are beyond simple surgical “fixes”.

Instead, as Jack Mintz has often stated, Canada needs “Big Bang” tax reform.  I agree. It’s time for big thinking, new and bold ideas to help kick-start our lagging economy and incentivize our great entrepreneurs.

AC/DC lit it up in Vancouver last month with “Back in Black”—a masterclass in power, precision, and showmanship. Canada’s tax system, by contrast, is a cacophony of political gimmicks and missed opportunities. If Mark Carney and the Liberals are serious about leadership, they must ditch the narrow corporate tax review and deliver the bold, broad-based reform our economy demands—a ‘Big Bang’ to unleash Canada’s entrepreneurial spirit and restore fiscal harmony.