Richard Bird - Institute for Public Economics - University of Alberta

First, as the millennium approaches, the tax base-broadening and low-ratephilosophy of tax reform in the 1980s should, I think, give way to a new set ofpolicy responses. 33 Taxation should not be viewed, as in the acceptedapproach, solely as an instrument to raise revenue in the most efficient, fairand simple way. Instead, tax policy should be seen in a wider context as oneelement of the set of "governing instruments" used to affect economic andsocial behaviourfor better or for worse. 34As we have all learned in recent years, for example, since the most importantpublic expenditures are on the components of the "welfare state" -- health,education, and social assistance -- expenditure restraint necessarily implies the"reform" of social policy. The aim of such social policy reform has often beenconceived to be both to control costs and to target assistance more accuratelyto lower-income individuals. Tax policy has an important role to play in such anexercise, both in a positive and a negative sense.On the positive side, Canada already delivers a variety of social policiesindirectly through the tax system in the form of so-called "tax expenditures" orreductions in taxes for socially-favoured uses of income. In 1994, for example,as much as $16.5 billion was "spent" by the federal government alone in thisway on social policy, broadly conceived, compared to some $71.2 billion indirect social policy expenditures.35Many of these tax reliefs have been criticized as "upside-down welfare" in thesense that much of the relief goes, by definition, to those whose income is highenough for them to pay tax. In part in response to such criticisms, many ofthese provisions were changed from deductions to credits in 1987, and33 This argument follows that in Richard M. Bird and Jack M. Mintz, "FutureDevelopments in Tax Policy," Federal Law Review, 22 (No.3, 1994),402-13.34See Michael J. Trebilcock et ai., The Choice of Governing Instrument(Ottawa: Economic Council of Canada, 1982).35The expenditure figure is for 1994-95, from Treff and Perry, op. cit. in note14, p. A:6. The "tax expenditure" figure is calculated from information inGovernment of Canada Tax Expenditures 1997 (Ottawa: Department ofFinance, 1997), Tables 1-3. This figure -- which is of course subject to theusual strictures about the imprecision of such aggregates (see ibid., p.15) -- isthe sum of estimated tax expenditures for health, education, charities, welfare,child care, family support, employment insurance, and retirement under thepersonal income tax, the corporate income tax, and the GST. (Note that G.C.Ruggeri and C. Vincent, "Tax Expenditures and Tax Preferences in thePersonal Income Tax System of Selected OECD Countries: A SuggestedClassification," Department of Finance Working Paper 97-07, October 1997,classify the important RRSP/RPP deductions as preferences for saving ratherthan "tax expenditures" for retirement as is done here.)13