Institute for Competitiveness & Prosperity delivers a blueprint for smart taxation in Ontario
Ontario needs to tax smarter by amending personal income tax credits and adjusting current business support measures
Ontario has improved its tax system markedly in recent years by introducing the harmonized sales tax, phasing out the capital tax, and lowering corporate tax rates. However, many changes can still be made that would benefit individuals, businesses, and government. In Taxing for growth: A close look at tax policy in Ontario, the Institute for Competitiveness & Prosperity picks up on its previous recommendations for tax reform in Ontario and examines current policy to identify ways Ontario can create a tax system that spurs growth, investment, and competitiveness.
The Institute defines three goals for smart taxation: equity, efficiency, and effectiveness. A smart tax system ensures that taxes are proportional to one’s ability to pay and minimize economic distortions. A smart tax system also rewards actions that benefit society, such as investments in R&D or education, and discourages actions that have a hidden social cost, like smoking or pollution.
“Tax expenditures,” which include credits, deductions, and other forms of special treatment that represent forgone government revenue, play a major role in Ontario’s tax system. Recent years have seen an expansion in the availability of tax credits for individuals and businesses in Ontario. But many of them are inequitable, inefficient, and ineffective. Moreover, they often fail to accomplish their intended benefits and cost the government billions of dollars in lost revenue every year. The Institute suggests other ways government can motivate Ontarians without the use of distortionary tax policies.
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