Canada’s federal and provincial governments should consider raising consumption taxes and introducing digital taxes, while at the same time marginally reducing personal and corporate income tax rates to bring down the COVID-induced debt that they have accumulated these past few months, according to a new report.
“Increasing consumption taxes and adding digital taxes will increase tax revenues — and marginally reducing personal and corporate income taxes will also likely increase personal and corporate income tax revenues,” wrote Peter van Dijk and Glen Hodgson, senior fellows at the C.D. Howe Institute, in a note on Tuesday.
Finance Minister Bill Morneau is expected to provide a fiscal update this afternoon that’s expected to show how fighting the pandemic has raised current-year deficit to at least $250 billion, or 12 per cent of economic output, a far cry from the chest-beating 1 per cent debt-to-GDP ratio of last year.
Scotiabank expects discretionary pandemic-related spending alone to surge above $200 billion against a variety of pressures and contingencies, and has a grimmer estimate of deficit soaring above 14 per cent of GDP by the end of the year.
And that’s just to keep the economy afloat. To stimulate and revive parts of the economy, the government will need to fuel the fire with more spending over the next few weeks and months.
“Some cabinet ministers have discussed the opportunity for recovery spending in the wake of COVID-19, and such spending would drag on the government’s bottom line,” notes Craig Wright, chief economist at Royal Bank of Canada. “While scaling such spending would be speculative at this point, we see potential for added stimulus heading into next year.”
To meet these rising needs, the government may need to consider some kind of revenue-generating vehicles to fund some of the deficit.
While there has been some calls to introduce a wealth tax to raise revenue and rein in income inequality, C.D. Howe Institute analysts say similar experiments in Europe have failed as they don’t generate enough revenues, are difficult to administer and ultimately harm economic growth.
“Consumption taxes, such as the GST, HST and provincial sales taxes, are generally better for raising additional revenue while limiting the negative impact of taxes on economic activity. We recognize this has been a populist flashpoint, but appropriately designed, consumption taxes can be quite progressive,” the C.D. Howe economists said. “Therefore, increasing consumption taxes should be the main area for consideration when raising additional tax revenues.”
It’s an interesting and perhaps controversial idea at a time when most economists have been calling for an increase in corporate taxes to narrow the prosperity gap between Bay Street and Wall Street and the proverbial Main Street.
It may also be a good time to reform our taxation system, too.
“Instead of taxing businesses on an income basis, Canada should consider taxing businesses on a cash-flow basis or an economic rent basis. Cash-flow basis taxation allows for the immediate deduction of current expenses and investments in machinery and equipment. Economic rent — or excess profit — taxation would tax profits that exceed a specified average rate of return. This would significantly improve the competitiveness of Canada’s business tax regime and can lead to increased tax revenues,” the analysts wrote.
There is no shortage of ideas on how to revive the economy, though.
A British Columbia Senator Yuen Pau Woo believes now is a good time to bring a basic income program to Canada. The basic income could replace other income support programs and would be pulled back as the person’s income rises, National Post’s Ryan Tumilty reports.
Woo’s proposal would put the basic income project in place for six months from October of this year until March 2021 — and could cost a $100 billion.
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GOING VIRAL: Brazil’s President Jair Bolsonaro, the populist leader who has repeatedly defied local guidelines to wear a mask in public, even after a judge ordered him to do so in late June, tested positive for coronavirus on Tuesday.
The 65-year-old president, who during his campaign to reopen the economy called the virus “just a little flu,” has repeatedly disobeyed medical recommendations to avoid contamination, mingling in crowds without a face mask and giving people handshakes.
Late on Monday, however, a video posted on YouTube showed a masked Bolsonaro trying not to get too close to supporters who awaited him in front of the presidential palace. He told them he was following social distancing orders from a doctor after showing symptoms of the virus, and added that an exam had shown his lungs were “clean.”
The Toronto Regional Real Estate Board (TRREB) revised down its housing sales outlook for 2020 on Tuesday on subdued transactions resulting from the coronavirus pandemic, even as the housing market rebounded in June.
Total home sales across the greater Toronto area fell 1.4 per cent in June from June 2019, compared with a 53.7 per cent drop in May. Listings rose 2.1 per cent year-over-year, versus a 53.1 per cent decline in May.
Three months after one of the worst stock market crashes in history, the foundation of the investment industry has shifted. The COVID-19 crash decimated portfolios, but it also brought an unprecedented influx of new retail investors into the game. They all have the same goal — to make money amid the market carnage. Here are their stories.
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