I have learned that it takes a dedicated commitment to good habits such as healthy eating and rigorous fitness activities to stay in shape, which spills into other benefits like improved mental health, happiness and confidence. In other words, there is no quick fix or magic pill that can achieve all the residual benefits of good health.

Unfortunately, the quick-fix approach — gimmicks — is often used in politics and other aspects of life and has been the tool of choice in tax policy for years, with no shortage of poor policy introductions in the past decade.

Examples include the

increase in personal tax rates

for supposed high-income earners in 2016; the

tax on split-income rules

introduced for private corporations and their shareholders in 2018; the prohibition of deductions for certain

short-term rental owners

introduced in 2023; and the latest tax gimmick, the rebranding of the GST credit — with extra cash handouts — as the so-called Groceries and Essentials benefit that comes with a

$12.4-billion unfunded cost

that will supposedly help with affordability matters.

Affordability and productivity have long been a problem in Canada, but is there a tax policy proposal that would be a better idea than the most recent cash handouts disguised as vote-buying schemes? Absolutely. Economist Jack Mintz’s

Big Bang
tax reform proposals

are great ideas.

What would Big Bang personal tax reform look like? If it were up to me, it would encompass two broad objectives: simplification and reducing and flattening of rates.

Regarding simplification, the United States can be instructive here. They have a generous

standard deduction

that

taxpayers

can choose over itemized deductions, such as mortgage interest deductions. If individuals choose the standard deduction, they forgo the deduction of otherwise available specific deductions. Most Americans choose the standard deduction since it is so generous.

Canada could adopt a similar system, but I would go one step further. To reduce complexity, I would simply introduce a

generous overall credit

and then eliminate a bunch of otherwise available

personal tax credits

and deductions, such as the current personal credit, spousal credit, medical expense credits and a host of others.

The bottom 50 per cent of income earners in Canada

currently contribute

about five per cent of overall federal/provincial income tax collections. By setting a standard credit at a generous amount, the five per cent could be reduced even further, removing more low-income people from the tax rolls.

Eliminating a bunch of personal tax credits and deductions in favour of a large deduction would improve simplicity. Obviously, more would need to be done, such as consolidating income-tested benefits to reduce punishing tax-back rates, but this would be a good start.

Next, what should the maximum personal rate be? That debate could be a long one. However, it’s important to reduce the maximum combined

personal tax rates

below 50 per cent in order to encourage Canadians to work hard, keep more than 50 per cent of what they earn and improve productivity.

Maximum personal rates in most provinces exceed 50 per cent (and some, such as Ontario, Quebec, British Columbia and most Atlantic provinces, approach 54 per cent), which is simply unacceptable. In a world where skilled labour and capital are mobile, a top rate above 50 per cent is self-defeating.

Instead, 45 per cent should be the maximum combined federal-provincial rate, with the co-operation of the provinces needed to achieve that objective. This would enable successful Canadians to keep more than half their earnings and provide a magnet to attract and retain those taxpayers who pay the vast majority of personal tax revenues.

A further enhancement would be to eliminate all the tax brackets in favour of a high one and one or two other lower brackets. Modelling this would obviously need to be done to appropriately set the brackets, with consideration of

family taxation models

also forming part of a broader reform discussion.

How would this be paid for? Approximately

45 per cent of federal revenues

come from personal taxes, so any reductions in personal tax rates would cost the government significant revenues.

A natural starting point would be to further

reduce government expenditures

. For example, the

federal public service headcount

in 2015 was approximately 257,000. That ballooned to 368,000 in 2024, a 43 per cent increase that was nearly three times faster than the population growth over that time and more than three times faster than real gross domestic product growth. The addition of over 110,000 new employees was not scaling with demand; it was bureaucratic bloat.

The federal government in its

latest budget

committed to reducing the federal public service by about 40,000 positions — to roughly 330,000 — by the end of the 2028-29 fiscal year. Frankly, that’s not deep nor fast enough. There would appear to be significant room to cut much more, with some of those savings used to fund Big Bang personal tax reform. Would that be enough? Not likely, so more avenues would need to be explored.

Just like building lasting personal health,

effective tax policy

doesn’t come from gimmicks. It takes consistency, discipline and a commitment to long-term outcomes. Canada’s so-called groceries rebate is a perfect example of the gimmick-first approach: a cash handout wrapped in good intentions, but with no structural benefit or lasting value. That’s not policy; that’s vote-buying.

If we want real affordability and improved productivity, we need to stop lurching from one political Band-Aid to the next. Instead, let’s focus on a tax system that rewards effort, simplifies compliance and actually grows the economy.

There’s a difference between Big Bang tax reform and tax gimmicks. One is a plan; the other is a panic button with a price tag. Let’s get fiscally fit and stay that way.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.

_____________________________________________________________

If you like this story, sign up for the FP Investor Newsletter.

_____________________________________________________________

  • Jack Mintz: Four big bangs that will get Canada growing again
  • The new GST breaks are a bad idea that we’ll all pay for in the end