Opinion: Tax reform badly needed to help fix Canada's productivity problem — via fpcomment
All taxes distort economic activity by altering the relative prices of capital, labour and goods. But not all taxes distort equally. Some reduce productivity and economic efficiency much more than others. By shifting away from more distortionary taxes, like those on income, to less distortionary ones, like those on consumption, we can enhance the incentives we provide for economic growth.
One important aspect of tax reform is to make greater use of the federal GST and provincial HSTs, which are “value-added taxes” . Businesses collect these taxes on their sales but claim a credit for the tax they pay on their inputs, including investments in capital and equipment, with the result that they only pay on the value added at each stage of production and distribution. And exporters can recover the VAT they pay on their inputs, making them more competitive.
We could also enhance economic efficiency by making greater use of user fees for government services. Toll roads and bridges are an example. User fees are fair. They shift costs from taxpayers at large to those who directly benefit from a service. They’re also efficient. They create economic incentives for individuals and businesses to make informed choices regarding their use of public services.
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