THE NATION’S BUSINESS

The revolutionary bomb in the budget

Some radical ideas on how to change tax collection are blowing in the Ottawa wind. They’ll turn Revenue Canada upside down.

Peter C. Newman February 7 1994
THE NATION’S BUSINESS

The revolutionary bomb in the budget

Some radical ideas on how to change tax collection are blowing in the Ottawa wind. They’ll turn Revenue Canada upside down.

Peter C. Newman February 7 1994

The revolutionary bomb in the budget

THE NATION’S BUSINESS

Some radical ideas on how to change tax collection are blowing in the Ottawa wind. They’ll turn Revenue Canada upside down.

PETER C. NEWMAN

If one strong feeling emerged from Paul Martin’s public meetings about the shape and content of his February federal budget, it was that fiscal tinkering is no longer enough. The public forums, which ended last week, carried the clear message that a fundamental restructuring of the tax system would not just be welcome, but has become mandatory.

One of the prominent experts who intends to provide Martin with some fairly radical ideas on precisely how to restructure tax administration, which hasn’t changed much since the early 1970s, is Sam Slutsky, a tax lawyer with the Toronto legal factory Cassels, Brock & Blackwell. Although he is only 37, the Winnipeg-born Slutsky has been an adviser on taxation issues to three prime ministers, two ministers of finance and three revenue ministers, and acted as tax counsel for the federal government on the Hibernia offshore oil project. Many of his Ottawa public service friends have been receptive to his anti-status-quo options. As well, a high-level task force is reported to be reviewing Slutsky’s suggestion that Revenue Canada be eliminated as a government department and replaced with an independent commission.

What Slutsky advocates is a three-pronged approach to restructuring the existing division of taxation powers, turning Revenue Canada’s traditional functions upside down—or at least inside out. Although the total amounts collected would still be shared among the provinces and Ottawa (and there would still be a contractual division of revenues to make sure that Ottawa and the provinces still raise the same amounts of money they do now), the provinces would assume responsibility for setting and collecting all personal levies, while the feds would be responsible for corporate taxes. In the case of personal income taxes, each province could tax its citizens at different levels and issue its own list of exemptions, within negotiated limits.

Many Canadians who now file two tax returns would have to file only one personal income tax return—a provincial one—thus saving time and money. Even bigger savings will accrue if a consistent nationwide corporate tax rate is adopted. Corporations would only have to file one federal income tax return as opposed to a return for each province in which they do business. Such streamlining and elimination of duplication in administrative procedures would save governments, individuals and businesses “billions of dollars,” according to Slutsky.

Slutsky’s second major recommendation is to make sales and commodity taxes solely Ottawa’s responsibility, in the form of a national sales tax. That would include a revamped GST, though its impact would be blunted by including this levy in the sticker price, so that consumers aren’t rudely jolted every time they buy something.

When they were initially sounded out on these ideas at their first federal-provincial conference with Jean Chrétien in December, the premiers agreed to consider the idea of doing away with overlapping tax jurisdictions. “Everybody’s into everything,” Ontario’s Bob Rae said at the time. “There’s really no com-

modity where both levels of government aren’t imposing taxes, and there’s a revolt among people that’s brewing. We have to look at a wholesale change of this system.”

In a subsequent interview, Slutsky put the situation this way: “The first ministers approve the notion of harmonizing all retail taxes and want to achieve a better balance by redistributing the initiating taxation powers. They believe they have a political window of opportunity to do these kinds of things, because they did have a very tough time with the last government and feel they now enjoy a better relationship with the Grits.”

The reallocation of taxing powers is hardly a sexy political platform, but Slutsky believes that, once implemented, the benefits of his ideas will become obvious. Small businesses, which are particularly plagued by having to file tax forms to double jurisdictions, would have their work cut in half. “For large retailers,” Slutsky says, “my suggested change would save so much in administrative costs that they would become more competitive in the climate created by Wal-Mart’s entry into Canada and other factors.”

The final prong in Slutsky’s reform initiative is the elimination of Revenue Canada as a government ministry. It would be replaced by what he calls “an independent national revenue commission, acting as a results-oriented Crown corporation.” Slutsky sees this new body reporting to Parliament through the minister of finance, with the current deputy minister of revenue, Pierre Gravelle, named as its chief executive officer. “Such a switch would be possible under very few civil servants,” says Slutsky, “but with Gravelle, who is one of Ottawa’s most enlightened deputies and a true visionary, I have no doubt the new format could be made to work. One benefit would be that instead of Revenue Canada’s eternal adversarial role, the new commission could become an effective partner of businesses interested in tax planning. The federal revenue-collecting agency must be able to nurture the business goose that lays its golden eggs, instead of strangling it.”

He understands that the provinces will feel more comfortable dealing with an independent and presumably nonpartisan agency than they do now with a government department that must reflect the ideological coloration of the party in power. Slutsky sees the commission being able to collect provincial tax revenues for a fee, though it would be the premiers who set the actual rates. Similarly, there would be an arm’s length relationship between the commission and the federal government. It would be advised by a board of directors consisting of part-time commissioners representing all parts of the country and widely differing business and consumer interests.

“This is a time of historical changes,” Slutsky concludes. “The patterns of business and life are changing more rapidly than ever before. If these changes are managed right, economies flourish. If it is done wrong, they die.” Sam Slutsky’s solutions may or may not fly. But at least he’s doing his best to do it right.