Most people are more concerned with their overall tax levels relative to their incomes (or business profits) and the services and benefits they receive from governments in return than they are with political or economic theories of a “good tax system.” However, in a democracy, ideas about taxes—how much people should pay, who should pay them, for what purposes, and with what impact on citizens’ other economic and social activities—are closely linked to our understanding of the appropriate size, role, and limits of legitimate government activity.

Most citizens tend to view governments as a mix of positive good...

Tax policy is one of the central and most comprehensive expressions of the relationship between citizens’ ordinary lives and the role of governments. Indeed, in many ways, the tax structure is to economic life what the formal political constitution is to civic life—an elaborate framework of rights, rules,and responsibilities that reflects the basic compromises of Canada’s economic and social order.

The four major components of the national tax system—personal and corporate income taxes, general sales taxes, and social security taxes—involve a balancing of the long-term interests and objectives of major state and societal actors.¹ Their pervasive impact...

The tax policy process may be divided into two very different processes: internal and external. The design and implementation of tax policy and tax reform in Canada are mainly the responsibility of the tax policy community within the Department of Finance. Although it may respond to policy suggestions from outsiders, including the federal cabinet, parliamentary committees and interest groups, the Department has a virtual monopoly on federal tax policy through the budget process.

Ideas may be an important component of policy change. But policy champions such as Ministers of Finance and their senior officials are usually necessary to convert those...

The Minister and Department of Finance may control the details of tax policy. But the overall level of taxation and the distribution of taxes among various groups of Canadians and different kinds of economic activity are very much the product of a political process.

Every government attempts to balance the challenge of designing effective economic policies to promote growth and employment with the expectations of its constituents for public services and the protection or improvement of their standards of living, along with other social and economic objectives. In Canada’s parliamentary system, the annual budget speech provides a vehicle for Ministers...

Part II, The Politics of Taxation from Carter to Martin, examines the evolution of Canadian tax policy between the Carter-Benson Tax Reforms of 1967-71 and the largely successful efforts of federal and provincial governments to eliminate the chronic deficits that had resulted from their consistent failure to balance competing demands for increased public spending and for limits on taxation during the 1970s and 1980s. Part II provides a historical context for current tax policies and the major political battles that have shaped Canada’s present tax system, and outlines the ways in which past political decisions and historical events have shaped...

The four governments of Pierre Elliott Trudeau spanned a tumultuous period in Canada’s political and economic history. Trudeau’s six Finance Ministers, Edgar Benson (1968-72), John Turner (1972-75), Donald Macdonald (1975-77), Jean Chrétien (1977-79), Allan MacEachen (1980-82), and Marc Lalonde (1982-84), presided over two major efforts at comprehensive tax reform, along with a series of smaller, but significant, changes to the Canadian tax system. These changes coincided with significant political and ideological conflict over the role of government in the economy, conflict that centred in part on the size and costs of government, but also on the relationship between governments and...

The Mulroney government of 1984-93 presided over a wide range of structural changes to economic policy that involved the most thoroughgoing revisions to Canada’s economic constitution since the end of World War II. The most prominent of these changes was, of course, the negotiation the Canada-US Free Trade Agreement in 1988, followed by its extension to Mexico in 1992-94, and the application of many of its principles in the global trade talks that ultimately produced the World Trade Organization. Other changes included significant changes to Canada’s Competition and Bankruptcy Acts, along with full or partial economic deregulation of several industries,...

Few tax measures in recent years have evoked as much public anger or sustained dislike as the introduction of the Goods and Services Tax. However, most economists respond that, given Canada’s relatively high level of public spending compared to the United States and other major trading partners, the GST and general sales taxes as a whole are probably the most practical and efficient way of raising government revenues without undermining Canada’s international economic competitiveness.² They would argue that, rather than hurting Canada’s economy, replacing the old Federal Sales Tax on manufactured goods with the GST in 1990 helped to stimulate...

The mid-1990s marked a significant shift in the politics of taxation in Canada, even though the income tax system itself experienced a longer period of relative stability than at any time since the release of the Carter Commission Report in the 1960s. This seeming paradox can be explained by the unprecedented commitment of the federal and most provincial governments to balancing their budgets through a combination of greater spending discipline, increased tax revenues, and the creative use of fiscal illusion.

In sharp contrast to the early 1980s, when the Trudeau government sought to spend its way out of recession, leaving...

The balancing of public-sector budgets, especially at the federal level, has changed the context of the debate over tax policy as Canada enters the twenty-first century. Continued economic growth, low inflation, and relatively high levels of employment, especially west of the Ottawa River, have increased the fiscal resources and, with them, the political choices available to most senior governments. However, the political competition to control these surpluses and how they are to be used to set the political agenda has also increased. This competition takes place at four levels: for control over discretionary spending within the federal government; between advocates...

Canada’s income tax system has always reflected trade-offs between the desire of politicians and governments to promote economic growth and wealth creation, redistribute incomes from more to less prosperous citizens, and generate enough revenues to pay the ongoing costs of public services. The tax reduction strategy of the Chrétien government, tabled before the 2000 federal election, and the provincial tax reforms announced by several provincial governments in recent years have been broadly consistent with this approach. These changes reflect a series of trade-offs in the distribution of taxes and benefits, and the targeting of both tax and spending measures to...

Business tax issues have taken a relatively low profile in recent years, in sharp contrast to the bitter debates over the levels and fairness of business taxes during the tax reform debates of the 1970s and 1980s. The rising level of business taxation paralleled the steady growth of personal tax rates during the 1990s, yet without sparking the kind of conflict between business and governments typical of the 1970s.

Conflicts over the growth of government and who should pay for it, which were the main focus of earlier ideological battles, gave way during the 1990s to more technical arguments about...

Most studies of the politics of taxation since World War II have focused on federal the government. This reflects Ottawa’s historic dominance of fiscal policy, its power to define the tax bases of most major sources of revenue, especially the personal and corporate income taxes, and the usual willingness of most provinces, other than Quebec, to defer to federal leadership. The provinces traditionally have been viewed as “policy takers,” rather than trend-setters whose tax policies have relatively little influence beyond their own borders.

These relationships are beginning to change. The “own-source” revenues of most provinces are covering a steadily increasing...

Tax policies play an important role in economic growth, the distribution of disposable income, and the financing of public services across Canada. However, they also play a significant role in the shaping of civil society—the voluntary, private, and community institutions and organizations through which individuals cooperate to pursue common goals apart from the commercial, profit-driven institutions of the marketplace and from state institutions financed and controlled by governments. The persistence and health of civil society, including the family, non-profit organizations, the religious sector, private charitable and educational organizations, and other autonomous community organizations, are widely considered to be essential...