Changing tax rules for diabetics—another missed opportunity for positive tax reform
Many Canadians living with type 1 diabetes may see their income tax bill increase as a result of the Trudeau government’s revised interpretation of the Income Tax Act. According to Revenue Minister Diane Lebouthillier, “advances in technology” are the reason most adults with type 1 diabetes now don’t qualify for the disability tax credit.
Regardless of the reason, this tweak is yet another example of the Trudeau government’s piecemeal and ad hoc approach towards modifying Canada’s personal income tax system that falls well short of the type of comprehensive reform needed.
While the specific merits of particular tax credits can be debated, a good guiding principle to tax reform is to simplify the tax code by eliminating tax credits that benefit niche groups of Canadians and that do not serve a sound economic rationale. The problem is the way the Trudeau government has gone about the process. Instead of using the resulting revenue to cut income tax rates broadly by an equivalent amount, the government seems intent on spending the revenue.
This is a trend, as this government has recently mused about taxing employee discounts, taxing medical benefits, and changing how small businesses are taxed. While the government backed down from or modified their proposals in the face of public backlash, its overarching approach to personal income tax reform remains fragmented and flawed.
Make no mistake, Canada’s personal income tax system should be reformed. It has become even less competitive in recent years and the system is so complex it costs Canadians nearly $7 billion a year (or $500 per household) in time, accountant fees and tax software just to comply with the system.
A better approach to tax reform—like with Canada’s last major personal income reform in 1987—is to comprehensively review all preferential tax measures with an eye on eliminating those with weak or non-existent economic justification so that marginal tax rates can be broadly reduced. In doing so, the government would eliminate special preferences for certain groups while reducing tax rates for everyone, thus improving the economic environment for workers, business owners, entrepreneurs and investors.
Such tax reform is needed now more than ever as the Canadian economy struggles with weak private-sector investment, declining business confidence and a generally weak economic outlook.