How a low flat tax would benefit Canada

In Canada, the total costs associated with paying personal income taxes (including the time Canadian’s spend preparing and filing taxes, and the cost of tax software and accounting services) amount to upwards of $3.9 billion a year, says Niels Veldhuis of the Fraser Institute. However, if Canada adopted a flat tax, Canadian taxpayers could complete and file their taxes in about five minutes on a simple tax form the size of a postcard.

Not only would a flat tax dramatically simplify the tax system, it would also have a significant impact on the Canadian economy, says Veldhuis:

A flat tax would replace the existing four federal income tax rates with one low rate, thereby eliminating the barrier that discourages Canadians from saving, investing or working harder to earn more money.

Research clearly shows rates that increase as individuals earn more money through hard work and success act as a disincentive for these activities.

Also, since businesses would be permitted to deduct the full value of capital investments in the year of purchase, the tax burden on investments would be significantly reduced and the amount of investment undertaken by businesses would increase greatly.

International evidence also shows that Canada would benefit greatly from a flat tax, says Veldhuis:

More than 20 jurisdictions around the world have implemented flat taxes.

Most notably, Hong Kong has built itself into an economic giant using the flat tax as its fiscal anchor.

Slovakia, which adopted the flat tax in 2004, has since become Europe's fastest growing economy and a beacon for foreign investment.

Source: Niels Veldhuis, To Ottawa, With Love, Fraser Forum, May 2008.

For text: http://www.fraserinstitute.org/commerce.web/product_files/FraserForumMay2008.pdf

For more on Taxes: http://www.ncpa.org/sub/dpd/index.php?Article_Category=20

FMF Policy Bulletin/ 15 July 2008