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Budget tax perks may be on hold this year

The Children's Fitness Credit introduced by Finance Minister Jim Flaherty awards cash back to parents who enter kids into organized sports. The program costs the equivalent of $115-million annually Finance Canada reports. Experts suggest so-called "boutique" tax breaks are designed more to win popular political support than influence behaviour.
The Children's Fitness Credit introduced by Finance Minister Jim Flaherty awards cash back to parents who enter kids into organized sports. The program costs the equivalent of $115-million annually Finance Canada reports. Experts suggest so-called "boutique" tax breaks are designed more to win popular political support than influence behaviour. Bruce Bennett / Getty Images
Tax credits, loved by vote-thirsty governments – none more perhaps than the Conservatives – but resented by economists rankled by measures they deem sloppy and ineffective, are again in focus ahead of Thursday’s federal budget announcement.Finance Minister Jim Flaherty has wielded tax credits with zeal in recent years to curry favour with voters and stimulate spending among consumers and businesses in successive budgets.The swath cut, while targeted, has been wide. Volunteer firefighters, family caregivers and parents with kids in organized sports have all been showered with special exemptions.But with economic growth slowing and a strict mandate to balance the government’s books by 2015, the generosity taxpayers have enjoyed may be coming to an end, observers and experts say.“We’re not expecting any credits,” Gregory Thomas, federal director of the Canadian Taxpayers Federation, said.“What we’re keeping a keen eye on is the business side. They’re talking about closing up [corporate tax] loopholes,” he said by phone from Ottawa this week.“They don’t have a lot of room. It’s not like they have a lot of revenues available to introduce new programs or expand existing ones,” said Jason Clemens, senior vice-president and tax policy expert at the Fraser Institute, a fiscally right-leaning think tank.“The reality is, they’ve got one goal in the next year and half and that’s to balance the budget,” he said from Vancouver.For many economists and policy watchers, it would be welcome relief.Hundreds of millions worth of credits and special exemptions have been doled out in recent years as part of an “economic action” plan that’s provided tax breaks for targeted groups.A Children’s Tax Credit for parents who sign their kids up to soccer or hockey or tennis costs $115 million annually in lost revenue.The Age Credit, an exemption for seniors, has been expanded to include retirees with individual incomes topping $76,500. The annual tally in lost tax revenue: $460 million in 2011.A third, the Public Transit Tax Credit, introduced by Flaherty in part to spur higher use of public systems in congested cities like Toronto, costs $150 million.Yet most economists say the measures rarely hit their mark while creating layers of additional costs and complexity in the tax code.“One of the real problems with these things is that the people who are spending the money anyway get the credit,” Tom Wilson, professor emeritus of economics at the Rotman School of Management at the University of Toronto, said. “For those people, the government is simply giving them money.”“There’s almost no change to behaviour,” the Fraser Institute’s Clemens said. “I didn’t rush out to put my son in hockey or daughter in tennis because I got a $75 tax credit.”A self-review of the federal government’s public transit credit released last fall by Finance Canada indeed said results were inconclusive about whether the measure actually spurred more use of public transit.Experts say the real aim of so-called “boutique” tax breaks is to grab headlines and win votes.Most economists would rather see that money spent on infrastructure or left in taxpayers’ pockets to begin with through lower across-the-board taxes.David Macdonald with the left-leaning Canadian Centre for Policy Alternatives isn’t as quick to condemn the idea of credits being used to boost specific spending.However he echoed others including Clemens at the Fraser Institute in that “tax expenditures” should receive comparable scrutiny to what government spending programs do.“Tax expenditures in general get very little scrutiny compared to general spending. They could bear a lot more,” he said.“There’s a lot of money that goes out the door on these things,” Macdonald added.“Maybe it’s not considered as spending the same way that actual spending is, even though it has the same impact from a fiscal perspective.”

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