Morneau confirms Liberals seeking to eliminate more tax credits

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Finance Minister Bill Morneau is looking to eliminate more tax credits as he prepares for the 2017 budget, a move that could simplify the tax code while also raising new revenue for a cash-strapped Liberal government.

The Finance Minister made back-to-back parliamentary-committee appearances Wednesday, one day after releasing a fall fiscal update that promised increases to infrastructure spending but also forecasted larger deficits due to slower economic growth.

Tax credits – which are officially called tax expenditures but are often referred to as boutique tax cuts because they can be targeted at specific segments of the population – are worth about $100-billion a year in foregone federal revenue.

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The minister appointed a panel in June to review these credits, but he had been largely non-committal as to whether he intended to take further action on this front.

However, when asked directly during an appearance Wednesday before the Senate finance committee, Mr. Morneau confirmed that more changes are coming.

"We think we did make some simplifying efforts in budget 2016 but we know there's more work to be done in this regard to look at things that no longer are having the desired impact," he said before the committee. "[We want] to make sure that on an ongoing basis, the tax code is fair, and importantly to know that simplicity is a goal in and of itself because people need to understand the tax code in order to have the desired impact. So it's an effort that we're pursuing."

The Liberal Party said during the election campaign that it could potentially find billions in revenue by eliminating some tax credits, particularly those that primarily benefit higher-income Canadians.

Mr. Morneau's 2016 budget did eliminate some credits – including the children's fitness tax credit and the children's arts tax credit – but it also created new credits, including a school-supplies credit for teachers.

Annie Donolo, a spokeswoman for Mr. Morneau, declined to say what specific tax credits are being considered for elimination. She also said it was too early to say whether the recommendations of the advisory panel will be made public.

During the 2015 election campaign, the Liberal Party pointed to credits for individuals who are paid in part through stock options as an example of a credit that could be eliminated or reduced.

"A lot of those benefits go to the high-income people in the top 2 or 3 or 4 per cent of the income range," John McCallum said during the election campaign, when he was a party spokesman for financial policy. He is now Immigration Minister. "I think the primary source of savings will come from tax expenditures," he said then.

The government has not set a target for how much revenue could be raised from this review.

In March, Mr. Morneau suggested the Liberals were no longer interested in changing the stock option credit, largely in response to concern from Canada's high tech sector.

The seven members of the advisory panel are Robin Boadway, emeritus professor at Queen's University; Dalhousie University law professor Kim Brooks, who compiled a book of essays on Canadian tax reform; Kevin Dancey, former CEO of the Chartered Professional Accountants Canada; Université de Sherbrooke professor Luc Godbout, who headed a similar review for the Quebec government that led to the release of a four-volume report in March, 2015; Osgoode Hall Law School professor Jinyan Li, a former governor of the Canadian Tax Foundation; University of British Columbia economist Kevin Milligan; and Carleton University assistant professor of political management Jennifer Robson.

Dr. Milligan was a member of the Liberal Party's economic council of advisers and has been brought in to Finance Canada temporarily as part of the tax-expenditure review.

In August, he announced on his website that he would be spending 80 per cent of his time between Sept. 1 and Dec. 31 working for Finance Canada under an interchange agreement. Dr. Milligan – who frequently comments on public-policy issues – said he agreed to avoid "any statement critical of Finance Canada or government policies, programs, or officials …" during the four-month period.

The tax-expenditure panel is separate from Mr. Morneau's advisory council on economic growth, which released its first set of policy recommendations in October.