A 1% tax cut isn't tax reform nor is it needle-moving for most Canadians

Many tax practitioners, including me, have called for tax reform over the years, but it doesn’t seem to resonate with the average Canadian even though it should.

Tax reform for many politicians generally means appeasing their voter base with new tax measures that are often shallow in substance and miss the mark from a good policy perspective.

Take the recent one percentage point reduction in the lowest personal tax bracket as an example. Is it a good reduction? Sure. But is it a comprehensive answer to our country’s tax issues? Hardly. Will it be meaningful to the average Canadian? Nope.

The reduction will cost our government significant funds overall, but the maximum savings for an individual will be $210 in 2025 and $420 in 2026 — not exactly needle-moving for most. Is this tax reform? No, not in the least. Unfortunately, many politicians think it is. Instead, it’s sugar-laced political candy: superficial, short term and lacking serious thought.

Consider another topic: housing. Politicians, especially liberals, love to attack bogeymen in trying to appease their voter base. The underused housing tax (non-Canadians), flipping tax, prohibition of deductions on certain short-term rentals, proposed tax on unused residential land and even the prohibition on non-Canadians from purchasing Canadian real estate (not a tax measure, but it has negative implications) have all had minimal implications in improving housing supply and are most definitely not tax reform.

Even some of Canada’s municipalities have jumped on the bogeyman bandwagon and introduced forms of vacancy taxes (Vancouver, Toronto and Canmore, Alta., which is introducing a “ livability tax ”). Are these measures tax reform? Nope. Again, it’s just bogeyman politics and poor policy.

It’s been a while since bold policy ideas have been implemented. As a reminder, the personal income tax was first introduced in Canada in 1917. A corporate tax morphed into existence around that time as well.

In 1962, John Diefenbaker convened the first Royal Commission on Taxation . The committee took four years to review and make its voluminous recommendations, many of  which have aged nicely. Some were controversial, such as the taxation of capital gains that were previously not taxable.

Then finance Minister Edgar Benson responded to the recommendations in a white paper in 1969 that culminated in major tax reform in 1972, including a compromise so that capital gains were only half taxable instead of fully taxable.

Since that time, there has only been some limited tax reform and review, such as the change of many tax deductions into tax credits in 1997 and the Technical Committee on Business Taxation report in 1999, but nothing comprehensive.

Instead, we have had many surgical fixes (often motivated by perceived abuses) and no shortage of bogeyman political measures. Combine the patchwork quilt approach with the bloated administration that is the Canada Revenue Agency and the system is a mess.

What does a good tax reform review to develop a 21st-century tax system for Canada look like?

First, it’s thorough, not the political cherry-picking of voter-friendly policies.

Second, a review starts by reminding Canadians what a good tax system looks like. It is well accepted that economist Adam Smith’s four canons of a good tax system, laid out in The Wealth of Nations in 1776, are good principles for a country to strive towards: equity/fairness (but not the definitions that many politicians like to adopt), certainty, convenience and economy (efficiency).

This exercise alone would no doubt reveal that Canada has strayed mightily from those core principles.

Third, it requires bold thinking; surgical fixes are not the solution. Instead, the tax system needs new and bold thinking — or, as economist Jack Mintz likes to say, Big Bang tax reform — to deliver overall economic benefits that Canada needs.

These big ideas should generate direct or indirect benefits for all. Ideas that punish one group of Canadians to the exclusion of others should generally be off the table unless there are compelling reasons why it should be so.

Fourth, it requires courage by political leaders to undertake such an important exercise. Such courage has lately been in short supply by politicians around the world, especially our Canadian governing party.

That leads me back to my opening comment: why should the average Canadian care about tax reform?

Because taxes are not just about the money you pay on your paycheque. Instead, taxes are one of the most powerful levers affecting your ability to build and preserve wealth. A reformed tax system should be fair, efficient and growth-oriented, as well as resilient to help with wealth building and preservation.

Canada’s current system is a patchwork mess that is unable to withstand the shocks that our country is facing, with recent examples being the tariff threats from the United States, rising global tax competition and retaliatory proposals such as section 899 of Donald Trump’s “Big Beautiful Bill.”

Without bold, principled reform, Canadians will continue to bear the cost of short-term political thinking while long-term prosperity fades.

Edmund Burke, the 18th-century political philosopher, once said society is a partnership between those who are living, those who are dead and those who are to be born. That partnership is betrayed when we allow tax policies to drift into incoherence and incomprehensible complexity. We need to work hard to preserve a system worthy of future generations.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at [email protected] and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.

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