Fair and Effective Government
Building an economy that works for everyone, with a strong social safety net, requires a robust national tax base where big corporations and the wealthiest Canadians pay their fair share, and where everyone plays by the same set of rules.
The 2022 Fall Economic Statement announces plans to tax share buybacks, and reaffirms the government’s intention to introduce a new minimum tax regime for the wealthiest Canadians, and its intention to implement a global minimum tax regime to ensure that large multinational corporations cannot avoid paying taxes, regardless of where they do business.
The federal government is also taking action to ensure that Canadians’ tax dollars are being used effectively, and that Canadians can count on effective government services.
3.1 A Fair Tax System
A Tax on Share Buybacks
A share buyback occurs when a corporation buys its own stock back from existing shareholders. While buying back shares is one legitimate way that corporations can return value to their shareholders, it can also divert corporate resources away from making investments in their workers and businesses in Canada.
The 2022 Fall Economic Statement announces the government’s intention to introduce a corporate-level 2 per cent tax that would apply on the net value of all types of share buybacks by public corporations in Canada, similar to a recent measure introduced in the United States. The details of this new tax will be announced in Budget 2023, and the tax would come into force on January 1, 2024.
It is estimated that this measure would increase federal revenues by $2.1 billion over five years, starting in 2023-24, while also encouraging corporations to reinvest their profits in their workers and business.
International Tax Reform
Canada is committed to ensuring multinational corporations pay their fair share of tax wherever they do business, and the government is working with international partners to make that happen.
Canada and 136 other members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting have developed a two-pillar plan for international tax reform, which was agreed to in October 2021. The Framework, if implemented, will end the race to the bottom in global taxation and put Canadian workers and businesses on a level playing field with our global competitors.
Pillar One (Reallocation of Taxing Rights)
Pillar One will ensure that the largest and most profitable global corporations, including large digital corporations, pay their fair share of tax in the jurisdictions where their users and customers are located. Significant progress has been made in establishing the technical rules of the new system, and the OECD has been conducting ongoing public consultations. The Inclusive Framework’s intention is to complete multilateral negotiations so that the treaty to implement Pillar One can be signed in the first half of 2023, with a view to it entering into force in 2024.
Pillar Two (Global Minimum Tax)
Pillar Two, a global minimum tax regime, would ensure that multinational corporations are subject to a minimum effective tax rate of 15 per cent on profits in every jurisdiction in which they operate. To function effectively, Pillar Two requires participation and extensive coordination from international partners around the world.
Canada is committed to the global minimum tax on large corporations. We continue to work closely with our international partners to develop a coordinated implementation framework, to be put in place in a timely and coordinated manner.
Through both pillars, the government remains committed to ensuring that those who do business in Canada pay their fair share of taxes and that there is a level playing field for Canadian workers and businesses in the global economy.
Ensuring the Wealthiest Canadians Pay Their Fair Share
Through significant use of deductions, tax credits, and other ways of having income taxed at lower rates, some of the wealthiest Canadians pay comparatively little personal income tax as a share of their income.
The Alternative Minimum Tax (AMT) is intended to ensure that high-income Canadians cannot disproportionately lower their tax bill through advantages in the tax system, but it has not been substantially reviewed since its introduction in 1986.
In Budget 2022, the government committed to examining a new minimum tax regime to ensure that all wealthy Canadians pay their fair share of tax. The 2022 Fall Economic Statement reaffirms this intent, and a detailed proposal and path for implementation will be released in Budget 2023.
3.2 Effective Government
Improving Service Delivery
Canadians should be able to count on efficient, timely, and high-quality government services. In June, the government created a new task force to improve government services, with a mandate to review service delivery, identify gaps and areas for improvement, and make recommendations to ensure Canadians from coast to coast to coast receive the highest quality of service, and wait times for service are reduced. That is why, in recent months, the government has made significant investments to improve the services Canadians rely on. This includes:
Proposing to provide $1.02 billion to Service Canada to process Employment Insurance (EI) and Old Age Security (OAS) claims faster while reducing the EI claims backlog, in addition to $574 million to reduce EI and OAS call centre wait times. Employment Insurance call centres are now performing better than the service standard of 10 minutes, with calls being answered in 6-7 minutes. Service Canada is on track to return to its service standard on the speed of payment delivery.
Proposing to invest an additional $400 million in 2022-23 and 2023-24 for the Canada Revenue Agency (CRA) to support call centre operations in the face of projected call volumes that are expected to remain above pre-pandemic levels.
Proposing to provide $115 million for Veterans Affairs Canada (VAC) to hire and retain case managers, reduce application backlogs and wait times, and help provide faster service to veterans. Since 2020, new investments in service delivery at VAC have reduced the backlog of applications by more than 50 per cent.
Proposing to provide $137 million for the Canada Border Services Agency to enhance its frontline capacity and hire additional officers to help alleviate border pressures, as well as prevent prohibited or restricted goods from entering Canada.
The government is also taking action to reduce wait times in the immigration system, including:
- Hiring more 1,250 new employees to tackle backlogs and increase processing capacity;
- Improving how visitor record applications are processed by expanding the use of advanced analytics and other automated technology; and,
- Exempting certain low-risk, in-Canada, foreign nationals from submitting an immigration medical examination as part of their application, which is expected to help more than 180,000 people quickly obtain temporary or permanent resident status.
Addressing the Digitalization of Money
The rise in cryptocurrencies and the digitalization of money are transforming financial systems in Canada and around the world. Canada’s framework for the regulation of our financial system needs to keep pace. At the same time, the digitalization of money poses a challenge to democratic institutions around the world. In the last several months, digital assets and cryptocurrencies have been used to avoid global sanctions and fund illegal activities, both in Canada and around the world. In order to help address these challenges in Canada, Budget 2022 announced the government’s intention to launch a financial sector legislative review focused on the digitalization of money and maintaining financial sector stability and security.
Consultations with stakeholders on digital currencies, including cryptocurrencies, stablecoins, and central bank digital currencies, are being launched on November 3, 2022.
Overview of Gender-Based Analysis Plus
A Tax on Share Buybacks: Shareholders are disproportionately older men, and tend to have higher incomes. In 2019, men (62 per cent), people aged 65 and over (38 per cent), and people with more than $100,000 in annual income (63 per cent) accounted for disproportionate amounts of dividend and interest income received by Canadians. Comparatively, men and seniors account for 49 per cent and 16 per cent of the Canadian population, respectively. Revenue from this measure will contribute to paying for general government programs and expenses, which benefit Canadians, particularly the middle class.
Improving Service Delivery for Canadians will focus on ensuring that Canadians have access to the services they rely on in order to address their unique needs. Low-income individuals rely on the timely, consistent delivery of these benefits, which these investments will help ensure. In particular:
Employment Insurance benefits support close to two million Canadians per year who lose their jobs or who are unable to work due to life events such as illness or welcoming a new child. Seven million seniors aged 65 or older directly benefit from Old Age Security (OAS). The Guaranteed Income Supplement (GIS) supports low-income seniors, while Allowances are available to certain qualifying individuals aged 60 to 64. Overall, the OAS beneficiary population is gender-balanced. Low-income seniors receiving the GIS comprise one third of OAS program beneficiaries. Over a third of all seniors (38 per cent) and almost half of those over age 75 (47 per cent) have a disability. These seniors are more likely to be living below Canada’s Official Poverty Line. While 6 per cent of seniors without a disability live below the poverty line, that number rises to 7.3 per cent for those with a milder disability and 10.4 per cent for those with a more severe disability.
Support to Veterans Affairs Canada (VAC) primarily benefits veterans with physical and mental health challenges. VAC estimates that the veteran population in Canada is 618,000, of which 123,000 are clients of VAC. As women account for only 12 per cent of the VAC clientele, these programs disproportionately benefit men. However, women veterans are more likely than veterans who are men to report depression (35.2 per cent vs. 24.4 per cent) and anxiety (25.4 per cent vs. 20.7 per cent) and will benefit from these improvements to VAC services. Veterans are more likely than the general population to experience chronic pain (50.7 per cent vs. 22.4 per cent) and to sometimes or often experience activity limitations (64 per cent vs. 26.4 per cent). Compared to the overall Canadian population, veterans are more likely to report suffering from hearing problems (16.7 per cent vs. 3.3 per cent), depression (25.7 per cent vs. 7 per cent), anxiety (21.3 per cent vs. 6.3 per cent), and post-traumatic stress disorder (23.7 per cent vs. 1.3 per cent).
|3.1 A Fair Tax System||0||-30||-440||-520||-550||-580||-2,120|
|A Tax on Share Buybacks||0||-30||-440||-520||-550||-580||-2,120|
|3.2 Effective Government||575||827||673||126||24||24||2,250|
|Improving Employment Insurance and Old Age Security Service Delivery||215||661||620||101||0||0||1,597|
|Canada Revenue Agency Call Centre Post-Pandemic Sustainability||290||110||0||0||0||0||400|
|Improving Service Delivery for Veterans||40||35||31||3||3||3||115|
|Canada Border Services Agency Frontline Capacity||31||21||21||21||21||21||137|
|Chapter 3 - Net Fiscal Impact||575||797||233||-394||-526||-556||130|
Action on Budget 2022 Spending Reviews
The federal government remains focused on managing public finances in a fiscally responsible manner.
In Budget 2022, the government committed to reducing the pace and scale of previously announced spending that has yet to occur by up to $3 billion over the next four years. The 2022 Fall Economic Statement delivers on this commitment with reduced spending of $3.8 billion, owing to the lower-than-expected uptake of COVID-19 supports in 2021-22 (Table 4.1).
In Budget 2022, the government also announced the launch of a comprehensive Strategic Policy Review to assess program effectiveness and identify opportunities to save and reallocate resources without impacting services to Canadians. This ongoing review will target savings of $6 billion over five years, starting in 2024-25, and $3 billion annually by 2026-27.
Budget 2023 will provide further details on how the savings target will be achieved.
Reduction in scale of spending (2021-22):
|Business Income Supports||-3,209|
Canada Emergency Wage Subsidy
Canada Emergency Rent Subsidy
Canada Recovery Hiring Program
Targeted Supports for Deeply Affected Businesses
|Emergency Personal Income Supports||-589|
|Budget 2022 Target||-3,000|
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