Hello everyone,
Some of you are probably following the leadership race for the Conservative Party in Ontario. One of the candidates in this race, Mrs. Christine Elliott, has put forward some very original ideas.
In her platform, Mrs. Elliott proposes an 8% flat rate income tax to replace the four tax brackets that exist now in Ontario.
I have been interested in such an idea for a long time. In 2003, I wrote a book, in French, called In support of a flat tax. And the following year, I signed an Economic Note published by the Montreal Economic Institute that summarized its main arguments.
What are the advantages of a flat tax?
First of all, it stops punishing workers for working more and getting more income. In a progressive tax regime, which is one where income is being taxed at different rates, the more money you make, the heavier the tax burden becomes. This means that every additional hour that you work gets you less and less income.
High marginal tax rates also discourage entrepreneurs and investors. The Government ends up getting a big chunk of their return if they succeed in their business. A progressive tax punishes you for being successful.
On the contrary, a flat tax gives people an incentive to work more, invest more and aim at a higher income, because it’s worth it.
A flat tax doesn’t mean that we’re not showing any compassion for those with a lower income. First, everyone can earn a base amount that is not being taxed. Mrs. Elliott for example proposes a basic personal exemption of $18,000. So if you earn $25,000, you only pay taxes on $7,000. And if you earn $50,000, the tax applies to $32,000.
So even with a flat tax, the rich will pay more taxes than the poor and they will contribute to a larger extent to the government’s budget. Everyone benefits from this regime, including those with modest income.
Even if everyone pays less tax, a flat tax does not necessarily lead to smaller revenues for the government, because it brings more economic growth. This is what has been observed in the many countries that adopted it in the 1990s, especially in Eastern Europe and Asia.
In Canada, Alberta has had a 10% flat tax for several years. This fiscal reform was implemented by one of my colleagues, Stockwell Day, when he was the Minister of Finance of this province.
A flat rate income tax system is the most equitable and the one that is most favourable to work and economic growth. It respects the principle of equality of citizens before the law. The rule is the same for all: one rate for all citizens.
I wish good luck to Mrs. Elliott and I hope this idea will continue to find more support in Canada.
Thank you and I will talk to you again soon.