Good tax policy is policy that maximizes economic well-being and reflects the views of citizens. A tax system that reflects sound policy is generally competitive internationally, employs tax bases that are as broad and inclusive as possible, has relatively low tax rates, and is for the most part neutral among different types of economic activities (and hence avoids distortions in effort, consumption, and investment).
However, tax policy in Canada is determined not just by the somewhat complex and occasionally contradictory arguments of economists, but also by considerations of the practicalities of administration and harmonization in a federal state, and by the highly pragmatic views of Canadians themselves. The setting of tax policies is therefore not only an academic art but also an exercise in practical democracy.
Canada has made remarkable improvements in the structure of its tax system over the past 25 years. The major reduction of corporate income taxes (with the virtual end of capital taxes), the adoption of a value-added sales tax system by the federal government and many provinces, and the levelling of personal income tax rates have remarkably improved the competitiveness and efficiency of our economy. We highlight these changes in the discussion that follows