Annual lists 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

Ottawa, August 13, 1997
1997-071

Finance Department Releases Tax Expenditure Report

The Department of Finance today released a report entitled Government of Canada: Tax Expenditures, 1997.

Tax expenditures are special provisions which result in reductions in tax revenues. Typically they take the form of exclusions, deductions, credits and deferrals.

The report on tax expenditures is published by the Department annually. It provides historical estimates, based on a sample of taxpayer returns or other statistical data, of the cost of tax expenditures for the last several years including the most recent years for which data are available. In the case of the personal income tax, the report provides estimates for 1992, 1993 and 1994. For the corporate income tax, the estimates are for 1992 and 1993. The GST estimates are for 1992 to 1995.

For the first time, the report provides projections of these tax expenditures, beyond the last historical year, to 1999. Pages 20 and 21 of the report provide background information on these projections. As the report notes, these projections rely on estimated relationships between tax expenditures and explanatory variables which are projected into the future. As such these projections are subject to forecast error.

It is important to note that differences of opinion exist both among analysts and tax practioners as to what constitutes a tax expenditure. There are various ways to deal with these differences, ranging from reporting on only a restricted set that all would agree are tax expenditures to reporting on a very broad set which includes every item that could potentially fall into this category. This report uses the very broad approach, not because the Department considers all included items as tax expenditures, but rather to allow analysts to choose their own sets. The report defines a "benchmark" tax structure which does not contain any preferential tax provisions; potential tax expenditures are then defined as departures from this benchmark. The report goes further, providing information on a number of other items that most would not consider to be tax expenditures but about which there may be some doubt.

The figures presented in the report are estimates of the tax revenues forgone. However, it is essential to bear in mind that the elimination of a given potential tax expenditure would not normally yield the full estimated amount shown in the report. As pages 17 through 19 of the document explain, the actual yield would depend on a number of complicating factors that are difficult to estimate including, for example, taxpayers' responses to the change.

Copies of the report are available from the Department of Finance's Distribution Centre at (613) 995-2855 at a price of $12.00.

___________________ 
For further information: