Liberals talk about curbing tax giveaways. Good luck with that

Governments are mountebanks. Grift is in their nature.

Desiring re-election above all, governments constantly pick winners and reward favourites, using other people's money to do it.

Fairness is relative; language is perverted. (Note that governments never spend or bail out anymore, they only ever "invest," or "provide relief.")

But there is no shell game bigger than what economists dryly refer to as tax expenditures.

Politicians rarely use that term, preferring to call them "targeted tax cuts," because really, what finance minister, even on the political left, doesn't want to be portrayed as cutting the taxes of average folks?

Tax expenditures, though, are not tax cuts. They're spending by another name.

Tax expenditures are the aggregate of all the dosh doled out by governments, often to pet constituencies of voters.

They take the form of exemptions (exemption for child care, exemption for tuition, exemption for hospital parking), deductions (deduction of union dues, deduction of charitable donations), credits (child tax credit, caregiver credit), rebates (rebate for new housing, rebate for poppies and wreaths) and shelters (tax free savings plan, registered education savings plan, registered pension plan), etc, etc.

Some are chump change, some are enormous tax drains.

• Morneau says review of federal tax breaks coming

And each of them, big and small, distorts the system, because for everybody who's excused from paying some tax, somebody else has to dig down and pay more.

The Stephen Harper government was particularly adept at inventing "boutique credits," sometimes using focus groups to identify the desires of Conservative faithful.

But every government over the last few decades has done its bit.

Show me the data

So these tax expenditures pile up, until the bloated sum of them becomes so distortionary, and so unmanageable, and so impervious to official reckoning, that they can become a barrier to proper governance, which is what some believe has happened in Canada.

Our reality is that tax expenditures at the federal level, which of course have an impact on provincial revenues, too, now amount to $100 billion annually.

To put that in perspective, the federal government spends roughly $35 billion a year on health care. Total federal government operating expenses amount to about $83 billion a year.

In other words, the government is dishing out, to what amount to special interests, about three times what it spends on health care and $17 billion more than it spends on actual programs like operating the military.

It gets worse. A guiding principle of parliamentary democracy is that spending by the Crown must be scrutinized and ratified by elected MPs.

But because tax expenditures are portrayed as tax reductions, they receive no formal scrutiny. They just keep accumulating over the years, like sludge in a canal.

And in many cases, the data just isn't there to examine.

That's blatantly evident in Ottawa's annual "Report of Federal Tax Expenditures: Concepts, estimates and evaluations," a document the federal government has been issuing annually for decades (except, for some weird reason, 2015).

Here's the link to the 2016 document.But really, don't bother going there because it is so littered with"no data available to support a meaningful estimate or projection"that it defies even people like Sahir Khan, formerly of the Parliamentary Budget Office.

With great understatement, he calls it an "information gap."

Boomer breaks for the most part

Khan, when he worked at the PBO, took a crack at assessing Canada's roiling mass of tax expenditures.

Among other things, he concluded that most of them (there are 396 at present, the vast majority designed for individual taxpayers rather than corporations) are progressive, meaning that they disproportionately benefit lower-income people.

They also tend to favor baby boomers, who just happen to be the richest demographic cohort in human history.

But Khan questions whether it is appropriate for such a vast amount of spending to remain free of scrutiny in a democracy; and he also asks whether these expenditures actually influence behaviour, or just reward it.

The perfect example is the Children's Arts Tax Credit, introduced by the Conservatives, which provided a 15 per cent credit on the cost of art lessons up to a maximum of $500.

So, if you were in a particular tax bracket, you basically received up to $75 from the government if you sent your kid to art lessons.

Khan points out that, in all likelihood, if you are going to send your kid to art lessons, you'll do it whether you get $75 from the government or not.

And of course money is fungible, so you can easily spend it on something else once you get it back say, a bottle of champagne or some nice oysters. So exactly what kind of behaviour is this tax break meant to encourage?

Up for review

In any event, the current government seems to understand tax expenditures are out of control.

Finance Minister Bill Morneau has announced a review of the tax code, particularly its hundreds of targeted tax breaks.

Justin Trudeau is asked by reporters which tax credits he would cut if elected prime minister

9 years ago

Duration 2:30

Stephen Harper has attacked Trudeau's economic plan over the Thanksgiving Weekend

He hasn't given many details, but he told the Canadian Press he wants to ensure the code is "consistent with our approach to tax fairness."

Good luck with that. The Liberals have already begun to phase out a few of the Conservatives' "boutique" credits, like the one on children's art, but rolling back a mountain range of preferences, some dating far back into the last century, will not be particularly popular.

Even finding a few billion to save will likely provoke howls. (And this government needs a few billion those boomers are starting to require a lot of medical care.)

People tend to be against any tax break, except for the ones that apply to them. And unless this government is radically different, it will be sensitive to the wishes of Liberal voters.

The dream of most economists would be to eliminate all tax breaks, period. And to broaden the taxpaying base as much as possible, and lower the tax rate while still maintaining progressive brackets, keeping most of the burden on high earners.

Khan says Morneau's review, if comprehensive, would be "historic."

Or not. This government probably wants to be re-elected.