Canadian investment managers urge adoption of a flat tax
Contacts:
Jason Clemens, Director of Fiscal Studies
The Fraser Institute
Telephone: (604) 714-4544
Email: jasonc@fraserinstitute.caRelease Date: 17 November 2000
VANCOUVER, BC — Senior Canadian investment managers strongly favour the implementation of a flat tax. Those findings, from The Fall 2000 Survey of Senior Investment Managers, were released today by The Fraser Institute. The fund managers surveyed also warn of the possibility of increased inflationary pressure over the short term.
"While much of the public debate currently revolves around tax relief, investment managers are clearly indicating the need for fundamental tax reform — not just how much tax is collected, but how the government collects it," says Jason Clemens, director of fiscal studies at the Institute and co-ordinator of the quarterly survey.
Tax reform
Respondents were asked to rate the importance of tax reform on a scale of 1 (no reform needed) to 10 (tax reform required immediately). The average response (8.1) rated tax reform as an immediate requirement, with 78 percent of respondents indicating an 8 or higher.
The most popular reform, preferred by 56 percent of respondents, was broad-based flat tax reform. A single-rate tax (the replacement of multiple tax rates with a single tax rate) was the next popular reform, favoured by 41 percent of respondents). Interestingly, 77 percent of respondents stated that single-rate tax reform was simply a step in the process of broad-based flat tax reform.
"There is a great deal of confusion regarding the difference between these two types of tax reform. Flat tax reform involves fundamentally changing the tax system so that all sources of income, personal and business, are taxed once, at one uniform rate. Alternatively, a single-rate tax simply replaces multiple tax rates with one uniform rate. Unlike flat tax reform, most deductions and tax credits remain in place under a single-rate tax," explains Clemens.
None of the investment managers favoured increasing the progressivity of the tax system by adding tax rates, or increasing the use of payroll and sales taxes while decreasing the use of corporate and capital taxes. Four percent of respondents favoured elimination of the GST.
The benefits of tax reform
An almost unanimous 96 percent of respondents agreed that flat tax reform would lead to higher levels of economic growth, greater capital formation, and productivity gains based on improved incentives for work, savings, and investment.
"Although the investment and pension fund managers were enthusiastic about both types of tax reform, flat tax reform edged out single-rate tax reform based on the traditional measures of simplicity, fairness, and efficiency," says Clemens.
Simplicity
Although 100 percent of respondents agreed that both flat tax reform and single-rate tax reform would achieve greater simplicity, responses were much stronger for flat tax reform. Fifty-two percent strongly agreed that simplicity would be attained through a flat tax, 15 percent indicated strong agreement for the simplicity of single-rate tax reform.
Economic efficiency
Slightly more respondents stated that flat tax reform would achieve greater economic efficiency than single-rate tax reform (93 percent and 89 percent respectively). Again, the strength of responses was much greater for flat tax reform than for single-rate tax reform — 41 percent indicated strong agreement for flat tax reform compared to 11 percent for single-rate tax reform.
Fairness
Ninety-six percent of survey respondents agreed (26 percent strongly agreed) that flat-tax reform would achieve greater fairness, while 81 percent agreed (8 percent strongly agreed) that single-rate tax reform would achieve greater fairness in the tax system.
Monetary policy
A key debate is whether the Bank of Canada should be constrained by a strict set of rules or be given more flexibility in its monetary policy. Respondents surveyed were evenly split (50-50) on policy constraints for the Bank of Canada. Specifically, 0 percent strongly agreed, 23 percent agreed, and 27 percent somewhat agreed, while 8 percent somewhat disagreed, 23 percent disagreed, and 19 percent strongly disagreed.
Despite their split on the rules regarding monetary policy, 65 percent of survey respondents stated that the threat of increased rates of inflation in the future was a real and potent issue: 8 percent strongly agreed, 19 percent agreed, and 38 percent somewhat agreed.
Eighty-eight percent of the pension and investment fund managers surveyed agreed with the statement that new technology, combined with globalization, has allowed for greater rates of economic growth without commensurate inflationary pressures.
Approval rating for the Minister of Finance on the rise
Since hitting an all-time low in the 2000 Spring and Summer editions of the survey, federal Finance Minister Paul Martin's approval ratings soared to 85 percent on the expectation of major tax cuts. "Although this rebound in performance fails to match the 100-percent approval ratings received in 1997, it is nonetheless a major turnaround, " says Clemens.
Bank of Canada approval also climbs
The Bank of Canada's approval rating rose slightly to 89 percent from the previous level of 82 percent. As with the Minister of Finance, the Bank of Canada had not received a perfect rating since the Fall 1997 Survey.
Quebec sovereignty not an issue
Quebec sovereignty remains a non-issue with an overwhelming 96 percent of respondents indicating that Quebec sovereignty was unlikely over the next five years — 26 percent somewhat unlikely, 48 percent unlikely, and 22 percent very unlikely.
About the survey
The pension and investment fund managers surveyed represent over $171 billion in assets under administration. Surveys were mailed to senior investment officers at 130 investment management firms across Canada. Twenty-seven responses were received between September 20 and October 13, 2000. Statistical confidence levels were not assigned to the results.
Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver, with offices in Calgary and Toronto.
For further information contact:
Suzanne Walters, Director of Communications,
The Fraser Institute, (604) 714-4582,
Email suzannew@fraserinstitute.ca
info@fraserinstitute.ca
4th Floor, 1770 Burrard Street, Vancouver, BC, Canada, V6J 3G7
Tel: (604) 688-0221 Fax: (604) 688-8539 Book Orders: 1-800-665-3558
You can contact us at the above email address for any comments or information requests. Please report any dead links or technical problems.