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Using a simple analogy, if your income sources exceed your household expenditures, then you are going to have to borrow money to pay for such expenditures. If your borrowing source is, say, your credit card, then your balance continues to grow and your interest charges on the credit card debt continue to grow as well.

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If your credit card debt gets to be too much to handle, then you will need to cut household expenditures or increase your income to pay it down. Likely, you’ll need to do both.

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With governments, the situation needs to become pretty dire for them to take action since they are often worried about the political risks associated with expenditure cuts and/or tax increases. In the meantime, they’ll use many comparative figures, often comparing such figures with other countries, to justify their growing debt.

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But it’s only a matter of time until taxation policy will be asked to play a greater role when government spending is structurally misaligned with revenues.

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In this context, that means the introduction of new taxes, which could include increased personal and corporate tax rates — which would be a disaster and add to an already highly uncompetitive landscape on this front — increased GST/HST, new carbon taxes, the introduction of a wealth tax, a home equity tax, taxation on unrealized capital gains or a number of other more targeted ideas, such as excess profits taxes on certain industries, increased taxation on capital gains notwithstanding this 2024 proposal was recently abandoned, etc.

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What we need is comprehensive tax reform. Not just an “expert review” of the corporate tax system that the Liberal Party promised during the late stages of the recent election campaign. With all the chaos that Canada is facing, it is critically important that our country’s finances are managed appropriately.

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A good recipe would combine tax reform with significant and meaningful expenditure cuts, a commitment to increased transparency and accountability (for which a budget is a must-have) and measures to unleash the power of our resources and entrepreneurs.

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Former United States Treasury Secretary William Simon once said, “The nation should have a tax system that looks like someone designed it on purpose.”

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That quote resonates deeply in today’s environment. Canada doesn’t just need marginal tax rate tweaks or partisan half-measures. We need a purposeful, principled overhaul of our tax system — grounded in simplicity, competitiveness and fairness — paired with meaningful spending restraints and cuts and full transparency.

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Combine that with a renewed confidence in our nation’s entrepreneurs and resource builders, and we can finally plant the acorns of good policy, ones that will grow into the oak tree of a proud, prosperous and sustainable country.

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Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.

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