1. The Department of Finance
The View from a “Reformed Smoker”
Alexandra MacLean

2. Contents Structure Role Culture Tax Policy Branch
Tax policy and legislative process
Tax policy orthodoxy
Tax incentives
Disadvantages of tax incentives
Loopholes – why are they so hard to close?
EDCF & Social - direct expenditure programs
Why are Budgets the main policy tool for the Government?

3. Department of Finance: Structure
Minister of Finance
Economic and Fiscal Policy Branch Budget & fiscal forecasting
Economic Development and Corporate Finance Branch –Business & economic 2 pagers and MCs
Federal-Provincial Relations and Social Policy –Social policy 2 pagers and MCs
Financial Sector Policy Branch –Banks & insurance companies
International Trade and Finance Branch Close to GAC
Tax Policy Branch Policy & legislation tax 2 pagers
Law Branch
Corporate Services Branch
Consultation and Communications Branch

4. Department of Finance: Role
Primarily responsible for providing the Government of Canada with analysis and advice on the broad economic and financial affairs of Canada.
Responsibilities include:
Preparing the federal budget.
Preparing tax and tariff legislation.
Managing federal borrowing on financial markets.
Administering major federal transfers to the provinces and territories.
Developing regulatory policy for the financial sector.
Representing Canada within international financial institutions.

5. Department of Finance: Culture
Demographics and recruitment
Experience/Inexperience
Red meat economics
Technocrats
Analytical criticism vs. creative solutions

6. Tax Policy Branch: Structure
Sales Tax Division
Business Income Tax Division
Personal Income Tax Division
Tax Legislation Division
Inter-governmental Tax Policy, Evaluation and Research Division

7. Tax policy and legislative process
Main methods to achieve a tax rule change:
Budget Bill
Tech Bill
Press release announcement (less frequently and later inclusion in a bill)
Generally no cabinet committees, no MCs
No role for TBS - no submissions (except CRA side and regulations)
Limited role for Justice – Finance in-house lawyers
PCO interest & role generally limited to broad themes, headline measures, off the rails files
Concentration of Responsibility

8. Tax policy orthodoxy Efficiency, neutrality, simplicity, fairness
Broad base, low rates
Characteristics of efficient taxes
Few exceptions
Simple rules
Withholding at source ideally by a business
GST/HST
Personal income tax on employment income

9. Tax incentives Line department typically views as costless
Politically attractive, stakeholder pressure
Finance officials perceive in essence a mandate to oppose

10. Disadvantages of tax incentives
Non-neutral, picking winners
Complicated and inconsistent with basic revenue-raising tax system objective
CRA as gate keeper
Loopholes, abuse, targeting
Cost is difficult to quantify
Effectiveness is difficult to measure
Expensive and inefficient
Everyone has an important policy objective

11. Loopholes – why are they so hard to close?
Powerful and effective lobbying by business and advisor community
Income trusts
Private corporations
Public mostly not interested or engaged
Not fully conscious of link between loopholes and their own tax burden
What is the political upside?
Cycle of inertia
Reluctance to address allows issues to grow which in turn makes it more risky and difficult to address

12. EDCF & Social - direct expenditure programs
Economic Development & Corporate Finance Branch
Microeconomic Policy Analysis Division
Sectoral Policy Analysis Division
Federal-Provincial Relations and Social Policy Branch
Federal-Provincial Relations Division
Social Policy Division
Similar basic ethos
Basically similar dynamic as with tax incentives, but in the interdepartmental cabinet committee context.

13. Why are Budgets now the main policy tool for the Government?
Budget announcements normally get delivered
Source of funds sorted out
MC/Cabinet committee process is slow and cumbersome
Budget legislation has a clear path to implementation