On the eve of the first week of school, Minister of Education Mike Bernier announced a new $250 B.C. Back to School Tax Credit.
In public-finance and parliamentary government terms, this announcement is unexpected and irregular — it was not contained in the 2016-17 budget, so will have to be included in the 2017-18 provincial budget and must then be approved by the legislature.
In pre-election terms, this distinct goodie is not so surprising. The new tax credit, which will apply to the 2016 tax year, is apparently to give parents and guardians some help with back-to-school costs, adding to their savings.
A closer look at this announcement suggests the B.C. government itself needs to go back to social-policy and tax-policy school. There are several basic lessons to be taught.
First, to ease into the class, we will start with a basic point. To pursue desired policy goals, governments use the tax system to confer preferential treatment on certain groups (families, for example) and certain forms of spending (on school supplies, for example). So far, so good.
Second, the reported “new $250 tax credit” is not, however, worth $250 to parents and families. The real maximum value in provincial income-tax savings is about $12.50 per school-age child. (This is the $250 amount multiplied by the lowest provincial income-tax rate of five per cent.) The real amount is mentioned on a government website but not in the news release. Trumpeting a $12.50 benefit is not the stuff of which dreams of re-election are made.
Third, the new tax credit is not indexed annually to increases in the consumer cost of living, so this little credit will marginally lose value each year, equivalent to the rate of inflation in the province. Like coins falling through a hole in your pocket, the tax benefit’s value will quietly diminish.
Fourth, the minister of education has said parents will not be required to save and produce receipts to claim this non-refundable tax credit. This effectively means the tax credit is not specifically linked to back-to-school costs. Parents can save and spend the money on whatever they want.
Fifth, the tax credit is broadly directed at parents of school-age children in both public schools and independent schools. It is not targeted to benefit lower- and modest-income families with school-age children. Being a non-refundable tax credit means that the poorest families in the province with school-age children get nothing from this Back to School Tax Credit — they are below the taxpaying threshold.
The distributional impact therefore is inequitable. There is a school start-up supplement for families who depend on the province’s welfare system of income assistance, but this is of no help to many other low-income and modest-income families with school-aged children.
Sixth, this new Back to School Credit joins a host of other measures in the already-complex B.C. personal-income-tax system: the Child Fitness Credit ($25.30), the Child Fitness Equipment Credit ($12.65) and the Child Arts Credit ($25.30). All of these are non-refundable, non-indexed and of minimal value to families, although together their estimated cost in 2015-16 was $8 million.
Notably, the federal government is eliminating the federal children’s fitness and child arts tax credits, effective for 2017, in favour of more effective and progressive forms of support to families.
A good tax system should meet certain criteria, one of which is simplicity. It is desirable that the tax system be transparent. That is, a taxpayer should be able to see how contemplated actions (purchasing school supplies, for example) would affect their tax liabilities.
In addition, tax simplicity is important for a tax system that relies on self-assessment of one kind or another. When the system becomes overly complex, self-assessment becomes increasingly difficult, imposing additional burdens on taxpayers and additional administrative, auditing and enforcement costs on government.
Seventh, the time has surely come to review B.C.’s system of child-tax benefits and cash payments, and work toward an integrated child benefit that more effectively assists low-income and modest-income families.
That topic, students, is for another class.
Michael J. Prince is Lansdowne Professor of Social Policy at the University of Victoria.
