Would a tax credit make you trade in sunny Varadero for cloudy Vancouver this winter holiday?

Beach

Going here on holiday? No tax credit for you!

Does the blanket of snow now covering Winnipeg make you crave a winter holiday in Cuba, Mexico or Hawai’i? That’s understandable, but one Member of Parliament would rather see you set your heart on a holiday right here in Canada, instead.

Massimo Pacetti, a Liberal MP who has represented a Montreal constituency in Ottawa since 2002, is even willing to help you pay for a domestic holiday. All he needs is to get his proposed legislation through Parliament.

That will be easier said than done. Since Pacetti is an opposition MP, he is introducing his Discover Your Canada Act as a Private Members’ Bill, officially known as Bill C-463.

Such bills rarely become law. Out of 265 Private Members’ Bills introduced since the 2011 federal election, only five have so far become law:

    • Two minor amendments to the Criminal Code
    • One to raise public awareness of epilepsy by declaring Mar. 26 as “Purple Day” (sorry, but it’s not a statutory holiday, so you won’t get the day off).
    • One to designate April 2 as “World Autism Awareness Day” (again, no holiday)
    • And finally, a cute little law to “ensure that all Canadians are encouraged to display the National Flag of Canada,” which became law on June 28.

Pacetti’s bill would, from 2017 on, allow people to claim up to $2,000 in bus, train or air fares as tax deductions, as long as they were used in a trip “not related to a business purpose” and “crossing at least three different provincial boundaries”.

His inspiration for this indirect government subsidy came while walking in Vancouver, thousands of kilometres from his Montreal constituency.

“All of a sudden I looked up and thought to myself this is a beautiful city and if Quebecers ever saw this not too many would want to separate,” Pacetti told the Toronto Star this past week.

The concept of building national unity by offering tax deductions to Quebeckers who holiday in B.C. (which truly is a great place), Manitobans who go camping in New Brunswick and Newfoundlanders who go see the Northern Lights in the Yukon is a noble one — and popular, too, according to a Harris/Decima poll.

But is it good public policy? No.

First, we need to consider the impact that such deductions have on the federal government’s ability to balance the books. Clever use of tax deductions can help a person reduce their tax bill, making these popular with voters.

But they are a choice to forgo revenue that would otherwise be available to balance the books. So, governments have to be careful to ensure that deductions today have a good chance of generating even greater returns later (such as Registered Education Savings Plans) or are at least defensible at some level (such as the Political Contribution Tax Credit, which is distasteful in light of the attack ads and robocall services the parties spend their money on, but perhaps better than individual legislators seeking direct career sponsorship from banks, telecoms, car dealers and land developers).

Pacetti’s tax credit, however, could be easily used in ways he never intended.

Note that Pacetti’s bill says nothing about trip length or purpose. Thus, the cost of flying across three provincial boundaries to attend a U2 concert with a group of friends, deal with a family emergency, or even to leave the country on a plane ticket booked separately could all qualify as tax deductions.

While making it more affordable to fly out to Vancouver to see a concert might be great fun, it is difficult to see this as being worth the federal government foregoing revenues for.

A tax credit would also fail to address why more travel dollars leave the country than flow into it. One reason is the undeniable popularity of escaping to warm southern destinations during the long, cold Canadian winters.

The other is the strong Canadian dollar, which makes it a bargain for Canadians to travel abroad, but more expensive for foreigners to come here. At today’s exchange rates, $100 Cdn. buys you $100 U.S., €78 Eur. or £63 U.K.

Ten years ago, in Nov. 2002, $100 Cdn. bought you only $64 U.S., €63 Eur. or £40 U.K. At that time, it was a relative bargain for travelers from those countries to come to Canada, and expensive for Canadians to go abroad.

Then there is the question of whether tax credits are compatible with the quest for a more open and trustworthy government.

“[L]obbyists and special interests expend resources (time, money, and so forth) in an attempt to gain or preserve tax preferences,” Jason Fichtner and Jacob Feldman of George Mason University wrote in a 2011 working paper.

Indirectly quoting economist Randall Holcombe, they noted that “the easier it is to modify a tax system, the greater the incentive for special interests to pursue rent-seeking behavior. Once tax expenditures were successfully obtained, additional [lobbying takes place] to keep those deductions in place.”

“Tax expenditures are widely criticised as policy instruments which lack transparency and which are difficult to control. They are thought to be vulnerable to lobbying by special interest groups and even corrupt practices,” Clemens Fuest and Nadine Riedel of the Oxford University Centre for Business Taxation wrote in a 2009 report for the U.K. Department for International  Development.

In other words, tax credits are not necessarily wrestled out of governments on the basis of merit. Having the funds to hire a good lobbyist, or friends in the right places, can certainly help.

Even if a tax credit is secured in the absence of these helpful tools, the mere perception that these credits flow to the well-funded and well-connected still lingers.

This blog’s final argument against Pacetti’s bill is based on a domestic travel good, international travel bad assumption that might be at play.

“I think it’s certainly well intentioned and I think we’d certainly like to see Canadians travelling in Canada as opposed to outside the country,” Kevin Desjardins of the Tourism Industry Association of Canada told the Canadian Press this past week.

While this is understandable — nobody expects the Tourism Industry Association of Canada to recommend a trip to Los Angeles — there are also benefits to be gained from Canadians traveling internationally.

Traveling to another country — aside from the carefully scripted worlds of walled-in resorts, cruise ships and fully escorted tours — can be as much an education about Canada as about the host country.

That’s because you can find yourself coming home and seeing your own community through an outsider’s eyes: relieved perhaps at Winnipeg’s relatively laid-back ways, mystified at the “loser cruiser” label attached to public transit here after having been effortlessly whisked around town on the Paris Metro or Berlin’s S-Bahn; shocked by Winnipeg’s poverty; discouraged by the vapidity of our politics; yet grateful that no lifetime resident of Winnipeg has ever lived in fear of a secret police or under military occupation.

Traveling can also lead people to test the validity of their own society’s most cherished beliefs — a discomforting but useful process — and gain a better understanding of what newcomers go through and why so many people come here from some countries, and not so many from others.

Pacetti’s tax credit would discourage Canadians from going through that learning process, and instead stay within the comfortably familiar world of a country that already tends to be very insular and not particularly curious about the outside world.

If the Discover Your Canada Act discouraged Canadians from going forth, seeing the world and perhaps coming back with some new ideas, we would be poorer for it.

As noble as Massimo Pacetti’s intentions are, Bill C-463 is deeply flawed. It would allow people to creatively claim tax deductions for activities that cannot be shown to be worthy of indirect government subsidization; it would encourage further lobbying for tax breaks, which should automatically be of concern to those interested in a more open and trustworthy system of government; and it would discourage Canadians from learning more about the world, and their own country in the process.

On balance, it would be better for this bill to be among the 98 percent of Private Members’ Bills that never make it into law than to be among the two percent that do.

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About theviewfromseven
A lone wolf and a bit of a contrarian who sometimes has something to share.

3 Responses to Would a tax credit make you trade in sunny Varadero for cloudy Vancouver this winter holiday?

  1. TRex says:

    No tax credits. Just force the air travel industry to allow open ended tickets or even one way tickets. Or stop clamping down on national park sites for overnight stays or family run camp grounds. Open the market to competition for air/bus/train travel.

    I have a hair up my arse when it come to air travel so I wouldn’t mind being able to purchase one way air travel.

  2. theviewfromseven says:

    I think Air Canada and WestJet do this. Sometimes aggregator web sites like TripAdvisor show a trip out on WestJet and back on Air Canada (or vice versa) as being cheaper than a round-trip with either. It’s a smarter way of selling product, in my opinion, than pushing people to buy round trips, trying to guess how many people won’t bother showing up for the return trip because it was cheaper than booking a one-way ticket, and then angering customers by bumping them when that guess turns out to be wrong.

    But you’re right that a lot of other airlines are still very inflexible about one-way or open-jaw trips, or trips that are only partially within their network or alliance.

  3. This is an interesting idea. I don’t think it would work well for many reasons. However it really does annoy me to no end that I can sometimes score a week long all inclusive trip to Dominican Republic or Cuba or other Caribbean destination (includes airfare, hotel, food, etc) cheaper than I can buy a round trip airplane ticket to the east coast. Just seems strange. Hard to convince people to go check out the east coast of Canada when they can go to a beautiful beach in a far away land cheaper.

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