Fresh off his Christmas vacation on a private island in the Bahamas, Prime Minister Justin Trudeau embarked on a cross country tour, signalling that there may be further tax hikes on “wealthy” Canadians in the upcoming federal budget. In Kingston, Ontario, he reportedly said to one questioner: “On your question on tax fairness I couldn’t agree more obviously, and we’re going to have a number of things to say in the upcoming budget.”

It’s not entirely clear what the prime minister means by “tax fairness” but it would be helpful to first clarify that upper-earners in Canada already pay a disproportionate share of taxes. If we just look at personal income taxes, Statistics Canada data show that the top 10 per cent of earners—the country’s high-skilled, educated workers including entrepreneurs, business professionals, engineers, doctors and lawyers—earned 35 per cent of Canada’s total income yet paid 54 per cent of federal and provincial income taxes.

Same goes for the top one per cent who earned 10 per cent of total income while paying 20 per cent of income taxes. But that of course is just income taxes. Canadians also pay a host of other taxes (payroll, sales, property, fuel, “sin” and much more) and when we account for all these taxes, the share of Canada’s total tax burden borne by top-earners is still significantly higher than their share of Canada’s total income.

It’s also not clear what the Trudeau Liberals are contemplating in terms tax measures. Ottawa already raised the top federal personal income tax rate last year, which contributed to Canada having one of the highest top combined (federal-provincial) personal income tax rates in the industrialized world. In fact, Canada’s top tax rate is highest among developed English-speaking countries.     

This is a serious problem because high personal income tax rates discourage people from working hard, expanding their skills, investing, and being entrepreneurial. High taxes also make it difficult for a jurisdiction to attract and retain highly-skilled workers.

According to the Toronto Star, Ottawa might eliminate certain special tax preferences (tax credits, exemptions, deductions) as part of its ongoing review of the tax code. While removing special tax preferences would be a positive move since they distort economic decisions and add unnecessary complexity to our tax system, it’s only a good move if the government uses the extra revenue to reduce tax rates broadly.

By eliminating ineffective tax preferences, the government could dramatically reduce personal income tax rates and simplify the tax system, which would improve the incentives for Canadians to work, save, invest and be entrepreneurial—all things that help propel the economy forward.