Carney's next budget has to offer real changes, not just paint over the economic cracks

My wife and I once bought a house that needed obvious renovations, but every time we pulled something apart with the renovators, it revealed a previous patchwork and sometimes multiple patchworks stacked on top of each other.

At those points, we had a decision to make: keep patching or do it properly. We chose to do it properly, which meant a full rebuild instead of another layer on top of the old ones. It also meant reworking our own budget so the project could be paid for. A patch job is cheap because it defers the real cost. We weren’t interested in deferring, but in doing it right to last for generations.

Canada’s tax system is that house and this government seems determined to keep patching it. It’s long overdue for repair and reform since it’s a patchwork mess that is almost impossible to navigate.

During the 2025 election campaign, the Liberals promised an expert review of the corporate tax system , a commitment that at least gestured toward pulling the wiring out of the walls. Budget 2025 did not mention the promised expert review; neither did the spring economic update in April.

Finance Minister François-Philippe Champagne’s spokesperson recently said it would be “inappropriate” to speculate on prospective changes to the tax system and that the minister has been clear about the budget’s emphasis on innovation, growth and entrepreneurship.

Translation: the review is dead and the government would prefer nobody notices.

Instead, Canadians are told the pre-budget consultation process launched this July — the annual submission charade will do the job. It won’t.

One of the Prime Minister Mark Carney’s point people on the budget consultations has said Ottawa plans to tackle tax reform “one bite at a time,” with small business changes high on the priority list. That’s a candid admission of the real strategy: individually defensible, politically safe measures bundled together and marketed as tax reform this fall.

Some of those bites may be sensible. None of them, stacked together, will fix a system that hasn’t had a genuine structural look since the Royal Commission of the 1960s and Michael Wilson’s reforms of the 1980s.

For example, using small business as the starting point, you cannot meaningfully reform how a small business is taxed without also touching how its owner is taxed personally. The small business deduction, the corporate tax rate, the dividend tax credit and the capital gains treatment when the owner eventually sells are all links in the same chain; you can’t patch one without affecting the others.

A consultation portal or meetings with various groups soliciting short-term ideas isn’t built to trace a chain like that. It’s built to generate a list of grievances and popular ideas for political staff to sort into a budget.

I understand the political calculus. A body with a genuine mandate takes time and by the time it reports and anything gets implemented, you’re deep into the back half of the mandate, with the riskiest measures landing just in time to become an opponent’s talking point in the next campaign.

Ducking that timeline and calling the consultations good enough makes cold political sense, but it’s short-sighted and Canada has gotten this right before — twice — by choosing the harder path over the politically comfortable one.

It began with a 1984 paper questioning whether piled-up incentives were distorting business decisions and ended with a 1987 white paper proposing to cut the corporate rate to 28 per cent from 36 per cent in exchange for narrower write-offs, collapsing 10 personal brackets to three, deductions becoming credits, the base broadening and set the table for replacing the manufacturers’ sales tax — a hidden, cascading 13.5 per cent levy that eroded exporters’ competitiveness — with the GST.

The GST was visible, itemized on every receipt, and politically radioactive because of its visibility. Wilson and prime minister Brian Mulroney knew that might cost them and by 1993, it was one of several forces — alongside a deep recession and voter fatigue — that reduced the Progressive Conservatives to just two seats, the worst defeat of a governing party in Canadian history.

They did it anyway because it was the correct call. Hiding a tax doesn’t make it cheaper; it just makes it harder to fix. That act of political self-sacrifice gave Canada a more efficient, transparent consumption tax that’s still a backbone of federal revenue nearly four decades later. None of that came out of a submissions portal, stakeholder meeting or bite-sized changes.

In 1997, finance minister Paul Martin appointed economist Jack Mintz to review Canada’s business tax system to promote job creation and growth, simplify compliance and enhance fairness.

The Technical Committee on Business Taxation recommendations took years to land, but they underpinned the corporate rate reductions and capital gains changes of the early 2000s that made Canada meaningfully more competitive.

Both the Wilson and Mintz exercises shared the same shape: focused, credible, deadline driven and willing to recommend things that were unpopular in the short run because they were right in the long run.

That’s the model worth reviving: something compact, expert-led, with a mandate to look at the whole house rather than take the expedient and cheap path, not a submissions portal, not a four-year-long royal commission (even though I’d love to see it).

My wife and I could have painted over the old patchwork. It would have looked fine until the rot underneath made itself known in far more expensive ways. Instead, we did the harder math and paid for the real job upfront.

Budget 2026 is shaping up to be a coat of paint with possible new colours. Canada needs a real renovation.

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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