The Politics of Reform: Class Interests and Tax Reform in Canada, 1960-1971

Abstract

<p>This case study of tax reform during the 1960's and 1970's examines the way in which the political representation and conflict of class interests shaped the development of a crucial area of state policy. The 1967 Report of the Royal Commission on Taxation (carter Commission) called for a comprehensive and progressive restructuring of the Canadian tax system. However, after over four years of heated debate, the changes eventually implemented on January 1, 1972 were a very pale reflection of the original carter proposals. The focus of this analysis is upon what happened between the promise of fair and equitable taxation held out by the Royal Commission and the far more limited reforms finally enacted. Tax reform proceeded by means of a number of distinct and separate junctures through which shifts in policy can be easily charted. At each of these junctures the key proposals were steadily moderated and the Commission's fundamental principles were weakened or rejected. The decisive factor in the government's consistent stage-by-stage retreat from the central objectives and recommendations of the carter Report was the tremendous opposition of the capitalist class to major progressive reform.</p> <p>The sweeping recommendations of the Royal Commission, which would have limited the existing highly advantaged treatment of the capitalist class and affluent strata more generally, met with intense hostility from Canadian business. The corporate sector quickly mobilized an extensive campaign against the proposals; business representatives became the predominant presence in formal deliberations and public debates on the direction of reform, and major firms and corporate organizations exerted pervasive and unrelenting pressure upon the state. The scope of reform was also greatly limited by crucial structural constraints of a capitalist economy: given its dependence upon private capital to allocate sufficient investment to sustain adequate levels of economic growth, state policy must be extremely sensitive to the maintenance of business confidence and a favourable climate for investment. The concrete significance of this general imperative was reinforced by incessant dire corporate predictions that investment would be reduced and capital withdrawn should the Carter proposals be adopted. Although the demands of organized labour and the New Democratic Party and the exigencies of political legitimation and electoral competition ensured that the government could not totally abandon reform, no other group was able to mount a comparable defense of progressive changes in the face of enormous corporate pressure, reinforced by the broadly similar opposition of small business and the major provincial governments. This massive and cumulative opposition forced consistent modifications of the proposals in the direction of corporate demands and immediate interests at each stage of the reform process and prevented any substantial implementation of policy to which business strongly objected. The result was that the potential of progressive reform, which would have directly benefited the majority of the population, was not significantly realized. That this was so and that the final tax reforms never threatened the fundamental interests of the capitalist class in continued accumulation and the reproduction of the overall capitalist system is a telling manifestation of its dominant political power.</p>