The Broadbent Blog


Notes on the Federal Fiscal Update

canadian money fanned out

Social progress is made in curious ways.

The current fraught political context has driven Finance Minister Morneau to beef up his economic and fiscal update with the announcement of two modest income support measures which will benefit many middle-class and working poor Canadians. The intended message seems to be that all Canadians can benefit from progressive tax reform, even though the government's approach is inconsistent.

First, the good news.

Total spending on the Working Income Tax Benefit (WITB) is to increase by $500 Million per year starting in 2019. This is an increase of about 38 per cent, coming on top of a small, already announced, increase to offset higher Canada Pension Plan premiums. The current program delivers rather meagre annual benefits (a maximum of about $2000 for families) to some 1.4 million low income working Canadians. The maximum goes to those with earned incomes between $10,000 and $17,000 per year.

This significant increase to a small program will be welcomed by many anti-poverty activists, and will hopefully work with higher minimum wages in some provinces to boost the incomes of low-paid workers. Details on the increase will be announced in the next Budget after consultations with the provinces and others. Hopefully, increases to the WITB will be supported by all parties, as has recently been the case.

The Canadian Child Tax Benefit, which goes to some 90 per cent of families with children, will be fully indexed to inflation starting July, 2018, two years ahead of schedule. This will effectively deliver a small (2 per cent) increase to child benefits, at a cost of about $400 million for two years. This is welcome and should also win all party support, though the program should have been fully indexed in the first place.

Second, the not so good news.

Pending legislation, the update does not detail how much total additional revenue will be gained by shutting down abuses of the private corporation tax rules by a small number of very wealthy Canadians. It seems that much, if not most, of the extra revenue will be used to fund the already announced cut to the small business tax rate which will cost about $700 million per year when fully phased in and unfortunately boost the incentive to incorporate for tax purposes.

More importantly, there are no announcements of further, needed progressive tax reforms such as limits on the stock options tax loophole and the special tax treatment of capital gains. The business tax lobby  seems to have the government on the run.

Minister Morneau does deserve some credit for bringing forward two progressive social spending measures which were likely on the medium-term Liberal agenda. In doing so, he has effectively used part of the benefits of higher economic growth to fund higher social spending.

The government will be criticized from the right for spending too much and continuing to run a small deficit. But the fact of the matter is that the key metric of debt as a share of GDP is falling, partly because past investments such as the new child benefit have boosted the economy.

In working on his next budget, Minister Morneau would be well advised to consider bolder progressive tax reform and a new round of social investments.

 

Andrew Jackson is Adjunct Research Professor in the Institute of Political Economy at Carleton University, and senior policy adviser to the Broadbent Institute. 

Image: CC BY 2.0 Flickr/Sara Long