A new report from the Parliamentary Budget Officer shows that the personal income tax cut proposed by the Trudeau Liberals will cost more in terms of lost revenue than first thought, and will strongly favour high income earners and families.
The Liberal tax cut promised in the election took a major leaf out of the Conservative tax cut song book, differing only in detail. Only Jagmeet Singh’s NDP gave priority to social investments in areas like public health care, the environment, student aid and childcare rather than lower taxes.
Indeed the NDP proposed progressive tax reforms that would raise taxes for the very affluent, including through raising the proportion of capital gains income liable to tax from 50% to 75%. The majority of capital gains income is declared by the top 1% of income earners.
Singh also proposed a small wealth tax of 1% on large fortunes of more than $20 million that the Parliamentary Budget Officer has shown would raise more than $6 billion per year.
Having won the election (or a least the most seats) the Liberals propose to raise the threshold above which a person starts to pay income tax, from $12,298 in 2020 to $15,000 in 2023 (including the inflation adjustment that is made each year.)
What is important to understand is that the tax cut essentially applies to all taxpayers, since all but the top 1% will pay less tax on income in the first tax bracket. The maximum tax benefit is about $350 per year.
The PBO Report shows that the maximum will go to persons with incomes of up to $160,000, before it is slowly phased out. Meanwhile, the many students, part-timers and seasonal workers who earn less than $12,000 per year will get zero, and middle-income earners (those with an income of $15,000 to $52,000) will get significantly less than the maximum.
The overall impact on high- and rising-income inequality of a very modest, widely spread, tax cut will be minimal. The government claims that it will have an impact on the poverty rate, but that will also be minimal since many low earners as well as families on social assistance will not get a penny.
The PBO report calculates that the cost of the tax cut when fully phased in will be $6.8 billion per year, $1.2 billion more than the previous estimate. Since there is a federal government deficit, the money will have to be borrowed, increasing annual interest costs as well.
The Trudeau government’s choice to cut income taxes and to ignore calls for progressive tax reform will render an ambitious agenda to deal with catastrophic climate change and growing inequality more challenging.
The cut to income tax also makes securing necessary funding for the promised establishment of universal Pharmacare (which, for the upcoming federal budget, the Hoskins Report pegs at $3.5 billion) more difficult. The expansion of public health care to cover prescription drugs and dental care would provide a significant financial benefit to struggling families who either lack coverage, or have to pay for expensive private insurance, and would greatly cut the cost of existing employer plans that are essentially paid for out of wages. Numerous experts have made the case that a national drug plan and creation of a national drug formulary, as well as reduced private insurance overhead costs, would save Canadians literally billions of dollars.
What Canada really needs is progressive tax reform to fund real change, not a small and poorly targeted tax cut that does almost nothing to meet our key priorities.
This Article first appeared in National Newswatch.
Andrew Jackson is the Senior Policy Advisor for the Broadbent Institute