ANALYSIS – Another broken federal Liberal promise: tax cuts for the middle class

By CHARLES LAMMAN

and HUGH McINTYRE

The Fraser Institute

WHEN A GOVERNMENT breaks an election promise it usually attracts a fair bit of controversy. Witness the hubbub in the aftermath of the Trudeau Liberals abandoning electoral reform.

With the federal budget coming soon, it is also worth recalling that the Liberals promised to run deficits of no more than $10 billion for a maximum of three years, but the government’s latest projections peg its annual deficits at almost $30 billion with no timeline for returning to a balanced budget.

The Trudeau government’s list of broken campaign promises just keeps getting longer

While these broken promises have garnered some attention, yet another broken promise has managed to fly under the radar. The Liberals campaigned on the promise to cut taxes for Canada’s middle class. Yet since forming government, they have announced several tax hikes and more may be on the way.

The latest potential tax hike could be higher user fees for a range of federal services (including fish licenses, campsites, and passports). That’s according to a CBC news report that suggests the federal government is eyeing an increase to these fees. If implemented, this would be the latest in the government’s onslaught of tax increases on Canadians.

Let’s take stock of the tax increases announced to date.

First there was the new top personal income tax rate on highly skilled and educated workers — now 33 per cent, up from 29 per cent. This tax hike will discourage economic activity and make it more difficult for Canada to attract and retain knowledge-based workers.

Of course, the government reduced the second-lowest personal income tax rate from 22 per cent to 20.5 per cent, but that reduction is being completely wiped out by the higher payroll taxes working Canadians will have to pay for expansion of the Canada Pension Plan — a combined two-per-cent hike on eligible earnings up to the current limit and an additional eight per cent above.

Keep in mind that Canadians with incomes below $45,000 will be particularly hard hit, as they will not receive any benefit from the income tax rate reduction but they will have to pay higher payroll taxes.

And let’s not forget about the widely used tax credits that the government is eliminating. This includes income splitting for couples with children, the Children’s Fitness Tax Credit, the Children’s Arts Tax Credit, the Education Tax Credit, and the Textbook Tax Credit (other tax credits may be on the chopping block, too, as the government wraps up its review of the tax code). While tax credits create distortions with little economic gain and require higher marginal rates, Canadians who use these credits will see their total tax bill rise from their elimination.

A more subtle tax hike came from the government scaling back the maximum amount Canadians can contribute each year to their Tax Free Savings Accounts (now $5,500, down from $10,000). This reduction in contribution room is effectively a tax hike for those who are unable to shelter additional investments from taxation.

And then there’s Ottawa’s plan to impose carbon pricing on all the provinces, with the rate per tonne reaching $50. This tax will directly raise the cost of many consumer goods including gasoline and natural gas and indirectly for many others due to higher production and transportation costs.

All of this doesn’t even begin to account for the potential for higher taxes to service and repay the substantial run up in federal debt that has taken place already and that is planned for the future.

Taken together, it’s clear that the Trudeau government is breaking yet another campaign promise. So much for cutting taxes on middle-class Canadians.

Charles Lammam is director of fiscal studies and Hugh MacIntyre is a policy analyst at the Fraser Institute (www.fraserinstitute.org).

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