October 21st, 2020

Liberals’ tax plan offers little relief


By Lethbridge Herald Opinon on February 5, 2020.

Plan will do little for economic growth

Jake Fuss and Finn Poschmann

THE FRASER INSTITUTE

According to a Parliamentary Budget Officer (PBO) report released last week, the federal government’s plan to increase the basic personal income tax deduction will cost nearly $7 billion annually when fully implemented. This is not only higher than what the Liberals anticipated during last fall’s election campaign (and in the December fiscal update), it also means the government’s policy choice will add to the debt load of Canadians.

In December, Finance Minister Bill Morneau announced that the government would gradually increase the basic personal amount – the amount of money Canadians can earn before paying income taxes – to $15,000 by 2023-24.

At the same time, the government indicated it would offset this tax reduction for Canadians making more than about $150,000.

This isn’t a plan many tax policy experts would put at the top of their to-do list. For most Canadians, the increase in the basic amount is the same as lump-sum tax relief. That’s fine as far as it goes but it means they get no boost in their after-tax returns from taking on an extra shift at work. They face the same old tax and clawback rates.

In reality, because the increase in the amount will be clawed back from taxpayers in the fourth tax bracket, those taxpayers get a tax rate hike. The hike is small but because these taxpayers by definition already face a very high tax rate – more than 45 per cent in most provinces – the economic damage is disproportionately large, adding many tens of millions to the cost of the plan.

And the plan’s cost is already high. Originally projected to begin at $2.9 billion in 2020-21 and eventually reach $5.6 billion at the end of the four-year period, the PBO’s new projections suggest the cost will be higher. For the next four years, it puts the total at $20.7 billion – almost $3.5 billion more than estimated in the Liberal Party platform.

It’s unfortunate that the government chose a tax relief plan that will do almost nothing for economic growth. What makes it far worse is that the costs of this plan will be funded by borrowed money.

The federal government is already running persistent deficits and forecasts show no end in sight. This means increasing the basic personal amount will be financed entirely through more borrowing. In other words, more debt for Canadians.

Prime Minister Justin Trudeau’s tax approach stands in stark contrast to that of past Liberal governments.

In his 2000 budget speech, then-finance minister Paul Martin said “tax reductions should not be financed with borrowed money.” The Liberal governments of the mid-1990s and early-2000s instead focused on balancing the budget and returning small surpluses before lowering taxes on personal incomes, businesses and capital gains.

Of course, the tax relief implemented by Jean Chretien and Martin increased incentives for Canadians to work, save and invest, and helped spur a decade of good economic growth. But the government didn’t borrow to do so.

The government has chosen a much different path today, increasing debt and deficits to finance more spending and tax relief. Because the government continues to borrow more money, the proposed tax cuts are not cuts at all but punts to future taxpayers who will face higher marginal tax rates than otherwise, with ensuing economic losses.

Far better would be a spending plan that quickly delivered balanced budgets, swiftly followed by tax rate relief for all Canadians. That would set in motion a virtuous economic circle, with much better results for our future selves and children.

Chretien and Martin understood that tax reductions generally should not be financed with borrowed money. Trudeau and Morneau would do well to follow this example.

Jake Fuss and Finn Poschmann are analysts at the Fraser Institute. Distributed by Troy Media.

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Fescue

Poor, poor Fraser institute: still toting water for the rich with their trickle-down economics fantasy.

It’s funny that tax relief for everyone resulting in more of deficit is wrong for Canada, but somehow good for Albertans, where the tax benefits accrue to the rich.

Southern Albertan

It seems that neither the Liberals nor the Conservatives know the meaning of “fair taxation’ nor “equal wealth distribution.”
This is a reminder of the political story ‘Mouseland’ which explains the false dicotomy that Canada has only two political parties, neither of which meets our needs.

Fescue

Well said. Where is the Tommy Douglas for our times?

biff

fes :), so.ab, agreed! one is left to wonder when it might be that the poor, growing in numbers, will ever agitate. perhaps there will come their leader, just a little charisma will be all that is needed, and not a populist borne of ignorance, lies, and hate. of course, those needing representation transcend economic poverty, given that we also have many that truly require real leadership with regard to transforming the impoverishment of the planet’s health. is this leader kenney? trudeau? trump? boris badenov johnson? putin? jong-un? xi jinping? right now it seems we have the antithesis in place in virtually every country on the planet…and yet, with the exceptions of several noted, there are masses supporting these oafs. if we could learn just one thing from history, may it be that whenever someone has signed off with an “x”, they have been robbed.
and yes, what i would give for a leader that is even half of the decency that was tommy douglas.