Why the Parties Have It Wrong with Tax-Cut Promises

Campaign promises of lower taxes from all the major parties will weaken the government’s ability to respond to current threats and future crises, say observers.

“When it comes to income taxes we’re seeing proposals for cuts from all four major parties, including the NDP and the Greens,” said Alex Hemingway, a senior economist with the BC Society for Policy Solutions. “I think that’s quite discouraging. Each of these tax cut proposals helps those struggling the most the least.”

Paul Kershaw, a public health professor at the University of British Columbia and founder of the advocacy group Generation Squeeze, said he’s discouraged by promises of tax cuts at a time when the federal government is already running a $42-billion deficit.

“I’m partly frustrated with our political leaders,” he said, “but in a moment of honesty with readers, I will say that we get the politics we ask for. Platforms are being designed in response to what they think will attract people to say ‘Yes, I’ll vote for that.’”

Instead of treating Canadians as “consumers” interested in maximizing their self-interest, there needs to be a stronger message that they can contribute to strengthening the country, said Kershaw.

The Liberals under new leader Mark Carney launched the campaign March 23 with a promise to drop the tax rate on the lowest tax bracket by one per cent, which would take it down to 14 per cent.

Announced a day later, the flagship policy from Pierre Poilievre and the Conservatives is to reduce the income tax on the lowest tax bracket further, to 12.75 per cent.

For an individual, the Liberals say their promise could save up to $412 and the Conservatives say theirs would be worth up to $928.

An analysis by Canadian Centre for Policy Alternatives senior economist David Macdonald found the Liberal promise would cost $5.4 billion and the one from the Conservatives twice that much. Very few taxpayers would see the maximum benefit from either proposal, most low-income earners would have very little change in their taxes and higher-income earners would get the most from the cut.

The NDP would take a slightly different approach, announcing Wednesday that it would raise the basic amount people can earn without paying tax to $19,500, calculating the change would be worth $505 a year to people making between that threshold and $177,882.

The Green Party would go further, raising that threshold to $40,000.

Reducing the amount of revenue the government collects from income taxes fails to address the structural causes of the affordability crisis, Hemingway said.

“We need more investment in housing, transit, child care, pharmacare, to address those very real cost-of-living concerns at a household level,” he said. “Instead we’re seeing a lot of proposals that would deprive the federal government of revenue needed to make those types of investments. It’s worrying.”

The Conservatives have also proposed a tax cut just for seniors that would allow them to earn up to $34,000 before having to pay tax, which the party says is $10,000 more than the threshold now. They would also delay mandatory registered retirement savings plan withdrawals until people are 73 years old, while keeping at 65 the age at which they can claim old age security, the guaranteed income supplement and Canada Pension Plan.

The party would also remove the GST from new homes worth up to $1.3 million, while the Liberals would eliminate the GST for first-time buyers on homes worth up to $1 million.

The NDP has said it would remove the GST from grocery store meals, diapers, strollers and bills for cellphone service, internet and heating.

It did identify one tax cut it would reverse, saying the reduction of the capital gains inclusion rate pushed by Poilievre and made by Carney is “a $17.4-billion handout to the wealthiest 0.13 per cent.”

With income from work taxed at double the rate of income from capital gains, the NDP is pushing in the right direction, Hemingway said.

Even better would be an annual wealth tax that could be applied to assets worth more than $10 million, he said, adding it could raise significant amounts of revenue while affecting very few Canadians.

Kershaw has long argued for redesigning old age security so that it provides more to seniors in need without giving payments to people who are already financially secure.

Annual spending on OAS has grown by $42 billion over the last decade without a review of what the goals for the program should be, he said. Successive governments have known an aging population would put pressure on spending, he added, but failed to plan for it.

No politicians are having serious campaign conversations with retirees, many of whom hold significant assets including real estate wealth, that acknowledge many of them can afford to contribute more, Kershaw said.

He singled out the generational unfairness of Poilievre’s promise to allow seniors to earn more income tax-free. “He’s left us to be a political culture where we either believe in magical thinking that somehow miraculously we’re going to grow enough to counter the $42-billion deficit plus all these billions more in tax cuts, or we just don’t care if we leave unpaid bills for our kids and grandchildren, even though they’re living on a planet that’s increasingly at such risk.”

With Canada in the middle of the pack for taxation per capita among countries in the Organization for Economic Co-operation and Development, taxes are already relatively affordable, he added.

The federal government is budgeted to spend $449 billion this year, two-thirds of which is transferred to the provinces for spending on health, education and other services. Other top areas of spending include servicing the debt, national defence and Indigenous services.

The focus on tax cuts is disappointing at a time when there’s a need to support the programs people depend on, said Hemingway.

“It seems like a mismatch to the moment we’re in,” he said. “Now more than ever we need an active public sector to reinvest in the country. We need to be thinking about restructuring our economy to reduce dependence on the U.S. So slashing taxes and revenues at a time like this, I think, is irresponsible and fails to meet the moment.”