Stephen Harper's dramatic tax cuts

Harper changes Canada, a cut at a time

Wells: Your taxes are down. That’s a big change and it’ll be hard to undo.

PMO Photo by Jason Ransom

PMO Photo by Jason Ransom

If I were the Conservative party, I’d be using the latest report from the office of Parliamentary Budget Officer Jean-Denis Fréchette to fundraise too. By the standards that motivate Conservative donors, this report is highly motivating.

The report, by PBO analyst Trevor Shaw, examines the reduction in federal revenues resulting from all the major changes to personal income tax and the GST since 2005. It’s an odd choice of starting point—2005 was the second of Paul Martin’s two calendar years as prime minister—but only a small part of the reduction Shaw measures is attributable to that second Martin budget. Most has happened since.

And the net effect is striking:

“In total, cumulative changes have reduced federal tax revenue by $30 billion, or 12 per cent. These changes have been progressive, overall. Low- and middle-income earners have benefited more, in relative terms, than higher income earners.”

Shaw attributes $17.1 billion of the reduction to changes to personal income tax level and structure, and $13.3 billion to changes in GST/HST rates. He doesn’t count revenue reductions from changes to corporate income tax. We’ll get back to that. But on the personal income tax and GST side, the final number is probably actually a little bigger than $30 billion: Shaw writes that he couldn’t get enough data to make his own estimate of revenue reductions due to Tax Free Savings Accounts, but passes along a Finance Canada estimate that it’s good for $410 million in revenue reductions. So, figure $30 billion and change in the current tax year that Ottawa would have raised if it hadn’t been for the past decade’s worth of tax changes.

The whole report is worth two hours of your life if you’re interested in the effect of every tax change. Some have been regressive—they have disproportionately benefited wealthier taxpayers. More are progressive, bestowing greater benefit on those who earn less.

If you look at raw dollars, the benefit goes mostly to the more affluent. If you earn about $17,000 a year, the Harper tax cuts (well, nine years of Harper tax cuts after one year of Martin government) have saved you about $700. (That’s approximate; I got it by eyeballing graphs in the PBO report.) If you make $170,000, you’re saving about $2,000. Unfair! “The top 20 per cent of income earners accrue almost half of the financial benefits of a PIT rate reduction,” Shaw writes.

Except $700 is about four per cent of a $17,000 income, whereas $2,000 is just over on per cent of a $170,000 income. Measured as a fraction of personal income, the Harper tax cuts are mostly progressive. And they have become more steeply progressive as the years have gone on.

Much of that progressivity is due to one benefit, the Working Income Tax Benefit (WITB). It doesn’t get much coverage because it goes only to low-income Canadians. As the PBO puts it, the WITB “was introduced in 2007 to provide tax relief to low-income households in Canada. The WITB provides a refundable tax credit for low-income individuals on earned income in excess of $3,000.” It’s designed to remove the benefits disincentive to finding low-paying work, and it’s phased out for net income above about $11,430 for individuals. “Households with market incomes in the 10th to 40th percentile ($2,030-$36,253) receive 60 per cent of net financial benefits of the WITB,” Shaw writes.

Other changes to the tax system have been less progressive, and some have been regressive. The net effect is that as a portion of earned income, the changes have disproportionately improved the bottom line of working-class and lower-middle-class Canadians.

What else? The GST cuts help the provinces, because they leave Canadians with more money to spend, leading to increased tax revenues for provinces that make no tax changes of their own. The PBO estimates the total benefit to all provinces at around $600 million.

So that’s an annual reduction in taxes of between $700 and $2,000 for almost all taxpayers. Here’s where the Conservative fundraising copy gets a little misleading. “The Liberals and NDP have opposed our tax cuts and have dangerous plans to raise your taxes,” the ad copy says. “We cannot and must not let that happen.”

At least publicly, in fact, the NDP and Liberals have foresworn personal tax increases. Tom Mulcair calls this “a contract with the voting public on our behalf.” Justin Trudeau says “Canadians are struggling … there is no reason to raise taxes on them now.” In fact he goes Mulcair one better and promises he won’t raise individual or corporate taxes.

Two things about this.

First, Mulcair is fooling himself if he thinks corporate taxes can be increased to make up for the shortfall in personal-tax income Harper has engineered. As the PBO points out, “Personal income tax and the federal portion of the GST/HST account for 75 per cent of federal tax revenues.” There’s way less room to make money off rich fat cats than Mulcair pretends. I mean, he’s welcome to keep pretending, but if he keeps his word an NDP government will remain short of cash. And a Liberal government, more so.

Second, this is why Stephen Harper is in politics. I wrote a book about that. He may one day stop being prime minister, at which point the real fun begins, because his opponents are promising to run a Pierre Trudeau government or a Jack Layton government at John Diefenbaker prices. It can’t be done. Their inability to do it will be Harper’s legacy.


Harper changes Canada, a cut at a time

  1. I haven’t a grand proclamation to make here but I find myself reluctant to feel any joy at this revelation. Paying less tax personally while the government wracks up debt does not seem like a win. It seems more like that the burden has just been made less obvious or immediate. Here, have a few hundred more dollars and I’ll just crank up the I.O.U. that you or, more likely, or kids and grandkids will be responsible for. Seems like a slight of hand to me.

    • So, I take it you haven’t been taking out a second mortgage on your house each and every year to finance your higher standard of living?

      Would be quite a shock to the kids when the will is read. But, like they say, you can’t take it with you.

    • You must be grateful we don’t have Obama running our country or we’d have FAR larger deficits per capita!

      • @craig Never understand arguments like this. Would you be happy that someone kicked you in the groin because the other guy would have kicked you three times? Frankly, I’d rather have not been kicked in the groin at all.

        • Yes. I would rather be kicked in the groin once instead of three times. If you ran a poll of 1000 men I’d bet that 999 would agree with me.

          And yes, I would rather have smaller deficits than larger ones.

          • Too much groin kicking and you’ll have more than smaller deficits.

    • Except that the government is not “wracking up debt” as you put it….the debt at $20,000.00 per capita is stable and the deficit will be retired next year. Compared to the U.S. GND @ $55,000.00 per capita our debt is one of the lowest in the G-7

  2. At least publicly, in fact, the NDP and Liberals have foresworn personal tax increases.

    Thats the thing, people don’t believe either of them when they say it. They both promise not to raise taxes, but then promise massive spending increases. It’s just not possible.

    I also think it’s the reason why the Liberals and NDP hate Harper so much, is because he’s actually shrinking the size of the federal in many ways. And they’re start to realize that Canadians like it as well.

    • Then why are they scrambling to make it so hard to learn what the actual cuts were?

      • Why would you give the lame street media and the opposition an opportunity to criticize? That would be foolish.

        • Uh, because it’s our money? Because they work for us? Because the federal government isn’t their own little private summer camp?


  3. I recall when the TFSA was introduced reading that the effect on
    revenues during the early years would be small but as years passed
    the impact would be profound . But no matter. By then our lord and
    masters will have managed to totally repeal the 20th century. So it’s
    all good.

  4. We’ll just sell Harp’s chessboard.

  5. Congratulations Mr. Wells; a fair and unbiased summary that puts the lie to many of the so-called progressives claims with regards to Harper and the Conservative government. This won’t be met though with popularity fromj the left. Some folks just can’t stand success and the fact that a Conservative government has kept its promises and continues to do so.
    Let the math games begin!

  6. The Liberals and NDP have foresworn personal income taxes. Carbon taxes, sin taxes, yet to be invented taxes are another story. Make no mistake about it, Trudeau will increase your taxes one way or another.

    • The tax income and cost savings by ending marijuana prohibition will just be re-allocated. Nice payback for the horsemen.

  7. This will drive the lefties in this country nuts. They will try to slice and dice the numbers but their favourite department, the PBO, is making the claims. Mulcair and Trudeau say no personal income tax increases. Yet a carbon tax is not a direct tax on earnings but raises the cost of everything the consumer buys. A cap and trade system will cause massive problems in certain sectors of the economy causing lay offs, maybe shut downs and higher costs to consumers. The fact is there is only one taxpayer. The NDP and Liberals are sheep in wolves clothing.

  8. So are you saying is that it costs us less to destroy Canada than we thought it would and that for more of that keep voting for Harper? Forget it! I’d rather pay more taxes than keep this illegitimate, corrupt, incompetent, sociopathic, psychotic in the PMO for one more day.

  9. Some context (2010-2011 numbers):
    Personal income tax – $113.5 billion, or almost 48 cents of every dollar raised in revenues.
    Corporate income tax – about $30.0 billion, close to 13 cents of every dollar.
    Goods and Services Tax – $28.4 billion, or 12 cents of every dollar.

    1. I’m happy to see personal income taxes fall. In fact, I’d like to see the sources of taxation in this country flip, with GST / consumption taxes number one, corporate taxes on profits and personal income taxes tied for second.

    2. I’m disappointed we’ve set new records for long-term debt and have no plan for retiring it until at least mid-century.

    3. Given the massive infrastructure deficits and aging population that face our country, future government costs are sure to rise.

    4. I’d really like to know how we’ll pay for it all with a poorer government that racks up debt to pass on cuts to consumption taxes and corporate tax cuts (cuts that do not stimulate investment or employment).

    5. Anyone at all worried that we are no longer a “trading nation” — that we are net importers and consumers?