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Tax changes to take $1.2B out of coffers, Morneau concedes

Liberals poised to cut federal income taxes for middle earners by raising the rate on the richest Canadians


 
Minister of Finance Bill Morneau speaks to media as he delivers a fiscal update during a news conference in Ottawa, On Friday, Nov. 20, 2015. THE CANADIAN PRESS/Adrian Wyld

Minister of Finance Bill Morneau speaks to media as he delivers a fiscal update during a news conference in Ottawa, On Friday, Nov. 20, 2015. THE CANADIAN PRESS/Adrian Wyld

OTTAWA — The Liberal government is poised to make good on its promise to cut federal income taxes for middle earners by raising the rate on the richest Canadians — cuts that the government admits won’t be revenue-neutral.

Finance Minister Bill Morneau is conceding for the first time that the changes are going to cost the federal treasury $1.2 billion annually, starting in the 2016-17 fiscal year.

The government has introduced a motion in Parliament lowering the income-tax rate on Canadians earning between $45,282 and $90,563 per year from 20.5 per cent from 22 per cent, to take effect starting Jan. 1.

To offset most of that tax-rate change, the Liberals are also imposing a higher tax rate of 33 per cent on earners in the top one per cent — those who make more than $200,000 per year.

Morneau says the government is being forthright with Canadians about the total cost of the tax changes.

Those changes also include cancelling a Conservative plan to increase limits on tax-free savings accounts from $5,500 to $10,000.

“We are starting today with middle-class tax breaks, a key part of our initiative,” Finance Morneau told the House of Commons on Monday. “Today is the day where we have said we are going to reduce middle-class taxes by asking those Canadians who are doing very well to pay a little bit more. This is an important first part in our tax program.”

But some say the tax changes, a central pledge in the campaign platform that helped propel the Liberals to victory in October, are likely to cost public coffers more than the government expected and could provide more benefit to richer Canadians.

For example, a study released Monday by the Canadian Centre for Policy Alternatives found that higher-income earners — those who make more than $124,000 — would benefit most from the middle-class rate cut as long as they did not earn enough to land in the new upper bracket above $200,000.

Those making more than $90,563 are taxed at three different rates: one rate on the first segment of income up to $45,282, the second, newly reduced rate on the next segment of income, up to $90,563; and a third rate beyond that, up to $200,000.

As a result, they will realize a greater total benefit from the middle-bracket cut than will an income earner whose annual salary lands within that bracket, the study says.

Another recent study by the C.D. Howe Institute think tank said the changes would encourage big earners to make more of an effort to avoid taxes, while the rate reduction itself could cost government finances more than expected.

In its platform, the Liberals estimated the tax increase on the top earners would fall a little short of covering the full costs of the tax cut. It projected the reduction to cost close to $3 billion annually over its four-year mandate.

Combined with the sting of the struggling economy, the new Liberal government is facing increasing pressure to meet its election vows to cap annual deficits at $10 billion over the next two years and to balance the federal books in the fourth year of its mandate.

Morneau has said the Liberals are facing a slower economy and a worse-than-expected fiscal environment handed over from the former Conservative government.

“We have inherited a situation that is more challenging than what was foreseen in the budget,” he said.

Last month, Morneau announced a $3-billion deficit forecast for the current fiscal year. In April, the Tories projected a $2.4-billion surplus for 2015-16 — including the $1 billion set aside for contingencies.

The proposed changes to the tax brackets will help boost the economy, the Liberals say.

Last week, however, Morneau backed away from the Liberal vow to keep annual shortfalls under $10 billion in 2016-17 and 2017-18.

He said the government would focus on its pledges to invest in infrastructure, lower the federal debt-to-GDP ratio and balance the books before the next election, but dodged when asked directly about the party’s promise to keep annual shortfalls under the $10-billion ceiling.


 

Tax changes to take $1.2B out of coffers, Morneau concedes

  1. Hey..as has already been pointed out by economists, and tax specialists………people who make over $200K per year can afford VERY GOOD Accountants……….

    and this tax increase, won’t even come close to helping the Libs keep their promise. To account for the shortfall, you can expect increases in taxes, cutting of progams…etc.

    Given their history, I would say the biggest cuts will come to the Military. “DECADE OF DARKNESS” wasn’t just a made up expression. It was an accurate reflection of what Liberal Governments think of the military.

    But hey….as long as Liberals wear a poppy on Remembrance Day….who’s gonna notice?

  2. Red…you guys and gals wanted “red”. Here it comes. One thing is for certain…Trudeau and the Liberals are going to bring the red ink, so much, that y’all are going to be drowning in it.

    There will be “blood”.

    The country is going to be done in by the supposed best and the brightest, taught fairy tales in their fairy tale educations.

    Justin is “Wynne-ing” it!

    • I’m so glad I’m in the postion that I am. I have simply moved the majority of my “stuff” outside of Canada and it can’t be touched. All legal, and out of reach.

      • So you’re just a Canadian of Convenience. I’m not surprised that you’re just here to such the hard working taxpayer dry while your “stuff” is all outside the country.

        • J.Edwards….

          I stayed here….I moved my STUFF outside of the reach of the Liberals. I did it about two weeks before the election was over, as I saw what was going to happen.

          As for my STUFF……no one has a right to it but me. I earned it, I paid taxes on it already, and no one has a right to help themselves to what belongs to me. If you are whining about it…too bad. If you want more stuff of your own…get off your arse and make an effort to earn it.

          I already pay more in taxes than most people earn, and I’m sure you are a net beneficiary because of it. I’ll provide enough to keep a roof over your head, food in your belly, and electricity in your house. Instead of castigating me….you should just say thank you, and then move along.

          If you want to buy pot, or booze….go buy it yourself. It isn’t my job to keep you in the lifestyle you seem to feel you are entitled too.

          • You sure know how to pile it high. I suggest you are of a limited education, lacking in any skills and probably on some form of government assistance. How do I know this? Simple. Your writing
            gives you away. Now back to your land of makebelieve. You have not
            fooled anyone here.

        • J. Edwards,

          I stayed here…I just moved my assets far enough away that Trudeau and his Libs can’t get their theiving fingers on it. As for hard working taxpayers, I doubt you even pay taxes. Frankly, I pay more in income taxes every year than most poeple make. I’m sure you are a net beneficiary. You should just say thanks and move along.

          Now excuse me, I need to light my Cohiba. (Maduro # 5 Genios) and refill my glass. If you get a job and work for a half-day, maybe you can spring for your own. I’m not giving you one of mine.

          • Sorry for double post…..first one didn’t show up until later.

            my bad.

          • Awww, that’s cute. You can be whoever you want on the internet, lil’james.

          • You’ve obviously never had a good Maduro.

            On or off the internet….they’re the best you will find.

  3. This is what is known as a tax cut. The right now seems to have a big problem with tax cuts for some reason when they never did before.

    • J.Edwards,

      I’m all in favour of tax cuts. Always have been.

      here’s the rub though. The “tax cuts” won’t be fairly applied, as the people who need it most won’t see a dime. What they will see however ( along with everyone else) is the massive tax increases in payroll taxes (I’m sure that won’t affect you, but think of others’ for a change) as well as the soon-to-be-here-to-save-the-planet-carbon-tax, which will increase your burden far more than any tax cuts will do.

      Folks……both employed, or unemployed; bend over, as you are about to be reamed by Gerald Butt’s ideology. He gave Ontarians the Green energy act…and he’s going to pass the benefits to the rest of you soon.

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