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.