People gather for the 'Elbows up' rally on Parliament Hill in Ottawa, on March 9.Amber Bracken/Reuters
Federal parties are pitching income-tax cuts that they say will give middle-class Canadians a break, but economists warn that the proposals, which would benefit the majority of taxpayers, are a poor use of fiscal capacity during a trade war.
The Liberals and Conservatives are both promising to cut the lowest income-tax bracket by 1 and 2.25 percentage points, respectively. The lowest tax bracket applies on taxable income that is $57,375 or less, which means Canadians with higher taxable incomes will also benefit from the proposed cuts.
A person can expect to save a maximum of $400 annually with the Liberal proposal, while the Conservative cut would be a more generous $900 in savings.
The NDP attacked both proposals for also benefiting high-income individuals and said they would instead ensure that Canadians who make less than $177,882 do not pay taxes on the first $19,500 earned, increasing the basic personal amount from $15,705. For individuals making more than $177,882, the basic personal amount would be decreased to $13,500.
The NDP proposal would save a person making at least $19,500, but less than the high-income threshold, about $500 annually.
The three parties’ proposed tax breaks attempt to address Canadians’ affordability concerns after a period of high inflation. And while nearly all taxpayers would benefit, low and middle-income people would be helped the most.
However, economists say the next government should instead be focused on guiding Canada through a trade war with the United States and limiting the federal deficit, goals that would be undermined by broad income-tax cuts.
“This is like metaphorically wanting to put presents under the Christmas tree for people,” said Kevin Page, a former parliamentary budget officer, in an interview.
Kevin Milligan, a professor and the director of the Vancouver School of Economics at the University of British Columbia, said the tax breaks aren’t large enough to be felt by Canadians, but will cost the federal coffers billions of dollars annually.
The Conservatives say their proposal will cost about $14-billion annually once it’s fully phased in, while the Liberals say their tax cut will cost $6-billion. Meanwhile, the NDP say their changes will cost $10.4-billion annually.
“That’s the thing about taxes. When it’s a few dollars a month from each of us, it doesn’t make a big difference to our own lives, but collectively, can make a big difference to what resources the government has to invest in important public projects like our defence, like unlocking public infrastructure for enhancing our internal and external trade,” Prof. Milligan said in an interview.
Additional tax changes have been proposed by the NDP and Conservatives so far, while the bulk of the federal parties’ election promises have yet to be made, meaning more spending commitments are likely on the way.
U.S. tariffs are expected to slow down the Canadian economy and weigh on tax revenues, limiting the amount of money the federal government has to spend. That’s before taking into account any support programs Ottawa will have to roll out for workers and industries affected by the levies.
Liberal Leader Mark Carney, for example, proposed a $2-billion fund to protect the Canadian auto sector on Wednesday. Later in the day, President Donald Trump announced 25-per-cent tariffs on all automobiles coming into the United States, including from Canada.
Economists expect these pressures to push the federal deficit higher, unless the next government makes significant spending cuts. Income-tax cuts would only add to those fiscal challenges.
“I’ve not been someone who’s been particularly concerned about running a deficit,” said Prof. Milligan. “I worry, though, that with what’s coming from the U.S., that we’re going to be running a bigger deficit because of the slowdown in the economy, and this will be adding to it. And the kind of ideas I’ve seen for how to pay for it are, frankly, trivial.”
Parliamentary Budget Officer Yves Giroux is projecting the federal deficit to come in at $50.1-billion for the 2024-25 fiscal year.
Conservative Leader Pierre Poilievre, who has promised repeatedly to match every additional dollar of spending with one dollar of cuts, has said that he would slash spending on consultants, foreign aid and corporate subsidies to pay for new measures. However, it’s unclear whether those cuts will be enough to cover all of his promises so far.
Meanwhile, Mr. Carney has said he would find savings by making the federal government more efficient. The NDP say it could pay for its tax cut by improving corporate-tax compliance.
Alexandre Laurin, who leads the C.D. Howe Institute’s fiscal and tax policy program, said some income-tax cuts can incentivize people to work more, which would reap economic benefits. However, Mr. Laurin said the proposed tax cuts wouldn’t create any substantial economic benefits because low-income people are already incentivized to work.
“It looks like a freebie to not just the middle class, to pretty much everyone,” he said.