Trudeau tax relief plan—funded by borrowed money—will do little for economic growth

According to a Parliamentary Budget Officer (PBO) report released this week, the Trudeau government’s plan to increase the “basic personal amount” will cost nearly $7 billion annually when fully implemented. This price tag is not only higher than what the Liberals anticipated during the election campaign (and in the December fiscal update), it also means the government’s policy choice will add to the debt load of Canadians.

In December, Finance Minister Bill Morneau announced that the government would gradually increase the basic personal amount—the amount of money Canadians can earn before paying income taxes—to $15,000 by 2023/24. At the same time, the government indicated it would offset this tax reduction for Canadians making more than about $150,000.

This is not a plan many tax policy experts would put at the top of their to-do list. For most Canadians, the increase in the basic amount is the same as lump-sum tax relief. Fine as far as it goes, but it means they get no boost in their after-tax returns from taking on an extra shift at work—they face the same old tax and clawback rates.

In reality, because the increase in the amount will be clawed back from taxpayers in the fourth tax bracket, those taxpayers get a tax rate hike. The hike is small, but because these taxpayers by definition already face a very high tax rate—more than 45 per cent in most provinces—the economic damage is disproportionately large, adding many tens of millions to the cost of the plan.

https://www.fraserinstitute.org/article/trudeau-tax-relief-plan-funded-by-borrowed-money-will-do-little-for-economic-growth