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Third Reading of Bill C-2, An Act to amend the Income Tax Act


Honourable senators, I would like to say a few words about Bill C-2, but I would like to start off by thanking Senator Day and Senator Smith for their remarks.

I can assure you I won't be as animated as Senator Smith when I deliver my remarks. However, I want to speak because I'm a member of the National Finance Committee which recently studied the bill.

We conducted our study of Bill C-2 between October 25 and November 22. As Senator Day has already said, we conducted six meetings. We heard from a number of witnesses regarding the bill, including the Parliamentary Budget Officer and his officials, the Fraser Institute, the Canadian Labour Congress, the Conference Board of Canada, the Canadian Centre for Policy Alternatives, the Canadian Taxpayers Federation, CPA Canada, which is the umbrella organization for professional accountants in Canada, and the Canadian Retired Persons Association. So we did have a good cross-section from left to right and in the middle and, of course, we heard from the Minister of Finance and his officials.

The primary focus of the witnesses was on proposed section 1 of Bill C-2, which is the section changing the tax brackets as well as the tax percentages, which we refer to now as the "tax break."

The government's commitment to Canadians regarding the "tax break" is outlined in their 2015 election platform. Specifically, the government had committed to give "middle class" Canadians a tax break by making taxes "more fair."

Here is how they said they would do this — and I am quoting from their platform — "We will give middle class Canadians a tax break, by making taxes more fair." They continue on to say:

When middle class Canadians have more money in their pockets to save, invest, and grow the economy, we all benefit.

We will cut the middle income tax bracket to 20.5 per cent from 22 per cent — a seven per cent reduction. Canadians with taxable annual income between $44,700 and $89,401 will see their income tax rate fall.

This tax relief is worth up to $670 per person, per year — or $1,340 for a two-income household.

The platform goes on to say:

To pay for this tax cut, we will ask the wealthiest one per cent of Canadians to give a little more. We will introduce a new tax bracket of 33 per cent for individuals earning more than $200,000 each year.

There are approximately 340,000 taxpayers in this group.

So in their election platform, the government makes a commitment to reduce the tax rate on taxable income for taxpayers with a taxable income between $44,700 and $89,400. They continue on and say that it is worth up to $670 per person.

I would like to point out that the taxpayer, as Senator Smith has already indicated, has to be at the very top of the second tax bracket to save $670 in taxes. The individual at the lower end, with taxable income, say, of $45,000, will only save $21.

Individuals at the lower end of the tax bracket receive the least benefit. By focusing on the "middle class" in their election platform, the government is defining the "middle class" as Canadians with a taxable annual income between $44,700 and $89,400. However, when I look further at the impact of Bill C-2, it is obvious that individuals with taxable income above the defined range will benefit the most.

For example, an individual with a taxable income of $120,000 will have their taxes reduced by $766 under Bill C-2, while those individuals in the targeted tax bracket will receive significantly less.

Let me summarize: An individual at the lower end of the targeted tax bracket, at $45,000, will save $21. An individual at the top end of the targeted tax bracket of $89,000 will save $696. But an individual who is not in the targeted tax bracket, because their taxable income is higher, for example $120,000, will save the most, with a tax savings of $766.

Obviously, the greater benefit is not going to those in the targeted "middle income" tax bracket. Rather, it is going to those individuals whose income exceeds the targeted tax bracket; that is, those Canadians who are more affluent.

In fact, under Bill C-2, taxpayers with up to $220,000 of taxable annual income will see their taxes reduced.

This was first issue that I had with Bill C-2, honourable senators.

The second issue I had with Bill C-2 relates to the government's commitment that the reduction to the middle income tax bracket would be revenue neutral and that it would be paid for by the new 33 per cent tax rate on taxable income exceeding $200,000.

Specifically, the government had committed that, to pay for the tax cut, the wealthiest 1 per cent of Canadians would pay more. This would be achieved, they said, by introducing a new tax rate of 33 per cent for the approximately 340,000 individuals with a taxable income of more than $200,000 a year.

The Liberal platform specifically states, and I quote, ". . . to pay for this tax cut, we will ask the wealthiest 1 per cent of Canadians to give a little more." In other words, the tax cut would be revenue neutral.

We now know that the tax cut is not revenue neutral. That brings me to my third issue with Bill C-2.

The Parliamentary Budget Officer has told us that the net cost of Bill C-2 will be $1.7 billion annually. This is a net cost of tax changes made only to the second tax bracket and the new 33 per cent tax bracket.

What is the cost of the tax cuts to individuals with taxable income above the targeted tax bracket? In other words, those individuals with taxable income between $89,400 and $200,000 — individuals such as those making the $120,000, as I previously mentioned?

If you look at the website of the Department of Finance, there's a table there outlining the fiscal cost of the proposed tax changes. The Department of Finance estimates that reducing the second personal income tax rate from 22 per cent to 20.5 per cent will cost $3.4 billion and introducing the 33 per cent tax rate will increase tax revenues by $2 billion. So the net cost to the treasury of these two changes will be $1.4 billion.

I cannot find any fiscal costing of the tax reduction which will be given to taxpayers with taxable income between $89,400 and $200,000.

A number of witnesses who testified during our study of Bill C- 2 expressed the opinion that Bill C-2 does not meet the objectives of the government as outlined in their platform: first, that the bill is not revenue neutral; and, second, that the middle income group identified in their platform are not the biggest beneficiaries. I agree with those two conclusions.

The fourth issue I am raising relates to the deficit for the current year. When the Minister of Finance attended our Standing Senate Committee on National Finance on November 2, the chair of the committee, Senator Smith, asked the minister if the cost of Bill C- 2 had been factored into the new budget deficit of $25 billion, which was announced by him last month. This question was never answered.

In summary, I want to outline the four issues that I have with Bill C-2. First of all, the targeted middle income group does not receive the biggest tax benefits. Those at the lower end receive the least benefit and those near the top and over the top receive the biggest benefit.

The second issue is the cost of Bill C-2 is not revenue neutral, as the government had committed.

My third point is we haven't received any confirmation that the estimated cost of all tax cuts being made by Bill C-2 has been disclosed. We do not know if the cost of Bill C-2 is included in the recently released deficit figure of $25.1 billion for the current fiscal year.

I would also like to address some remarks that Senator Bellemare spoke to on Bill C-2 last week. I would like to provide additional comments to her comments.

When Senator Bellemare spoke of tax cuts, her comments included the financial impact of other budgetary initiatives, including the Canada child benefit, the increase in the GIS and the elimination of income splitting for couples with children. The savings cited are not the savings resulting solely from the tax cuts included in Bill C-2.

She stated that the major winners are people whose annual taxable income is between $30,000 and $60,000 because they will gain an average of $3,195. If these people do gain $3,195, it is not from the tax cuts included in Bill C-2.

In fact, individuals with taxable income between $30,000 and $44,700, as indicated by Senator Smith, will save nothing under Bill C-2, while those with taxable income between $44,700 and $60,000 will probably save between $1 and $261. Individuals with taxable income between $90,000 and $200,000 will save approximately $680 annually.

While there is a new tax rate of 33 per cent on taxable income over $200,000, these individuals do receive a tax reduction of $680 on their income below $200,000. So taxes on individuals do not actually increase until taxable income is around $215,000.

This is why the government is saying that we have to examine all their budgetary measures together rather than individually because Bill C-2 alone does not do what the government promised.

I would like to make one final comment about deficit financing by the government. There's an old saying that says the deficits of today are the taxes of tomorrow. The government in its election platform committed to modest deficits of less than $10 billion annually for each of the next two fiscal years. We now know the deficit for this year is approaching $30 billion.

My final comment is this: Why are we pushing the costs of Bill C-2 off to the future for our children and our grandchildren to pay? Thank you.