OTTAWA – Canadians are saving more than $30 billion in federal taxes— or a little less than $1,000 per person — due to tax changes introduced in the past decade, Canada’s budget watchdog says in a new report.
The calculation from the Parliamentary Budget Officer shows the accumulation of tax relief that has come about since 2005, when the then-Liberal government reduced the minimum income tax rate to 15 per cent from 16 per cent.
Since, the Harper government has raised the basic personal exemption, introduced the Child Tax Credit and Working Income Tax Benefit, pension income splitting and famously sliced two percentage points off the GST to five per cent, among other changes.
The result, says the PBO, is that personal income taxes are $17.1 billion lower today than they might have been, and Canadian consumers are paying about $13.3 billion less in value-added taxes on their purchases of goods and services.
The vast majority of the changes have occurred under the Conservatives, which took office in February 2006.
Prime Minister Stephen Harper, who along with the late finance minister Jim Flaherty, was often critical of the PBO when it was headed by Kevin Page, took credit Tuesday for the latest report as evidence the government is saving Canadians money.
The report is useful for the Conservatives heading into an election campaign in 2015 that it plans to run on management of the economy. With a balanced budget also likely in 2015, Conservatives are expected to introduce at least one more major tax measure — a variation of income splitting it promised during the election four years ago at a cost of about $2.7 billion.
Another gift to the government in the report was that the PBO found that in relative terms — lower income Canadians earning between $12,200 and $23,300 benefited the most, increasing their after-tax income by four per cent.
“We’re very proud to have reduced taxes by $30 billion … they have been progressive overall and they’ve most greatly impacted low, middle-income earners,” said Finance Minister Joe Oliver. “This has been a very progressive policy.”
But Dennis Howlett of Canadians for Tax Fairness quarrelled with the interpretation. He noted that in actual dollars, most of the savings when to Canada’s rich.
According to figures supplied by the PBO, the top 20 per cent of income earners got $10.9 billion, or 36 per cent of the total, while the bottom 20 per cent got $1.9 billion, or only six per cent.
“That’s a huge amount and who has got that money? Most of that in dollar amounts has gone to upper-income Canadians,” said Howlett.
“What this means is that while the lowest 20 per cent of income earners have gained less than $500 in tax reductions, the top 20 per cent have seen their taxes go down by almost $2,000 a year.”
The discrepancy might have been greater, but for some progressive tax measures introduced by the Conservatives, such as the Working Income Tax Benefit, which provides a refundable tax credit for low-income individuals. Households with incomes between $2,030 and $36,253 received about 60 per cent of $1.3 billion in savings from the measure.
The lowering of the GST rate was judged the “second largest income inequality improving measure instituted throughout the 2005-2013 period, second only to the highly-distributive Working Income Tax Benefit,” the PBO said.
In all, the government is expected to collect nearly $230 billion in tax revenue during the current fiscal year, so the reductions in taxes to individuals represent about 11 per cent from what the haul might have been without the changes.
The PBO did not calculate lost revenue due to corporate tax reductions because of what the office said was data limitations.
PBO director general Mostafa Askari says the numbers in the report are slightly lower than those claimed by the government because the PBO has attempted to factor in behavioural changes in response to tax cuts. For instance, individuals with greater after-tax income will tend to spend more, thereby generating more GST revenues.
In public statements, government ministers have said they have cut taxes 180 times, saving the average Canadian family of four nearly $3,400 in 2014.
The difference is largely attributed to the exclusion of the tax rate reduction introduced under the Liberal government of Paul Martin in 2005, which the PBO estimates resulted in a $3 billion saving for Canadians.