It's been clear for some time that tax cuts, as detailed in the recent budget, will be a major plank in Stephen Harper's re-election campaign this fall. Liberal leader Justin Trudeau has now unveiled one of the key elements of the Liberal Party's economic plan: (drum roll please) -- tax cuts!
Not the same tax cuts as Harper's, mind you. The Tories' plan is carefully targeted at their perceived electoral base, with an income-splitting plan that favours families with one high earner, and an increase in tax-free savings limits that will be used almost solely by well-off seniors. Trudeau's plan is aimed at the amorphous "middle class", a vast swathe of the population earning between about $45,000 and $90,000 a year. People in that income bracket would see their marginal tax rate fall by a couple of points, and would also benefit from a rationalization of two existing child care benefits into a single, more generous payment. The Liberal plan would also reverse the tax free savings increase, but in the short-term that's a revenue-neutral move, despite the Tories instant attempt to portray it as a tax grab.*
To pay for these changes, Trudeau would undo the Tories' income splitting boondoggle -- which is a risky proposition, given that the first cheques under the scheme will hit the mailboxes of the lucky beneficiaries just before the election campaign gets started. Trudeau's plan also includes a higher marginal tax rate for the notorious "1 percent" at the top of the income scale, which in Canada means those earning in excess of $200,000. The marginal Federal income tax rate for that tax bracket would rise to 33 percent from the current 29 percent. (Note to wealthy non-Canadians: before you book your ticket here to take advantage of what looks like a low tax rate, you should be aware that each of the Provinces levies its own income tax on top of the Federal tax).
Will Trudeau's plan sway voters toward the Liberals? There's no doubt that it's a fairer plan, though whether that counts for anything with today's voters remains to be seen. However, it's risky for Trudeau to be taking on Harper using one of the PM's favourite weapons, the tax cut. The voters know, or think they know, that Harper can be trusted to deliver -- indeed, most of the government's tax cuts will be in place by election day. Trudeau is asking voters to take him at his word.
Moreover, even in planning a minor tax hike for a small segment of the population, Trudeau is taking a risk. The "lower my taxes" mantra is now so ingrained in the Canadian political psyche that even a tax pitched as a fairness measure could backfire. "Middle class" taxpayers, with some judicious help from the Tory propaganda machine, could easily be convinced that this is just the thin end of the wedge: today the 1 percent, but tomorrow the rest of us, and a return to the discredited "tax and spend" Liberal Party of the past.
What's really sad here is the fact that "tax and spend" is indeed discredited. Past generations of Canadians paid their taxes and saw roads, subways and hospitals springing up all around them. Now, thanks to Stephen Harper and like-minded politicians at all levels of government, the public sector is widely seen as a "gravy train" (Rob Ford's favourite term) that needs to be deprived of its fuel. Trudeau's plan does nothing to push back at that consensus. It will be interesting to see whether NDP leader Tom Mulcair, by far the smartest of the three main party leaders, is prepared to carve out a different approach.
* Contributions to Tax-Free Savings Accounts (TFSAs) are made from after-tax income, so increasing the limit has no immediate tax impact. However, as income earned on TFSAs is not taxed, there is a growing cost to the public purse as time goes by. If you are cynically minded, you might think that the Tories' plan to raise the contribution limit is a thinly-disguised attempt to bind the hands of future governments, by slowing the growth of tax revenues.
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