OTTAWA — The cornerstone of the Liberal campaign platform was a pledge to grow the economy and create jobs by putting more cash into the hands of middle-class Canadians through aggressive new tax measures.
But that policy pillar — to be supported by higher tax payments by the country’s biggest wage earners — could be crumbling, less than three months post-election.
That’s because delivering on the promise, intended to be “revenue neutral,” is proving much more costly than envisioned when Justin Trudeau was elected prime minister on Oct. 19.
For starters, the hoped-for economic climb-back from the oil-plunge-fueled recession in the first half of last year is sputtering and could stall, or possibly go into reverse — undermining Ottawa’s ability to spread the wealth by providing average wage earners with more untaxed dollars to spend or save, or both.
Also troublesome, Trudeau’s tax regime for 2016 and beyond could actually lead to a mini-exodus of the country’s top-income professionals — those with annual salaries above $200,000, the threshold for the new, high-income tax bracket — whose taxes would be needed to cover the gap created by the tax cut given to Canadians earning between $45,000 and $90,000 a year.
“The typical ‘one per cent’ are in positions that have more mobility in their roles,” says Les Gombik at Caldwell Partners, a global executive recruitment firm in Calgary.
“They are typically executives that are making greater dollars, and those are often the types of roles where they could do those types of roles in different markets,” he says, adding that the drop in the value of the loonie compared to the U.S. dollar was already inspiring people to look south of the border.
“The tax changes were one more significant catalyst for people to be looking (south),” Gombik says.
The cost to the federal government’s middle-class tax-bracket cut has been estimated at $3.5 billion — “and that’s a transfer of $3.5 billion into the hands of households,” says Craig Alexander, vice-president responsible for economic analysis at the C.D. Howe Institute.
Top marginal tax rates
Want to know how your province stacks up? Here are the marginal tax rates for high-income earners across the country in 2016 and 2015
British Columbia — More than $200,000: 47.7%; 45.8%Alberta — $200,000-$300,000: 47%; 40% | More than $300,000: 48%; 40.25%Saskatchewan — More than $200,000: 48%; 44% (threshold began at earnings of $138,586)Manitoba — More than $200,000: 50.4%; 46.4% (threshold began at earnings of $138,586)Ontario — $200,000-$220,000: 51.97%; 47.97% (threshold began at earnings of $150,000) | More than $220,000: 53.53%; 49.53%Quebec — More than $200,000: 53.31%; 49.97% (threshold began at earnings of $138,586)New Brunswick —$200,000-$250,000: 54%; 50% | More than $250,000: 58.75%; 54.75%Nova Scotia — More than $200,000: 54%; 50% (threshold began at earnings of $150,000)Prince Edward Island — More than $200,000: 51.37%; 47.37% (threshold began at earnings of $138,586)Newfoundland — More than $200,000: 48.3%; 43.3% (threshold began at earnings of $175,000)Yukon — $200,000-$500,000: 45.8%; 41.8% | More than $500,000: 48%; 44%Northwest Territories — More than $200,000: 47.05%; 43.05% (threshold began at earnings of $138,586)Nunavut — More than $200,000: 44.5%; 40.5% (threshold began at earnings of $138,586)