Jack Mintz: Will tax hikes undo the affordability agenda? |
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Jack Mintz: Will tax hikes undo the affordability agenda?
With surging, deficit-financed public spending, pressure will mount to raise, not lower, taxes
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So much for affordability. At the rate at which federal and provincial governments are spending and running up deficits these days, at some point politicians will raid our bank accounts. If the federal government has a majority — maybe after winning a snap spring election — it will be easier for it to hike taxes afterwards on unsuspecting voters. Same for the provinces. Governments rarely campaign on a promise to raise taxes — except on their favourite targets, the rich and corporations — but somehow taxes end up rising.
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With surging, deficit-financed public spending, pressure will mount to raise, not lower, taxes. In just the past two weeks, the federal government, already carrying a forecast deficit of $78.3 billion, has introduced two new costly programs. The first is another Liberal social program — the Canada Groceries and Essentials Benefit — expected to cost $12 billion over six years. The second is the reinstatement of subsidies to purchase EVs — $2.3 billion over the next five years — and Canada Infrastructure Bank funding for EV-chargers ($1.5 billion).
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This is small potatoes, however, compared with other spending coming down the pike: defence going to five per cent of GDP; major project subsidies; and support for industries hurt by U.S. tariffs. As the federal debt grows, so will debt charges, already expected to reach $61 billion this coming year — more than the $58-billion Canada Health Transfer.
Deficits are climbing for the provinces, as well. This fiscal year they’re expected to total $50 billion. Provinces also face their own voter demands for health care, education and infrastructure, so tax hikes are tempting for them, too. Meanwhile, municipalities have been raising property taxes like bandits. In Toronto, Mayor Olivia Chow has increased residential property taxes by 19.6 per cent from 2023 to 2026, though is now offering modest relief of 2.2 per cent as an election looms.
How do whopping tax increases mesh with the affordability agenda? They don’t.
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What are the average family’s most important expenditures? Is it food sold by those supposedly evil grocers ($12,045 a year according to Statistics Canada’s 2023 household survey)? No. Transportation ($12,070)? No again. Household operations, including cellphones, internet and other communications ($6,014)? Still no.
You might think shelter ($24,671) is the answer. Housing is the most important private consumption good and, in the case of owner-occupied housing, the largest asset for the average household. We all know housing costs are hurting renters, mortgagees and first-time buyers (though prices and mortgage rates have fallen over the past year).
As you might have guessed by now, the biggest household expenditure is tax paid to governments. On average, income taxes are $23,681, almost 22 per cent of the $108,000 spent on average in 2023 on goods, services, taxes and government fees. But households also pay sales, property, payroll and excise taxes imbedded in household expenditures, so the tax take almost doubles to two-fifths of average household spending.
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If we really want to address affordability, tax cuts are the place to start. Many household budgets are already stretched. Higher taxes will only make it worse. While recent attention has focused on controls for grocery prices and rent — terrible policy ideas — Canadians well understand that governments have shown little fiscal discipline since 2015, as their bureaucracies have grown 27 per cent — twice as fast as private-sector employment.
In the past year, several governments have offered token tax cuts. The Carney government reduced the lowest marginal income tax rate from 15 to 14 per cent. Alberta cut its 10 per cent tax rate for people with taxable income less than $60,000 to eight per cent. There were also a few targeted income tax reductions and indexations of brackets and various credit thresholds. The carbon tax, the luxury tax on boats and airplanes and a couple of other taxes were actually eliminated (though the carbon tax credit also went). But EI, CPP, property taxes and sin taxes keep rising. And, as incomes rise, more personal taxes are paid as people move into higher tax brackets.
What we haven’t seen so far is a focus on reducing the most harmful taxes in the economy, those that are holding back Canada’s growth. High marginal and average income tax rates discourage work and saving. Complex corporate income tax provisions and business subsidies favouring slow-growth industries like forestry and manufacturing come at the cost of keeping corporate taxes high on growth sectors like technology, finance and communications.
If there is room to cut taxes, we should focus on reductions that would improve affordability while growing the economy. A sharp increase in the working benefit would encourage low-income Canadians to participate in the work force; expanding the GST credit, which is what the government decided to do, will have the opposite effect.
Governments may soon find themselves in a box as deficits grow in a weak Canadian economy. If they raise taxes and make life more unaffordable, voters will show up at the ballot box and let them know about that.
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