Bill C-2 (Historical)

An Act to amend the Income Tax Act

This enactment amends the Income Tax Act to reduce the second personal income tax rate from 22% to 20.‍5% and to introduce a new personal marginal tax rate of 33% for taxable income in excess of $200,000. It also amends other provisions of that Act to reflect the new 33% rate. In addition, it amends that Act to reduce the annual contribution limit for tax-free savings accounts from $10,000 to its previous level with indexation ($5,500 for 2016) starting January 1, 2016.

Income Tax Act

[Bill Morneau, Liberal, Minister of Finance]

moved that Bill C-2, an act to amend the Income Tax Act, be read the second time and referred to a committee.

Mr. Speaker and hon. members of this esteemed House, I appreciate the opportunity to discuss the merits of the middle-class tax cut the government introduced in December and that this bill, Bill C-2, would enact.

On January 1 of this year, nine million Canadians received a tax break. Our government was elected on a plan to grow the economy, and these changes are an important first step in that plan.

Our government believes that a strong economy starts with a strong middle class. Canada's middle class has gone too long without a raise, and in challenging economic times, we have taken action to help them.

The global economic downturn has presented some new realities for the Canadian economy. This means that our plan to grow the economy is now more important than ever.

As we pursue this plan, we will continue to keep Canada's debt-to-GDP ratio on a downward track. We will be prudent in our expenditures and will return to a balanced budget by the end of our mandate.

The government's job is to help Canadians succeed. We are lucky to have one of the most highly educated and talented workforces in the world. In order to harness the power of our people to build a stronger and more prosperous country, we need to improve direct support to the middle class and those working hard to join it. The legislation before the House today does just that.

This bill would cut the tax rate on income earned between $45,282 and $90,563 in 2016 by 7% and would introduce a new tax rate of 33% on income earned above $200,000.

The middle-class tax cut and accompanying changes will make the tax system fairer. Specifically, the bill proposes to reduce the second personal income tax rate to 20.5% from 22%, introduce a 33% personal income tax rate on individual taxable income in excess of $200,000, return the tax-free savings account annual contribution to $5,500 from $10,000, and reinstate indexation of the tax-free savings account annual contribution limit.

Let me elaborate on the three points. First, the personal income tax rate changes took effect on January 1 of this year. As I mentioned at the outset of this speech, it is expected that about nine million Canadians will benefit from this measure this year.

Second, in conjunction with this tax cut, the government is introducing a new personal income tax rate of 33% that will apply to individual taxable income in excess of $200,000. We are asking the wealthiest 1% of Canadians to pay a little more to help the middle class and those working hard to join it. This means that only Canada's top income earners are expected to pay more tax as a result of the government's proposed changes to personal income tax rates. As with other bracket thresholds, the $200,000 threshold would be indexed to inflation.

Third, the government is returning the tax-free savings account, TFSA, annual contribution limit to $5,500 from $10,000, effective January 1, 2016. Let me reassure all members of the House that this change is not retroactive. The TFSA annual contribution limit for 2015 will remain at $10,000. I should also note that the limit is cumulative and builds over time.

Eliminating the previous government's increase to the TFSA contribution limit is consistent with our objective of creating a tax system that is fair and that helps those who need it most. Keeping the limit at $10,000 would have helped Canada's wealthiest save more while costing the federal treasury hundreds of millions of dollars over the next five years.

We know that only 6.7% of eligible Canadians contributed the maximum in 2013. Doubling it did nothing for the 93.3% of Canadians who could not max out their contributions with the existing limit. Indexation of the TFSA annual contribution limit will be reinstated so that the annual limit maintains its real value over time.

While these three elements are what I expect will be discussed during the parliamentary debate, I would like to highlight some of the other measures that are included in today's legislation.

Today's bill proposes to change the current flat top-rate taxation rules applicable to trusts to use the new rate of 33%.

The bill sets the tax on split income to the new rate of 33%.

The bill amends the charitable donation tax credit to allow higher income donors to claim a 33% tax credit on the portion of donations made from income that is subject to the new 33% marginal tax rate.

The bill increases the special refundable tax and the related refund rate imposed on investment income of private corporations to reflect the proposed new 33% personal income tax rate.

The measures included in this legislation are a priority for this government. However, there are many unique issues that confront Canadians today. That is why reaching out and listening to Canadians is so important. We have a plan to grow the economy, and we need the input of Canadians to learn how to best implement our plan in their cities and communities.

Over the past few weeks, my parliamentary secretary and I have heard from Canadians about what we can do to help the middle class right across the country.

We asked Canadians directly how the government can support them and grow the economy. We met with people from all walks of life: business leaders, farmers, small-business owners, members of our indigenous communities, and community leaders. I also engaged with students by holding a Google hangout and two Facebook live events that attracted a total audience of more than 80,000 Canadians. I am encouraged that young Canadians have found new reasons to become engaged with their government. Our goal is to listen and engage with Canadians on the issues that are important to them, and it has, to date, been a very successful endeavour.

As part of these consultations, I was pleased to have spoken to the member for Milton and the member for Rimouski-Neigette—Témiscouata—Les Basques, my colleagues across the aisle, and I assure the House that their input will be thoughtfully considered.

Although we are both back in Ottawa now, these consultations continue online. Since the opening of the online consultations, we have already reached over 150,000 Canadians and have received over 3,000 submissions, in fact 3,400 submissions as of today, from Canadian individuals and groups, more than twice the submissions, almost three times the submissions, in fact, received last year under the previous government.

It was especially important for me to hear from Canadians about the effect the economic situation is having on them. The stories I have heard have reaffirmed for me the importance of our plan to grow the economy in the short, medium, and long term.

Collaboration is a critical element of our plan to deliver real change in a way that takes into account the priorities and opinions of Canadians. As we implement our plan, we will continue to be open and transparent every step of the way.

This legislation is an important first step to help strengthen the middle class. It puts more money in the pockets of Canadians to save, to invest, and to grow the economy, but it is just a first step. In budget 2016, the government will introduce a new Canada child benefit that will lift hundreds of thousands of Canadian children out of poverty and will help nine in 10 Canadian families with children to be better off. It will replace the universal child care benefit, which is not tied to income, and it will simplify and consolidate existing child benefits while ensuring that help is targeted at those who need it most.

Taken together, the measures we intend to introduce will help grow our economy to the benefit of all Canadians. The government will invest in our economy, in our communities, and in Canadians themselves. We will make transformative investments in infrastructure that will increase the productive capacity of our economy while improving the day-to-day lives of Canadians.

After 10 years of weak growth, we have an ambitious economic agenda to grow the economy and the mandate to implement it. It started in December with this middle-class tax cut and will continue with the introduction of the Canada child benefit and our historic investments in infrastructure over the next decade.

I encourage all members to support this legislation and to help us deliver on our plan to support the middle class and those working hard to join it.

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Mr. Speaker, I appreciate my hon. colleague's speech.

The government has gone online and solicited feedback from across Canada, from coast to coast to coast—we have heard that over and over again, using numbers such as 80,000 and 150,000.

We know that social media and online surveys can come from all over. Does the government have the geographic data, riding-specific, where this information is coming from?

Also, would the member opposite tell us whether there has been any outside feedback from across the borders and whether the government can substantiate the data and its geographic sources, which it is reporting today?

[Bill Morneau, Liberal, Toronto Centre, ON]

Mr. Speaker, I first want to thank the hon. member for his question. I think it is an important question.

We campaigned on a commitment to have an open and transparent government. We campaigned with the commitment to listen to Canadians and to make sure we understand their views.

It was in that spirit that we took it upon ourselves to have pre-budget consultations that would be more extensive than ever before in this country. We went, as was mentioned, from coast to coast to coast. My parliamentary secretary and I started on the east coast of Canada and moved to the west coast of Canada. We made a clear objective, and we satisfied that objective of meeting with people not only from different regions across the country but from different sectors. We met with small business people. We met with farmers. We met with people from rural and urban environments. We met with chambers of commerce. We met with first nation groups. We really endeavoured to ensure that we could hear from as many people as possible.

More important, we engaged with Canadians in ways in which they wanted to be engaged; so, we had in-person consultations with people, and we also, as mentioned, had engagement over online methodology, which has not been used in the past.

An enormous outpouring of interest came. As I mentioned, 80,000 people actually listened in on our sessions online, but 150,000 people have now gone further than that and look at and clicked on them. Of importance is the number 3,400, which is the submissions from all across Canada. That is a very important number. As I mentioned, it is almost three times the amount received last year. As I said, those submissions have been from all parts of Canada, all different sectors.

We have endeavoured to make sure we have listened to Canadians and—

[The Deputy Speaker, Conservative, Bruce Stanton]

Order, please.

Questions and comments.

The hon. member for Rimouski-Neigette—Témiscouata—Les Basques.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Mr. Speaker, I would like to congratulate the Minister of Finance on his appointment. We have talked on a few occasions, and I am looking forward to working with him over the next few years.

I would like to begin with some comments on the much-touted middle-class tax cut. That is what the government is calling it. There are various ways to define the middle class. One way is based on median income, which divides Canadians into two equal groups, half earning income above that amount and half below. In Canada, the median income is about $31,000. If we were to expand that definition and include everyone who is not part of the poorest 20% or the wealthiest 20%, the range would be from $20,000 to about $60,000 per year.

The Liberals' proposed tax cut, the so-called middle-class tax cut, excludes virtually all incomes under $89,000. An individual earning between $43,000 and $57,000 would get only about $26 on average. Basically, this tax cut takes money away from the richest 1% and gives it back, more or less, to the richest 20%, leaving most of the 80% who earn less out in the cold.

My question is simple. What is the Liberal government's definition of the middle class?

[Bill Morneau, Liberal, Toronto Centre, ON]

Mr. Speaker, I would first like to thank the member for Rimouski-Neigette—Témiscouata—Les Basques for his important question.

Our tax cut for the middle class is a first step, one that we think is very important. With this first step, we will be helping nine million Canadians by lowering taxes, leaving more money in their pockets.

This is only the first step, because we know that other measures need to be introduced to help the most vulnerable Canadians. That is why, in our 2016 budget, we will introduce our second step, which is the Canada child benefit. That will be a very important step for the most vulnerable Canadians, and it will help nine out of 10 families with children.

What matters, I think, is that this measure is going to help hundreds of thousands of children currently living in poverty. This means that we can help families and children living in poverty, and at the same time, this will also help the economy. Thanks to these measures, those who are the most vulnerable and the middle class will have more money to spend, which will stimulate the economy.

[Anita Vandenbeld, Liberal, Ottawa West—Nepean, ON]

Mr. Speaker, I would like to thank the hon. Minister of Finance for reaching out and listening to Canadians and for introducing this important bill.

In my riding of Ottawa West—Nepean, we have a number of middle-class families who are struggling with child care expenses, trying to pay the bills, and trying to put away a bit for their own retirement. We have the sandwich generation, people who have grown children who have either moved back home or never left home because of youth unemployment, and they are also in some cases taking care of their aging parents.

Could the minister please tell us what other initiatives Canadians can expect in support of the middle class and those working hard to join it?

[Bill Morneau, Liberal, Toronto Centre, ON]

Mr. Speaker, I would like to thank the member for Ottawa West—Nepean for her question. It provides me with an opportunity to reinforce the importance of both this first step and some other steps that we are taking to help Canadians who are struggling to get by or who have not had a raise for many years.

First and foremost, this first plan is critically important. Nine million Canadians would have more money in their pockets this year as a result of this reduction in taxes. It is a critical first step, one that would aid those families who have found that their net after-tax income has been stagnant for a long time.

However, we are not going to stop there. We plan, in budget 2016, on making a very important step toward helping our economy to grow. We know that economic growth is the thing that is most important for families who are struggling to raise their children. We plan on investing in infrastructure across this country—infrastructure that can be started quickly, in many cases—to make a long-term, productive impact on our country. We know that is what is critically important, not only for middle-class families today but for their children and grandchildren. If we can make investments that would make a difference for them, it is critically important.

We will also be making investments for those people in our economy who are vulnerable and challenged, like those people from our indigenous communities and those who are most vulnerable, so that they too—

[The Deputy Speaker, Conservative, Bruce Stanton]

Order, please. We have time for a brief question and answer.

The hon. member for Pierre-Boucher—Les Patriotes—Verchères.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

Mr. Speaker, I do not quite understand the Minister of Finance's plan or his explanation as to why this bill was introduced. When we look at the notice of ways and means motion and the measures it includes, we see that most of the measures that apply to taxpayers will not come into effect before they have to complete their income tax returns in April 2017. Accordingly, those measures could have been included in the upcoming budget.

Why did the government decide to do this so hastily right away, in a bill that was introduced so quickly? Was it merely to score political points?

[Bill Morneau, Liberal, Toronto Centre, ON]

Mr. Speaker, we believe it is critically important that we are open and transparent with Canadians. We also believe it is very important that we help Canadians understand their tax situation. Therefore, in introducing this measure early, we enabled people to have a good understanding of what their 2016 tax situation is.

Tax reductions start at the beginning of the year. This allows employers to actually manage their deduction process.

Tax-free savings accounts start at the beginning of the year. This allows people to plan for their financial situation.

We believe it was critically important to get this out so that people could understand their position and plan accordingly.

[Phil McColeman, Conservative, Brantford—Brant, ON]

Mr. Speaker, it is a pleasure to rise in the House today. Having listened to the finance minister's comments, I will set aside my initial speech to respond to a couple of those comments.

The minister commented on how the middle-class tax cut would be revolutionary for Canadians. Finance Canada estimates this to be $6.34 a week in tax relief to middle-class Canadians. That is less than $1 a day. In the minds of the finance minister and the Liberals, $6.34 a week is revolutionary.

Today I will divide my speech into separate parts. In the first part I will talk about tax-free savings accounts. In the second part I will talk about the housing market in Canada relative to what tax-free savings accounts provide for individuals. The third part will deal with the middle-class tax cut. However. I could not resist the opportunity to put it in actual numbers that everyday Canadians could understand because the finance minister relied so heavily on it in his speech. Again , it would be $6.34 a week, less than $1 a day. I will then go on to talk a bit about how this would affect Canada under the current economic situation, gathering momentum toward what I will call the fiscal mess and who will pay for it.

I will wrap up my remarks with a general comment about understanding what the Liberal tax plan is really all about.

Throughout my speech today, I hope to cut through the rhetoric that we hear coming time and time again from the new government and talk in terms of real life through the eyes of hard-working Canadians, people like my constituents, who come from largely working-class families. My community of Brantford was born out of industry, hard work, and immigrants, who have worked two or three jobs to raise their families. It is not the most affluent community in the country, but it is the most resilient and one of the most hard-working. I like to describe its makeup as one of the most opportunistic and humble communities in the country.

Not all members in the House were around when the late Jim Flaherty first unveiled the tax-free saving account, but I remember it quite vividly as a historic occasion. I will take this opportunity to remind the House just how popular and widely celebrated this savings vehicle was and is today.

Experts from across the board were unanimous. Tax-free savings accounts represented the most revolutionary savings vehicle since the registered retirement savings plans of over 50 years ago. These accounts were an enormous step forward for the middle class to support a wide array of their financial goals, including but not limited to saving for school, their children's futures, a home, or a comfortable retirement.

The strength of tax-free savings accounts is that when the money is withdrawn, it carries no tax penalties. It is basically tax-free just as the name of it suggests. Another major strength is that tax-free savings accounts offer enormous flexibility, which was lacking in RRSPs. According to experts, tax-free savings accounts can fill any number of short-term and long-term savings goals. Unlike the RRSP, money in a TFSA can be used as collateral, while at the same time, investments in TFSAs are not counted as income to qualify for government benefits or pension supplements that carry a means test. Again, they are not to penalize the most vulnerable people in our society but to add to the free choice of how Canadians can save.

Experts in retirement planning are unanimous that the tax-free savings accounts are a valuable tool to reach personal retirement goals. Our government's efforts to continue growing this revolutionary savings tool represented a major step forward for middle-class Canadians, in particular, Canadians saving for their retirement.

The new government's approach to retirement savings is completely off base. On one hand, it supports the wrong-headed approach of the Government of Ontario to force all workers into a new government-sponsored pension scheme that will cut take-home pay and foist upon and force employers to cut jobs or go out of business in some cases. On the other hand, the Liberals would cut a widely-acclaimed revolutionary savings tool designed to support Canadians in whatever their own unique savings goals might be.

Tax-free savings accounts have been so popular in our country since the beginning, that over 11 million Canadians have opened accounts. However, the Liberals have have said that only the rich can afford to put more into tax-free savings plans, and this, again, is absolutely false. It is an argument that is ignorant to the real cost of saving for a home or retirement, and it is an argument that is not supported by the facts.

I will allude to the speech from the Minister of Finance. I appreciate him coming into the House and explaining the platitudes of all of this, and repeating the rhetoric of the election campaign, but let us hit the facts. The facts are, as I have mentioned, that 11 million Canadians opened tax-free savings accounts. In 2013, people earning less than $80,000 a year accounted for 80% of TFSA holders, and 60% of the individuals contributing the maximum amount to their TFSAs had incomes of less than $60,000. Those are the facts. I did not hear this from the Minister of Finance.

Our motivation in doubling tax-free savings accounts was to build on the momentum of this incredible savings tool for middle-class Canadians in order to give them greater incentive to save and provide retirees with a higher rate of tax-free income. However, this is where we get into the argument of whether the government should be involved in making those decisions, or should individuals. We believe individuals should make those decisions, not the government.

Our motivation in doubling tax-free savings accounts was to build on this momentum. The Liberals' motivation in cutting tax-free savings accounts appears to be nothing more than looking for ways to fund a Liberal spending spree.

I will give credit to the Minister of Finance this morning. He did mention in his speech the fact that had the new limits for tax-free savings accounts been honoured as positive changes, the government revenues would have gone down, a concern by the Liberal government that this takes revenue away from the federal government, instead of thinking about middle-class working Canadians on the ground trying to save for their future and their children's future.

Cutting back tax-free savings accounts may support the Liberals in their plans for massive spending and big-government programs, but it certainly does not support the millions of middle-class Canadians who are working hard to save for their future.

I would like to move to what I believe to be at the heart of what middle-class Canadians desire. I am very familiar with this because I spent my life in this industry, building houses for individuals. This is in regard to the mortgage changes that the Minister of Finance brought out very suddenly and unannounced, without consultation. We have a clear example of how the Liberals are repairing their fiscal plans really on the back of a napkin, without thinking about the long-term financial consequences for Canadian families.

Last month, out of nowhere, the Minister of Finance announced new mandatory minimum down payments on home purchases. We know that buying a home is the most important financial decision most Canadians will ever make and that achieving home ownership is a bedrock issue when we are talking about supporting the middle class. Therefore, one might expect that the finance minister would actually consult with those who know the housing market best before making a massive change, doubling the minimum down payment on some homes.

For example, the Canadian Real Estate Association is Canada's top source of accurate, up-to-date information on statistics on the Canadian real estate market. I know it would have been delighted to have offered its input to the minister on the minister's mortgage changes and would have been eager to work with the new government on issues like housing affordability. Yet it was not consulted.

The Canadian Home Builders' Association employs 800,000 people in the country. It builds approximately 200,000 new homes every year for Canadians. It has such a huge multiplier of economic benefit and spinoff to it, 10 times whatever the value of spending is on housing. It was not consulted.

The minister said that he made these changes to cool the Vancouver and Toronto housing markets. If he had taken the time to consult, he would have realized there were actually eight major Canadian housing markets where the average home price was already more than $500,000.

The Liberals say they support the middle class. However, with a stroke of a pen, the finance minister has made it harder for young people and families to achieve home ownership in places like the Fraser Valley, Victoria, Milton, Mississauga, Markham, Calgary, and Fort McMurray. He has cut many families out of the housing market altogether. He is telling millions of young families that they will now have to save at least $10,000 to achieve home ownership. At the same time, he is cutting the tax-free savings account in half to $5,500.

We have a government on one hand telling us that average Canadians cannot afford to put away $10,000. On the other hand, it is telling us that Canadians have to save $10,000 to buy their new homes. This is just one example of why cutting the tax-free savings account, a revolutionary savings tool, will hurt middle-class Canadians.

There was much in the finance minister's speech about the middle-class tax cut, so let me address that as the third section of my speech today.

Another core part of Bill C-2 is the government's changes to Canada's middle and upper-class tax brackets. What was supposed to be a simple change to the tax code has created a long-term financial mess for Canada. It is worth noting that the tax changes before us would not have anywhere near the impact the Liberals have promised.

The Liberal tax cut most benefits those in the high end of the second highest tax bracket. Those who make close to $200,00 would benefit the most. In fact, the PBO says that the reduction in the second tax bracket will benefit the top 30% of income earners in the country. Those are facts from the Parliamentary Budget Officer. They are not my comments, not my party's comments, not the opposition's comments, but the government's objective overseer of all things economic. For the average Canadian family, this means very little. Based on the finance department's own estimates, and I mentioned this before, the new Liberal tax plan amounts to, on average, $6.34 a week for those who qualify.

Even more troubling is how these tax changes add to a growing trend of this new Liberal government that it cannot get a handle on its baseline numbers.

We had this yesterday in the House of Commons during question period. Actually, it began on Tuesday in the House of Commons during question period, when the Parliamentary Secretary to the Minister of Finance stood up in this House and wilfully misled the House in making a statement that the previous Conservative government left this country in a deficit position. In fact, the finance department and the PBO have put online for all Canadians to see the actual facts and the numbers, where we left the government with a surplus of $600 million. All Canadians can go online to see that if they choose.

Again, those are not the opposition's numbers. Those are the baseline numbers on which the government came to power and had to deal with on day one, a $600 million surplus, not a deficit.

The tax changes we have before us today are not what the Liberals campaigned on. They promised that the tax cuts would be part of a plan that holds the deficit to $10 billion, a promise that they have already thrown out the window, and they campaigned on a commitment. This is the one that is so vivid in many Canadians' minds, the commitment that the tax cuts would be revenue neutral.

The new Prime Minister went across the country and said, “We'll take the money from the rich and we'll give it to the middle class for the income tax cuts, and do not worry, it will not come out of the Treasury. It will be a revenue-neutral deal.” The Prime Minister repeatedly and directly stated that he would introduce, and I quote, a $3-billion tax cut for the middle class paid for by a $3-billion increase on high-income earners. However, the Liberals got their numbers completely wrong, and this tax cut will not be revenue-neutral, not even close.

By the Minister of Finance's own admission, there will be a revenue shortfall of over $1 billion. This is money that will be taken from the Treasury, another $1 billion, plus. In fact, some of the objective observers and economists have looked at it, and I will give the House these numbers. The Institute for Research on Public Policy says the shortfall will be even greater, creating a revenue gap of closer to $1.5 billion, and the C.D. Howe Institute, which the Minister of Finance once chaired, said the Liberal plan will fall short by nearly $2 billion.

Where is that money coming from? It is coming from existing revenues, that puts us into a further deficit, so it already looks as though we are projecting a larger deficit.

I will wrap up by saying that Canadians are concerned and worried about how quickly the Liberals have managed to put the country into a financial hole. Their bad math and the faulty projections behind the measures in Bill C-2 help illustrate why.

Finally, I would like to move an amendment. I move:

That the motion be amended by deleting all the words after the word “That” and substituting the following: “this House. declines to give second reading to Bill C-2, An Act to amend the Income Tax Act, since the principle of the Bill: (a) fails to address the fact, as stated by the Office of the Parliamentary Budget Officer, that the proposals contained therein will not be revenue-neutral, as promised by the government; (b) will drastically impede the ability of Canadians to save, by reducing contribution limits for Tax-Free Savings Accounts; (c) will plunge the country further into deficit than what was originally accounted for; (d) will not sufficiently stimulate the economy; (e) lacks concrete, targeted plans to stimulate economic innovation; and (f) will have a negative impact on Canadians across the socioeconomic spectrum.”

[The Deputy Speaker, Conservative, Bruce Stanton]

The reasoned amendment is admissible.

Before we go to questions and comments, I noted, in the remarks by the hon. member for Brantford—Brant the use of the term “wilfully misled” in reference to comments by the finance minister. Such expressions are usually considered unparliamentary and I wonder if the hon. member for Brantford—Brant might choose to withdraw that comment or rephrase it.

[Phil McColeman, Conservative, Brantford—Brant, ON]

I will choose to withdraw those comments, Mr. Speaker, and I apologize. I was not aware that those words were unparliamentary.

[The Deputy Speaker, Conservative, Bruce Stanton]

I thank the hon. member for the correction.

Questions and comments, the hon. Parliamentary Secretary to the Prime Minister.