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

[Matt DeCourcey, Liberal, Fredericton, NB]

Mr. Speaker, I thank my colleague, who has had a long and distinguished career in the House. I have a great deal of respect and admiration for him.

He spoke about the middle-class tax cut as one plank in an ambitious agenda that would provide economic and social support to Canada's middle class and those in more vulnerable situations struggling to join the middle class. How does this lay the groundwork for the ambitious agenda of this government? How would some of those other pieces fit together to help strengthen Canada from his home province of Prince Edward Island to the other end of the country?

[The Assistant Deputy Speaker, Anthony Rota]

The hon. member for Malpeque in 30 seconds or less, please.

[Wayne Easter, Liberal, Malpeque, PE]

Mr. Speaker, it would actually take about 30 minutes to answer that question, but it is all good and it is all leading to the country being more prosperous, with greater benefits going to the middle class.

As was said in my remarks, this is just the first plank. It deals with some of the necessary tax changes. It had to be done in a way that it would come into effect early this year. Following on that will be the new Canada child benefit, which will bring greater benefits to all families that are raising children, regardless of income. From there, we will go to housing programs, and on and on will go the list.

[Erin O'Toole, Conservative, Durham, ON]

Mr. Speaker, it is a pleasure for me to get up after my friend, the long-serving MP for Malpeque, who never lets the facts interrupt his rhetorical flights in this place.

I enjoyed the fact that he said, mere days after the revenue department confirmed a $1 billion surplus for November, that he still thinks that is fiction, even though the parliamentary budget officer has confirmed that the previous government certainly left a surplus. It was so good in a tight global economy that despite the Liberals' best efforts, they are still accruing the surpluses in their first few months of government. The facts state that quite clearly.

I am very pleased to rise here today in relation to Bill C-2, an act to amend the Income Tax Act.

It is Bill C-2 for a reason. Probably the majority of members of the House are new members of Parliament. They may now know that the first bill, “an act respecting the administration of oaths of office”, is a formulaic standard bill that starts off a session. Therefore, Bill C-2 represents the top priority of a new government coming to office.

Bill C-2 would codify what the Liberals brought Parliament together for six days after they won the election in October of last year, which was to raise taxes on Canadians. Nothing suggests the priority of the current government better than Bill C-2, which is why I thought I would rise in the House.

What I find most ironic about Bill C-2, an act to amend the Income Tax Act, or an act to raise taxes, is that it confirms the age-old nickname for the Liberal Party in this place. A nickname is a term of endearment. I respect anyone who comes to Canada's Parliament, doing their best for the country, but Conservatives for generations, long before my colleagues or I have been here, have accused the Liberal Party of being the tax-and-spend party. What has happened is that the Liberals' early record in their first few months of government confirms that.

My friend from Malpeque confirmed that. He tried to suggest that it was fiction that the last government, the Conservative government, left Canada in a surplus position, but that is exactly what the Parliamentary Budget Officer confirmed last fall. In fact, the Finance Department confirmed the numbers from November of another surplus month. Therefore, the country was left with a modestly growing economy and a surplus.

The two things the government did in the short period of time it governed in 2015 were to make massive commitments for deficits, well above what the Liberals spoke to Canadians about during the election, and they raised taxes. This is one of those occasions for the pundits who often ask why the Conservatives call the Liberal Party the tax-and-spend party. It is because in the first three months of government, the Liberals are raising taxes and spending out of control. That is just the record that we are debating here today with their first bill coming to the House of Commons.

Why I think this is important is that it is setting a tone. This is not a bill that debates assistance or investments in a resource sector that needs some help, as well as the families affected by the downturn in resources prices. They desperately need help, and see mortgage payments on the horizon that scare them. It is not a bill about that.

The bill is about taking more from Canadians in the form of creating a new tax bracket in an already fairly complex tax code by taxing Canadians in the highest bracket more for income over $200,000. It is also a procedure to lower the amount that Canadians can shield from tax through the tax-free savings account by reducing the amount that people can contribute to that very popular device brought in by our previous government and my friend, the late Jim Flaherty, who was finance minister. This vehicle not only allows families of all income levels to save free of tax, but it is also very helpful for people approaching retirement. I heard that and still hear that daily. These are the two measures that are before us in Bill C-2.

Nothing concerns me more, not just as a Conservative but as a member of Parliament who came out of the business community before I was elected to office, than the new government's apparent lack of direction for our economy, even in its first few months.

Many of the members who were elected in October did not get a chance to see their Prime Minister when he was a third party leader. About a year ago, he refused to ever commit to running deficits. In fact, he took a position that was somewhat similar to what the government had adopted, because Conservatives worked hard over the course of many years, following the global recession, to balance Canada's books. Doing that requires decisions by government. Government is not intended to just say yes to everything, increase every budget line, and hire more people in every department. It has to set priorities, make decisions on spending, and look at the tax base to determine if Canadians can afford higher taxes in order to pay for more people in a certain department. These are the decisions of government.

A year ago the Prime Minister, then the third party leader, was committed to running a balanced budget, as was, of course, the Conservative government at the time, and it was not until an election campaign that it changed. For a few years, the fundamental economic position of the Liberal Party was one of fiscal prudence. In the middle of an election, there was a change in direction, a considerable change, perhaps for election advantage, perhaps because of a philosophical change, but it changed to running a $10-billion deficit. That was the commitment that the party talked about with Canadians. It was a temporary deficit of only $10 billion so that the government could fulfill some commitments and add some additional infrastructure money on top of the already substantial building Canada plan that the previous government had put in place.

Within the first few weeks of government, before the House was even called back in session and before you had the honour of occupying that chair, Mr. Speaker, that $10-billion commitment was already $20 billion. If we read the papers, as many members of the House did, a week or so ago, we now see the finance minister hedging perhaps two years of $25-billion deficits. Did Canadians vote for that? Did Canadians vote for the first two moves of the new government to go from a probably improper $20-billion deficit commitment to a $50-billion deficit commitment?

The new government's first act in this place was to raise taxes on Canadians, a tax increase that Liberals told Canadians would be revenue neutral. That is yet another promise that appeased people during the election campaign but was not met and has already been abandoned. Ironically, it was the C.D. Howe Institute, a think tank that the finance minister once chaired, that said that these tax increases would not be revenue neutral for a variety of reasons. From a public policy standpoint, those in the higher tax brackets are more mobile, so there could be a risk of driving more people out of Canada, out of our system of taxation.

I was reading just this morning in The Globe and Mail the great column by Konrad Yakabuski, who identified this tax increase as a risk to a lot of the tech entrepreneurs and growing sectors, as well as the fact they are going to treat stock options as income, which is another thing. Compounded with the fact that our dollar is going down, the government seems to be set on driving talent out of this country at a time when a lot of people are looking for an economic plan that is far more than a Keynesian tax-and-spend approach, with no strategic direction and at a time when it is actually hampering the increased revenues that are possible if we could get our resources to tidewater with energy east. There was a debate in the House last week when the Prime Minister seemed to be putting in place a system and series of consultations and reviews that would essentially mean that capital leaves Canada because of the uncertainty of our business climate.

It is with sadness that I rise today to say that Bill C-2 confirms the nickname of the Liberals as the tax-and-spenders of Canada. I certainly hope that subsequent bills start showing some real direction for the Canada of the future.

[Arnold Chan, Liberal, Scarborough—Agincourt, ON]

Mr. Speaker, I want to thank my friend opposite from Durham for his comments in respect to the legislation before the House. While I take his comments to heart, I do not necessarily agree with his characterization that this side of the House is one of “tax-and-spend”, to use his nomenclature.

As the member was giving a history lesson to this side of the House and although I know that he might not have been here earlier, since he also joined the 41st Parliament like I did in a by-election, I want to ask him how he would characterize, for example, the $160 billion in debt that was incurred under his previous government and used and justified by that government to deal with the difficult economy in 2008-09.

[Erin O'Toole, Conservative, Durham, ON]

Mr. Speaker, I am proud to answer that question from someone who indeed is a friend. We were all very happy to see him get through a difficult personal challenge with his health and return to the last Parliament and then get re-elected. I have a lot of time for the member and, as I said, nicknames are often terms of endearment. It is because we like Liberals that at the end of the day the tax-and-spend nickname is a nickname, but my goodness, with Bill C-2 they are confirming tax-and-spend as their strategy.

When it comes to the global recession of 2008-09, out of which Canada led the G7 in job growth and recovery, certainly we did run deficits. No one has hidden that at all, but we set a course to balance the books by fiscal year 2014-15, which takes decisions. As I said, leadership is not about always saying yes. Tony Blair was famous for saying that leadership is at times about saying no. My father who was a provincial member at Queen's Park coined that phrase long before Tony Blair, that sometimes it means saying no and saying why by setting priorities.

I hope with subsequent bills that come before this place that my friend and my friends will bring forward a plan that is more than just taxing Canadians, more than just reducing their ability to save for retirement. We need a vision that includes resources, that includes new Canadians, that includes a diverse economy to make sure that Canada stays on top.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Mr. Speaker, I would like to point out for the record that all governments tax and spend. I have always hated that term because it is the whole purpose of government. We take resources, pool them, and we spend them for the greater good.

We have figures from the parliamentary budget officer with respect to the tax-free savings accounts that the increase in TFSA contribution limits would have put a glaring hole in future governments' revenues. I know my colleagues across the way like to support our military, which is one of the biggest consumers of the federal budget.

If we are looking at a $132 billion hole in combined federal and provincial coffers from the Conservatives' increase in the TFSA, how would the member purport to balance the books when we would lose that much revenue?

[Erin O'Toole, Conservative, Durham, ON]

Mr. Speaker, I would like to welcome another new friend to this place and thank him for his question. To him as a member of the New Democratic Party, now that we are talking about the tax-and-spend concept, I would say that nothing underscores the difference between the three parties in this place better than this question. He looked at the TFSA changes and our increase causing a hole in revenues.

On this side in this party we do not see that as the government's money. Tax and spend decisions to us should be made in a way that takes the minimal amount possible from Canadians to give us the opportunity and the great services and quality of life we have here, while recognizing the trust that we are held to spend that wisely and only take what is needed. This is not a hole in our revenue. This is Canadians' money. TFSAs are an example where we are saying,“You have made this money, you can save it and earn some income from investments without our taxing it again”. Or in the RRSP option, we defer that taxation.

That is what was so exciting about the TFSA. The fact that we have Bill C-2 and the fact that I have this question about holes in revenue underscores that only the Conservative Party really looks at this as Canadians' money that we were entrusted to spend on priorities and make decisions to make sure that we do not take too much.

[Stephen Fuhr, Liberal, Kelowna—Lake Country, BC]

Mr. Speaker, as this is my first opportunity to rise in this House, I would like to thank the good people of Kelowna—Lake Country, British Columbia, for the opportunity to speak on their behalf. I would also like to take this opportunity to thank the large group of volunteers who worked tirelessly to make this possible.

Let me begin today's debate by quoting the Minister of Finance directly when he announced the middle-class tax cut earlier:

On October 19th, Canadians gave us a strong mandate to take a new approach. We promised to strengthen the middle class and put more money in their pockets to save, invest and grow the economy. Fundamental to that plan was greater tax fairness for the people who need it most—the middle class.

I could not agree more.

One of the most important components to this tax cut is restoring middle-class economic progress, which is the backbone of our economy. That is why the government tabled a notice of the ways and means motion to cut taxes for the middle class in December. This was the right thing to do and a smart thing for our economy.

The proposed middle-class tax cut and accompanying proposals would help make the tax system fairer so that all Canadians can have an opportunity to succeed and prosper.

The bill specifically proposes to reduce the second personal income tax rate from 22% to 20.5%, to introduce a 33% personal income tax rate on individual income tax that exceeds $200,000, and to return the tax-free savings account annual contribution of $5,500 from $10,000 and reinstate indexation of the TFSA annual contribution limit.

Let me quickly expand on these three points.

First, the personal income tax rate changes are proposed to take effect on January 1. It is expected that nine million Canadians would benefit from this measure in 2016. Single individuals would see an average tax reduction of $330 per year, and couples would see an average reduction of $540 per year.

Second, the government is proposing to introduce a new personal income tax rate of 33% that would apply to individual taxable income rates in excess of $200,000. This means that only Canada's top income earners would be expected to pay more as a result of the government's proposed changes to personal income tax rates. As with other bracketed thresholds, the $200,000 threshold would be indexed to inflation.

Third, the government is proposing to return the tax-free savings account, the TFSA, annual contribution limit to $5,500 from $10,000, effective January 1, 2016. Let me reassure this House that the change would not be retroactive. The TFSA annual contribution limit for 2015 would remain at $10,000. Returning the TFSA annual contribution limit to $5,500 is consistent with the government's objective of making the tax system fairer and helping those who need it the most. When combined with other registered savings plans, a $5,500 TFSA annual contribution limit would permit most individuals to meet their ongoing savings needs in a tax-efficient manner. The indexation of the TFSA annual contribution limit would be reinstated so that the annual limit maintains its real value over time.

The previous government's plan to nearly double the contribution limit to the TFSA could have helped Canada's wealthiest save more while costing the federal treasury several hundreds of millions of dollars over the next five years, and some tens of billions of dollars over the long term.

We know that only 6.7% of Canadians eligible for a TFSA contributed the maximum in 2013. Doubling the annual maximum does nothing for the 93.3% of Canadians who do not max out their TFSA contributions at the existing limit of $5,500 per year. That is the real point here. We have talked about this almost exhaustively all day, that very few Canadians take advantage of this, so raising it makes no sense.

Our government is committed to making the tax system fairer and finding ways to support those who need it most.

Finally, 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 proposes to set the tax on split incomes at the new rate of 33%.

It would amend 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 33% marginal tax rate. It would also increase 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.

Going forward, the government will introduce proposals in the budget to create a new Canada child benefit. Payments under the new Canada child benefit would begin in July 2016.

In addition to replacing the universal child care benefit under the previous government, which is not tied to income, the proposed Canada child benefit would simplify and consolidate existing child benefits while ensuring that help is better targeted to those who need it the most. Hundreds of thousands of children would be lifted out of poverty and nearly nine out of ten Canadian families would be better off than they were before.

Before I conclude, I would like to very quickly highlight the government's pre-budget consultations, which took place recently and continue.

When we set out to do consultations, we wanted to do a couple of things. The government wanted to involve as many Canadians as possible, and we wanted to do things differently. The numbers really do tell the story. To date, the combined total number of Canadians reached through channels is up to tens of thousands, the highest turnout on record for pre-budget consultations. For example, we opened up the online consultation on January 6. We have already received more than 67,000 web views and more than 3,500 separate submissions from Canadians, individuals, and groups.

The Minister of Finance had three separate live chats with university students, which gave the government valuable insight into the concerns of young Canadians from across Canada. Apparently, in the Dalhousie University Facebook live event alone, the number of people who logged in reached almost 8,000 and since then many more have replayed it online. At the second Facebook live event in Calgary, the government had more than 70,000 people tuning in live. The pre-budget consultation hashtag, #pbc16, is being used widely by Canadians who have great ideas on how to implement our plan to grow the economy and by commentators and MPs from across the political spectrum.

I want to take this opportunity as a member of the government to express many thanks to everyone who has taken the time out of their day to meet with the Minister of Finance and his parliamentary secretary and to share their ideas. It has been a privilege of the government to hear from Canadians directly, and I can assure them it has had a very profound effect.

To conclude, I believe our program of tax cuts for the middle class is an investment that would lead to a more prosperous, inclusive, and sustainable economic future. Economic growth requires giving everyone a real and fair chance to succeed. We will continue to work with Canadians to implement our platform for real change, which includes investing in our economy, our communities, and Canadians themselves. That means transformative investment in infrastructure and a plan for a strong middle class.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Mr. Speaker, one of the most important responsibilities we have here is our responsibility to our constituents. My colleague opposite spoke about helping the middle class. I wonder if he can tell me exactly how, in financial terms, his government defines what middle class means—by income bracket—how many of his constituents fall into that bracket, and how many of them would actually be adversely affected by the tax changes contained in this bill.

[Stephen Fuhr, Liberal, Kelowna—Lake Country, BC]

Mr. Speaker, as has been explained several times today, this tax change would be a result of a plenitude of different initiatives and I want to name some of them: obviously, the tax cut that I just discussed; a more generous tax-free child benefit, which was also mentioned; an increase to GIS for single seniors; a substantial investment on social infrastructure; and we are going to work with the provinces to ensure that CPP becomes more meaningful in the future. It is a combination of these things that would kick start our economy and help those who need it the most.

[Wayne Stetski, NDP, Kootenay—Columbia, BC]

Mr. Speaker, I thank the hon. member for a very clear explanation of what the bill includes. As part of his speech, though, the hon. member talked about consulting with students, many of whom make less than $45,000 a year. I would ask the hon. member how this bill would benefit those students who are in the lowest income bracket.

[Stephen Fuhr, Liberal, Kelowna—Lake Country, BC]

Mr. Speaker, the financial packages on the whole would benefit students. These people have a lot of time ahead of them. Obviously, they are going to get to a point in their lives when they will need CPP. If we start working on it now, CPP could be more meaningful for them in the future. It is going to take some time, and once we get this going, it is the people at the back end of income earning who would benefit the most.

[Kate Young, Liberal, Parliamentary Secretary to the Minister of Transport]

Mr. Speaker, could the hon. member talk about his own riding and how the bill would help people who need it the most?

[Stephen Fuhr, Liberal, Kelowna—Lake Country, BC]

Mr. Speaker, I have a wide range of financial situations in my riding, from people who struggle with homelessness to people who are fairly well off. The tax break would obviously help a lot of folks who need the help, again combined with the Canadian child benefit, which would be more generous and tax-free. It is a combination of those things that would help people immediately; and then in the long term, looking at things like revamping CPP, which is incredibly important. We know there is not enough meaningful money to get people where they need to go when they get older. It is a combination of all those things that would help.

My riding is no different from any of the other ridings that are struggling right now with homelessness, mental health issues, and a wide variety of things. This money would help us today and also in the future of the plan.