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

[Lisa Raitt, Conservative, Milton, ON]

Mr. Speaker, that is an excellent question. I thank the hon. member for his research on the matter.

The issue that arises with adding on all these taxes is that those who cannot afford them the most are the ones who feel them the most. It is the mother who on a Saturday morning is looking at how expensive gas is to fill up the minivan because she knows she has to get her kids to different areas in her town and she knows how much gas it will take for her to do that. It is happening in Nova Scotia, where people and senior citizens are wondering if they can fill their heating oil tank for the winter. I know they worry about global warming, but the truth is that an easier winter is something that will be easier on their pocketbooks. That is the reality. People make difficult choices with the small amount of money they have. Extra taxes on top of that seriously affect their quality of life.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Mr. Speaker, I would like to congratulate my seatmate on an excellent analysis of why Bill C-2 is so flawed and why the previous government's economic record was so good. The member has a lot of material to work with.

I am sure that members, at least on this side of the House, will be familiar with the last two “Fiscal Monitor” releases, which showed that the Conservative government left the Liberals with a surplus. At the time the Liberals took over, the Government of Canada was running a surplus. We know there will be a deficit and that this deficit will be a direct result of the choices the Liberal Party has made, and not because of anything the previous government did, because we left the books in such great shape.

The tail end of my colleague's speech centred on the tax-free savings account, and I would like to speak to that as well.

Canada used to have a lifetime capital gains exemption. I believe at the time it was phased out by a previous government, it was a $500,000 in lifetime capital gains. It meant that any Canadian could buy and sell shares, equities, or investment real estate properties, and when they sold, a good chunk of it would be tax-free, and there were a lot of reasons for that.

There is a huge economic incentive to protect capital gains in that way, and the first aspect I would like to touch on is the idea that inflation is a tax.

When one has a capital gain, a good chunk of that notional gain is due to inflation. In other words, if I buy $100 worth of equities today and 20 years from now they have gone up 20%, when I sell them, I have to pay taxes on that gain even though a good chunk of that has been the normal inflation that the Bank of Canada actively seeks with its mandate to achieve a 2% inflation target. Therefore, the $120 that I sold the equities for is not really $120, because a good chunk of the value of it has been eaten away by inflation, but I still pay the taxes as if I had the benefit of the entire 20%.

What the tax-free savings account does, of course, is protect all of the growth, both inflation and real growth, from the tax man. Therefore, if I have equities in a tax-free savings account and it does go up by 20% over a period of time, then, yes, a good chunk of that is inflation, fake growth and not real, a kind of a tax and devaluation of something that I own, but it is protected at the very least from paying taxes.

Ordinary Canadians cannot protect themselves from inflation. It is a tool of government, a tool of the Bank of Canada, and it is done for many different reasons.

There is some debate as to the benefits of having an inflation target, but nonetheless ordinary Canadians can do nothing about it. They can try to protect themselves in terms of where they put their money, they can try to find investments that offer some kind of predictable return, but they cannot control what the folks at the Bank of Canada do, and it in turn certainly cannot control the mandate it is given by the government. However, the tax-free savings account, at the very least, offered a little bit of a shelter against the negative impacts of inflation when it comes to paying taxes, as one would not have to pay tax on that fake growth.

Mr. Speaker, I see we are approaching statements by members.

[The Assistant Deputy Speaker, Anthony Rota]

I was just waiting to cut you off, but certainly old habits die hard. After question period, the hon. member will have six minutes and ten seconds remaining.

The House resumed consideration of the motion that Bill C-2, an act to amend the Income Tax Act, be read the second time and referred to a committee, and of the amendment.

[The Speaker, Geoff Regan]

The hon. member for Regina—Qu'Appelle has six minutes remaining in his speech.

The member for Regina—Qu'Appelle.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Mr. Speaker, before question period started, I had just finished explaining how inflation acted as a tax on ordinary Canadians and that when the government imposed an inflation target, as Canada has, of 2%, that it slowly but surely would eat away at the value of what Canadians had saved. It lets the government off the hook because the liability today to a group, whether that be individuals or other entities, gets eaten away by inflation as the money they end up having to pay back over time is reduced because of the inflationary acts of the central bank policy.

However, I want to shift gears a bit and talk about how savings can be a stimulus. When it comes to economic times, we hear these buzz words of liquidity traps, dead cash, and all these kinds of phantom problems about which we should be concerned. A lot of people have a misconception about what happens when Canadians save money.

When individuals put money into a tax-free savings account, that does not go into a mattress or become dead money. Rather, it gets invested into the market. It becomes capital that businesses and individuals can tap into to expand operations, to invest in new equipment and capital expenditures for their business. It becomes real loanable funds, not the loanable funds the government creates out of thin air through deficit financing or the modern day alchemy like we see in Europe and the United States with quantitative easing, and these types of new monetary tools that many governments around the world have experienced.

It strikes me on how history repeats itself. We hear stories in history books and legends of kings and queens commanding the wizards and astronomers of the day to try to turn lead into gold. We call them alchemists. They used to get the support of the monarchy in the area to take something of no value and turn it into something of great value. The most common example is the practice of alchemy and trying to turn lead into gold. We always see governments around the world doing that with monetary policy, such as quantitative easing, and that somehow printing more dollar bills will improve the economy. We know that is false. Thankfully, under the previous government, we refused to go down that road and engage in that type of trickery.

However, real savings, which is real individuals putting money into investment vehicles, such as a tax-free savings account, mutual funds or bonds, is real capital. That is something tangible. Savings today become a stimulus tomorrow because they are real funds that are there. That is what our economic policy was all about when our party was in power, encouraging private sector stimulus.

As we lead up to the record deficits that we know are coming in the next budget, we have been hearing a lot from the Liberals in the last few days on how we need to stimulate the economy and that the only thing that can do that is government spending. We hear time and again from the parliamentary secretary and from the Minister of Finance, who should know better having been on Bay Street before, that somehow if the government could just spend the right amount of money, we would get back to big growth again. This is the problem we are facing. We hear from the other side that the government was not spending enough money. We can look back over the decades to budget documents.

As an aside, I know the Liberals do not like reading budget documents or Finance Canada reports because they show we left them with a surplus. It is becoming quite clear that the only people who do not believe the government was left a surplus are the Liberals themselves.

With respect to private sector stimulus, I want to point to a couple of examples. The first is the energy east pipeline, which is a $15 billion private sector stimulus package that does not require a cent of taxpayer money and will put people to work because there is a market solution, there is a business case for it. We know there is a business case for it. If there were not, the company would not propose it.

A similar example would be the Toronto Island airport. My friend from Spadina—Fort York cares very passionately about this because he represents a lot of very rich condo dwellers in downtown Toronto who do not want the inconvenience of jets landing and spoiling their waterfront view as they wake up in the morning and drink their fancy coffee.

Meanwhile, people in Montreal who work in the aerospace industry have their jobs threatened because there is no ability for the airlines to buy those jets and land them at the airport. This is a classic Liberal example of putting up a wall, blocking an economic stimulant like energy east or the Toronto Island airport, and then coming along with taxpayers' dollars and saying, “Don't worry; we'll bail out the company” or “Don't worry; we'll expand EI benefits for all those people who are out of work for a long period of time.”

That is the difference between the economic approaches of the two parties. On this side of the House, we want the private sector to provide that stimulus. We want to get the government out of the way. We want to tear down those walls that prevent innovation and investment, and allow the market to do what it does best, and that is to allocate resources, make those investments, and get people back to work. We do not think the government should cause the problem in the first place and then come along with a solution that always, invariably, just results in more taxpayers' dollars being spent.

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

Mr. Speaker, I want to thank my friend from Regina—Qu'Appelle for his comments. I listened very carefully to his contribution to the debate on Bill C-2, and I take to heart what he was saying about the inflationary factors that ultimately may erode the savings of Canadians, but what we really ultimately need to look at is a fundamental difference in approach with respect to savings.

This side of the House is not opposed to Canadians saving their hard-earned money. The question at the end of the day is this: who ultimately benefits? Who can actually maximize the contribution limits that had been proposed by the previous government, the new savings limits that had been proposed for TFSAs? From the perspective of his particular party, was the increase from $5,500 to $10,000 an inflationary factor, or was it fundamentally about rewarding those who fundamentally do not need it?

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Mr. Speaker, the member must not be familiar with the stats that show that the vast majority of people who use tax-free savings accounts and who maxed out doing so were people of very modest means. In many situations, they were seniors.

I have heard many examples of seniors having to transfer money out of a registered retirement product and put it into a vehicle. There is a huge tax implication there, but tax-free savings accounts were an attractive way to do that, to take money from a RRIF and put it into a tax-free savings account. The fact of the matter is that this increase in the TFSA limit benefited hundreds of thousands of people in many different demographics and income brackets.

It always comes back to the point where the Liberals need to be talked into giving taxpayers' money back to hard-working Canadians. Our default position is that government needs a reason to take the money, not a reason to leave the money in the pockets of Canadians. That is the fundamental difference between our two parties.

[Pierre Poilievre, Conservative, Carleton, ON]

Mr. Speaker, to build on the member's excellent speech, the published and available facts are that 60% of those who maxed out their tax-free savings accounts earned less than $60,000 a year.

“How is that possible?” asks the Prime Minister. “How could someone who makes only $60,000 a year have $5,000 to max out the TFSA every year?”

The answer is that they do not. They do not get it from their income. They get it from downsizing their home. They turn some of their home equity into cash, as many seniors do, or a spouse passes away and bequeaths their savings, or they are forced to take money out of their RRIFs, which they have accumulated over an entire lifetime. They often have large infusions, even though they are people of very limited means.

That is why 60% of people who max out their TFSAs earn less than $60,000 a year. The decision by the present government to cut back tax-free savings accounts will limit the ability of these people of modest means to put that money into a tax-free vehicle, where it can grow and pay them an income in a dignified retirement for the rest of their lives, two-thirds of them being in their retirement period.

I wonder if the member could comment on the irony of a government that wants to raise taxes on the savings of seniors and the retired while simultaneously proposing a mandatory expansion of the CPP under the pretext of helping people retire.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Mr. Speaker, I thank my colleague for the question and I appreciate his ability to recall those types of stats and figures. I knew in general terms, but of course he very articulately brought in the actual stats, and I thank him for that.

It is true that there is a great irony there, and it is an irony that we see in the Liberals' approach to all economic matters. Fundamentally, they fear the independence of ordinary Canadians. The Liberals like to have clients. They like to have people reliant on government, but if people have their own money in a TFSA, if they have their own RSPs, they do not need government. They do not need different programs to be expanded or altered. They can just quietly go about living their life based on the savings they have accumulated.

However, if they are not allowed to put that money in those types of vehicles and they have to depend on government programs, then the Liberals have a base that they can grow and they have people who are beholden to government. That, I think, is ultimately what they are trying to do: limit the independence of ordinary Canadians so they do end up more and more heavily dependent on the state and look for parties like the Liberals, who constantly offer more and more spending.

[Brigitte Sansoucy, NDP, Saint-Hyacinthe—Bagot, QC]

Mr. Speaker, I am pleased to rise in the House today to debate Bill C-2, which was introduced in December and is now being debated in the House.

Middle-class families are losing ground even though they are working harder than ever. What these families need is a government that is concerned about their situation and will fight against growing inequality. Unfortunately, we see that this government is doing the opposite. Liberals have repeated for months and months that they have a plan for the middle class. They promised quick, urgent and positive change. However, we see today that we know very little about how these major changes will happen and even less about when they will happen.

Bill C-2 was a golden opportunity to make good on these promises and to put words into action. Unfortunately, the Liberals' plan is quite disappointing.

The Liberals' proposed tax plan does nothing for 60% of Canadians, six out of 10 Canadians. Once again, the wealthy are the ones who will benefit. The NDP put forward solutions that would benefit a large number of Canadians and would allow a fairer distribution of tax cuts: boosting the national child benefit supplement, increasing the guaranteed income supplement, creating a $15-a-day national child care program for all Canadian families, and restoring the tax credit for labour-sponsored funds. These realistic, progressive measures would provide real help for the middle class.

The Liberals campaigned on a platform focused on the middle class. As my colleague from Rimouski-Neigette—Témiscouata—Les Basques mentioned in his speech in the House, we want to know how the Liberal Party defines the middle class. This is a legitimate and important question. This government keeps promising tax cuts for the middle class. However, as the parliamentary budget officer explained very clearly in his report, the real middle class will not benefit from this government's promised tax cut. A tax cut for the middle class should benefit the middle class.

When we really look at the Liberal plan, it is quite clear that unfortunately, it does not make sense. The median income in Canada is about $31,000 a year. Obviously, this means that half of Canadians earn less than $31,000 a year and the other half earns more than $31,000 a year.

If we imagine a pizzeria worker in my riding who earns $20,000 a year, will he benefit from this tax cut? Unfortunately, no. Will a social worker who earns $43,000 a year benefit from this tax cut? The answer is still no. The reality is that someone who works hard and earns $50,000 a year will probably receive only $20 or $30. Is that real change?

One has to wonder who is really going to benefit from this change. Who is really going to benefit from these cuts? Who could benefit? When we look closely at the figures, we see that this will benefit people who earn more than $90,000 a year. What is more, someone who earns $200,000 a year will get the most out of this tax cut. Saying that this will benefit the middle class is not entirely true.

I hope I did not lose too many of my colleagues with all those figures, but they are important in understanding just how much hard-working families, our seniors who often live in poverty, and the real middle class will unfortunately not benefit from these measures.

If we take the median income, people will receive nothing. If we take the income that everyone associates with the middle class, in other words, $45,000, people will receive nothing. Those who will receive the biggest slice of the tax-cut pie are the top 20% income earners. That is not the middle class. The Liberals' proposed tax cuts will help the rich, not students or young families.

When I talk to groups in my riding and my constituents about this, they are disappointed. Like me, and like most Canadians, they expected the tax cuts to help those who need it most and to benefit the real middle class.

During the election campaign, people who believed they were part of the middle class were told over and over again, for nearly 80 days, that they would finally have room to breathe and that they would be given tax breaks. Today, they are realizing that that is not the case.

Unfortunately, the middle class will not benefit from these measures; only the richest 20% will. That is what the figures say. When middle-class Canadians file their income tax returns, they will be surprised, and not in a good way.

In fact, most Canadians will see that they cannot benefit from the tax cuts that this government promised them. Only 20% of the population will be eligible for the tax cuts, even though they were supposed to give the middle class some breathing room.

The fact that the tax breaks will benefit those who earn $200,00 a year and not those who earn $39,000 shows just how inequitable the proposed tax breaks make the tax system. That is really unfortunate.

After the bill to amend the Income Tax Act was introduced, I read with interest what Luc Godbout, an eminent tax expert in Quebec, had to say about it. When looking at how this would affect couples, he determined that, if a couple had a combined income of $250,000 a year, they could receive a tax break of up to $1,120. However, a hard-working couple in my riding with a combined income of $75,000 a year, who sometimes has trouble making ends meet, would receive an average of zero to four dollars. That is really disappointing.

The NDP developed a plan to fix the Liberals' tax plan, to ensure that the government's measures truly reflect its campaign promises. Our plan would reduce the tax burden on middle-class and lower-class workers. We urge the Liberals to take our suggestions so that we can help those who truly need it.

Our plan is simple. The NDP calls on the government to lower the tax rate for Canadians in the first tax bracket from 15% to 14%, instead of lowering the tax rate for Canadians in the second tax bracket. This way, eight out of ten taxpayers would see a change in the amount of tax they pay. This solution would benefit many more taxpayers. Under our proposal, people earning the median income could see a reduction of up to $250 a year, but these people get nothing under the existing plan.

Our concrete proposal could really help the middle class. That is what the people of Saint-Hyacinthe—Bagot and the 337 other ridings want.

[Kevin Lamoureux, Liberal, Parliamentary Secretary to the Leader of the Government in the House of Commons]

Mr. Speaker, I have had the opportunity to listen to a number of New Democrats talk to Bill C-2. We look at Bill C-2 as a commitment that was made to Canadians. The Liberal Party wants to build the middle class, believing that a healthy middle class means a healthy economy. This is an investment in the middle class.

The New Democrats are somewhat critical of it, but they are supporting the legislation, and I do appreciate their support. When we complement Bill C-2 with other actions the Government of Canada is taking, such as the child benefit plan, which is going to raise literally hundreds of thousands of children out of poverty, would she not say that, looking at the bigger picture, for the first time in many years we are seeing a very progressive attitude in dealing with the issues of poverty and enhancing the strength of Canada's middle class?

[Brigitte Sansoucy, NDP, Saint-Hyacinthe—Bagot, QC]

Mr. Speaker, I thank my colleague for his question. We do support this bill, and we hope to improve it in committee.

We all spent the past week in our ridings. During the week, constituents contacted me to say that they were happy they would benefit from the tax cut because they belong to the middle class. Then I asked them what their household income was. Each time, I had to tell them that the so-called middle-class tax cut was not for them and that it would benefit people who are richer than they are.

We are here to represent our constituents. We have to respond to their disappointment. In the 2015 election, people had high expectations in connection with Liberal promises, but they have been let down over and over.

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

Mr. Speaker, my question follows on the question from my Liberal colleague, who tried to suggest that Bill C-2 was a progressive measure to help Canadians who need help, the middle class. The member who spoke identified that there are many people who aspire to the middle class or consider themselves to be the middle class, who would not be helped by the measures in Bill C-2 at all, and in fact it would then raise taxes on a whole range of other Canadians.

The previous Conservative government undertook a reduction to the GST to reduce consumption taxes. The lower-income and lower-middle-income people consume most of their income, and therefore lowering the consumption taxes and raising the basic personal exemption, which the Conservative government also did, also took hundreds of thousands of Canadian families off the tax rolls entirely.

Could the member comment on how Bill C-2 would actually miss some Canadians who are probably the most deserving of relief?

[Brigitte Sansoucy, NDP, Saint-Hyacinthe—Bagot, QC]

Mr. Speaker, I thank my colleague for the question.

I think that a graduated tax rate, in other words a tax rate based on annual income, is the best way to redistribute wealth in our society. A consumption tax certainly hinges on our consumption, which in turn depends on our income. However, we all know that there are some purchases that have to be made for many of our basic needs regardless of whether we have a low income or a high income.

In my opinion, changing the tax rate in a way that is equitable to people with different incomes is a better way to distribute wealth in our society.