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

[Karina Gould, Liberal, Burlington, ON]

Madam Speaker, I agree with my colleague. I think this is an excellent first step to addressing the income gap that we have in this country. It is the first step in ensuring that middle-class Canadians have more money in their pocket. As well, we will be introducing the Canada child benefit and other measures moving forward.

[Pablo Rodriguez, Liberal, Parliamentary Secretary to the Minister of Infrastructure and Communities]

Madam Speaker, I would like to congratulate my colleague on her excellent speech.

I am pleased to participate in this debate on the middle-class tax cut that we announced in December. It is an important Government of Canada measure for Canadians.

I want to do two things today. First, I would like to give a brief overview of our economic and fiscal situation. Then, I will explain why the middle-class tax cut will help grow our economy.

There is no doubt that, as we begin to put our plan for economic growth and long-term prosperity into action, we are up against fierce headwinds. As we all know, we are still dealing with very difficult economic conditions.

In its January economic outlook, the International Monetary Fund, the IMF, projects that global growth will pick up modestly to 3.4% in 2016 and 3.6% in 2017. The IMF's October 2015 outlook for 2016 and 2017 was 0.2 percentage points higher. We all know that is not good news.

Although American economic performance is encouraging, and we are all thrilled about it, the European and Chinese economies remain a serious cause for concern. Global crude oil prices remain at less than half of what they were in mid-2014, mainly due to persistent oversupply and softening demand.

Clearly, what happens outside our borders has real and very serious consequences here at home. In Canada, our economic performance in the first half of 2015 was weak, and that was largely due to the collapse of oil prices in 2014. I will leave it to my colleagues to judge for themselves. Last April the federal government forecast that the price of oil would be approximately $71 U.S. a barrel by the end of the year. Right now, oil is trading at about $30 a barrel, which is a huge difference. We now know that growth will be weaker than what was forecast in the last budget projections.

The economic situation is therefore much more difficult than the previous government predicted. This will of course have important implications for our currency and our fiscal situation.

However, there is also some good news. The gross domestic product, or real GDP, growth resumed in the third quarter of 2015. In its economic outlook released on January 19, the IMF projects that growth in Canada will pick up over the next two years in relation to 2015. We are also in an enviable position because of our low debt-to-GDP ratio, not to mention our wealth of natural resources, or the fact that we have an extraordinarily skilled workforce, compared to what we see around the world.

A focal point of our economic agenda is to put the debt-to-GDP ratio on a downward track. In the end, we also want to return to a balanced budget, which is extremely important to us. To achieve these goals, our policies will strike a balance between fiscal responsibility and controlled investments that promote economic growth.

One of the most important elements is to restore economic growth to the middle class, which is the backbone and the heart of our economy. That is why one of the first items on the government's agenda was to table a notice of ways and means motion to cut taxes for the middle class. This is the right thing to do and it is what we are doing.

The tax cut for the middle class and the accompanying proposals will make the tax system fairer and help Canadians succeed and prosper. Let us look more closely at what we are proposing. Specifically, the bill introduces the following measures: first, we will reduce the second personal income tax rate from 22% to 20.5%. Then, we will introduce a 33% personal income tax rate on individual taxable income exceeding $200,000 a year. Lastly, we will also lower the contribution limit for the tax-free savings account, the famous TFSA, from $10,000 to $5,500 and reinstate indexation of the annual contribution limit.

I would quickly like to explain these three points.

First, I will talk about the changes to personal income tax rates. The changes came into effect on January 1, and this measure is expected to benefit approximately nine million Canadians in 2016. For example, single individuals will see an average tax reduction of $330 a year. Couples can expect an average tax reduction of $540 a year.

Second, as I mentioned, the government adopted a new personal income tax rate of 33% that will apply to people who earn over $200,000 a year. That means that only those with the highest incomes will have to pay more taxes. Period. Like the other tax bracket thresholds, the $200,000 threshold will be indexed to inflation.

Third, the government dropped the TFSA annual contribution limit from $10,000 back down to $5,500 as of January 1, 2016.

However, to reassure those who are wondering, this change is not retroactive. The TFSA contribution limit for 2015 will remain at $10,000.

Restoring the annual contribution limit to $5,500 is consistent with the government's objective to make the tax system fairer and help those who need it most.

Combined with other registered savings plans, a TFSA with an annual contribution limit of $5,500 will enable most individuals to meet their ongoing savings needs in a tax-efficient manner.

The indexation of the TFSA annual contribution limit will be reinstated so that the annual limit maintains its real value over time.

Before closing, I want to highlight some other measures included in today's bill, because I think they are very important.

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 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 new 33% marginal tax rate.

I could go on, but it is clear that the Government of Canada is committed to helping the middle class in a practical way, through this bill and other bills that will strengthen our economy, create jobs, and ensure that Canada has a better future.

[Jacques Gourde, Conservative, Lévis—Lotbinière, QC]

Madam Speaker, I thank my colleague for his speech.

I invite him to come visit the regions, because there is theory, and then there is practice. If the government truly wants to move our economy forward, it could let the Economic Development Agency of Canada for the Regions of Quebec make the announcements it has had prepared since October. If we include the election period, officials at the Economic Development Agency of Canada for the Regions of Quebec have been waiting to get files signed for six months. There is currently no minister who can sign these files.

Is my colleague prepared to consult his own government, sign files, and make announcements? This is very important.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Madam Speaker, I want to reassure my colleague. I travel to the regions regularly. Last year, I went to his riding at least 12 times. I know the riding well and I am rather fond of it.

As I said earlier, the government is going to do what it takes to help the economy and Canadians. This will be done through the various departments and, of course, through the excellent work CED does in his riding and all across Quebec.

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

Madam Speaker, I thank my colleague from Honoré-Mercier for his speech.

I find it interesting that the Liberals keep saying that we must give back to those in need. They are alluding to the TFSA, among other things, but also the tax cut they promised for the middle class. I have been trying since this morning to figure out what exactly the Liberals mean by the middle class.

We know that people earning $45,000 a year will not get a cent from this tax cut and that people earning $210,000 a year will get a $283 tax cut. In fact, as my colleague from Timmins—James Bay said, a parliamentary secretary will get the full tax cut, but a hairdresser or office employee will get nothing.

The Liberals respond by talking about their child tax benefit, which will benefit only families with children and not single people or seniors.

I will repeat my question: what is the Liberals' definition of middle class?

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Madam Speaker, I invite my colleague to read the Liberal Party platform, which is an excellent platform that we were able to promote for over 80 days, thanks to the previous Conservative government. That was the longest election campaign in the history of Canada.

In that platform, my colleague would see not only the middle-class tax cuts and—my colleague will be happy to hear this—an additional benefit for families with children, but also investments in social infrastructure that will create more social housing, which will help seniors live in dignity.

The Liberal plan is about more than just a tax cut for the middle class. It is a global plan that includes tax cuts, benefits for families with young children, and infrastructure programs. That is what is needed to ensure that Canadians are better off in this century.

[Adam Vaughan, Liberal, Parliamentary Secretary to the Prime Minister (Intergovernmental Affairs)]

Madam Speaker, I heard reference from a member opposite about the need to tour the member's home province to inspect and understand a deficiency in infrastructure spending.

Is the parliamentary secretary aware that in the previous year the former government promised $1.5 billion in expenditures under the Canada build fund to Quebec, but according to records that have now been tabled with the House, zero dollars were actually signed in agreement?

In other words, the surplus that the Conservatives like to pretend happened within the six month period, is entirely predicated on large promises, in this case, $1.5 billion to the province of Quebec, but zero dollars in agreements of cost shared infrastructure programs, as they complain about unemployment. They spent zero dollars in Quebec last year.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Madam Speaker, I commend my colleague, who has a great deal of expertise with regard to infrastructure and the municipalities.

Unlike the Conservative government, we do not see infrastructure as an expense, but as an investment in our future generations and the environment. I therefore commend my colleague for the work that he has done, and I hope that the Conservatives will learn from what we are going to do about infrastructure.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

Madam Speaker, I would like to welcome two of my constituents visiting from Edmonton.

I will be splitting my time with the hon. member for Perth—Wellington.

The bill we are discussing today proposes to amend the Income Tax Act. It would reduce the second lowest personal income tax rate from 22% to 20.5%, and introduce a new personal marginal tax rate at 33% for taxable income in excess of $200,000. Additionally, it would amend the act to reduce the annual contribution for tax-free savings accounts from $10,000 to its previous level with indexation of $5,500.

The question that must be asked is this. Why make these changes? Are they for the good of the country or are they political posturing?

Underlying the proposed legislation are opinions that investment in the middle class is the best way to generate economic growth and development, and that TFSAs disproportionally benefit wealthier Canadians. Quite simply, that is wrong.

These income tax changes would not be revenue neutral, as the member opposite claimed when the change was an election promise. These changes would plunge the country further into deficit spending.

As a father, I have worked hard to teach my children about the importance of living within our means and to be careful with their money. It may be a cliché, but I have told them that money does not grow on trees. By implementing these proposed changes, we would be sending my sons the opposite message. We would saying that being fiscally responsible does not matter.

Tax breaks for the middle class are not in themselves sufficient to stimulate the economy. We cannot spend our way to growth, and we cannot increase tax our to prosperity. What is needed is an economic plan, not politically motivated and hastily conceived legislation. By increasing government debt, these changes would negatively impact all Canadians. The bill lacks a concrete, targeted plan to stimulate economic innovation. In effect, it ignores the pressing need to develop these initiatives.

The Parliamentary Budget Officer is quite clear that these changes are not a revenue neutral election promise, but a drain on the public purse. According to PBO research, the bill's proposed income tax bracket changes would lower government revenues by $8.9 billion over six years. This may not be important to those who believe the budget will balance itself. However, for those of us who live in the real world, numbers matter.

Based on Finance Canada's estimates, the new Liberal tax plan amounts to an average $6.34 a week extra for those individuals who qualify. We know this small tax break is not enough to grow our economy. Nor does throwing money at the middle class stimulate growth and innovation. Perhaps the government should be less worried about the income tax and focus on creating jobs so more people will be paying in.

The Liberal tax plan would raise taxes on higher-income earners, those who traditionally create jobs and grow our overall economy. By increasing taxes on these job creators, we are discouraging success and are punishing those who have done well for themselves.

The lack of transparency surrounding the cost of these changes is cause for serious concern. Canadians have the right to know how the taxation system impacts them and the country. This is not just about the present, but about the future of Canada.

The PBO's financial calculation drew from behavioural considerations of how people at different income levels might respond to the tax changes. It included taking steps toward lowering tax payments. Other reports have pointed to a high likelihood of brain drain for professionals in the upper tax bracket. People may choose to leave Canada for employment elsewhere rather than pay high taxes.

Apparently, the current government could not anticipate that. When facing a tax hike, some people will work to find ways to reduce their taxes. That is simple human nature.

In popular debate, in the media, and in academic research, a brain drain out of Canada is cited as a very real possibility and a logical outcome to these changes. Most doctors, lawyers, and other skilled professionals are found in the upper tax brackets, and their departure could be very dangerous for Canada.

Tax avoidance through reporting less income, using tax planning techniques to reduce the tax burden, working fewer hours, or even not seeking job promotions are very real possibilities.

Progressive income taxes like this reduce the return on education, since high incomes are associated with high levels of education. Such taxes reduce the incentive to build human capital.

The consensus among experts is that taxes on both corporate and personal income are particularly harmful to economic growth, as economic growth ultimately comes from production, innovation, and risk-taking.

Tax-free savings accounts are effective saving tools for all Canadians. They can be used to reduce economic vulnerability and dependence upon government. Limiting their usage will negatively impact Canadians across the socio-economic spectrum. It is not only the rich who open TFSAs but Canadians of all ages and all walks of life. Moreover, limiting the potential for TFSA contributions would result in greater vulnerability and dependence of Canadians. TFSAs are used widely by many Canadians. Thus, these policies affect an extremely wide variety of citizens.

According to the Parliamentary Budget Officer, Canadians have the largest personal debt of any G7 country. I find it strange that any Canadian government would introduce measures that would discourage savings, yet in reducing the tax-free savings account limits, the government has done just that instead of encouraging thriftiness, living within one's means, and saving for a rainy day.

The current government wants to spend its way out of debt. Two and two does not add up to five, and wishing it were so does not make it so.

For many years I was a businessman, owning and operating a number of small businesses. I can assure members that a business with spending that consistently exceeds revenue does not stay open very long.

As custodians of the taxpayers' hard-earned funds, it is our responsibility to act responsibly, not recklessly, with the nation's finances.

These new measures will affect all taxpayers as governments move deeper into deficit and the national debt grows increasingly larger. Someone at some point will be called upon to foot the bill. When our children and grandchildren are struggling to maintain essential services and climb out from under a mountain of government debt, they will be asking why we failed to act in a responsible fashion. What will we tell them? Will we tell them that we truly believed budgets would balance themselves?

For the good of Canada, this bill needs to be defeated.

[Pablo Rodriguez, Liberal, Parliamentary Secretary to the Minister of Infrastructure and Communities]

Madam Speaker, when Mr. Mulroney's Conservative government lost the election in 1993, it left a $42.5-billion deficit. We had to deal with that situation. When Paul Martin's government was defeated, we left the Conservatives a $13.2-billion surplus. Nine years later, the Conservatives are again wreaking havoc, and once again, we are going to have to deal with their deficit.

Will we always have to come behind and clean up your mess?

[The Assistant Deputy Speaker, NDP, Carol Hughes]

Order, please. I hope the member was not referring to me, that you were trying to clean up my mess. Therefore, I would again remind the member to address questions to the Chair.

The hon. member for Edmonton Manning.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

Madam Speaker, the members opposite sound as if they are the gods of saving and leaving money for others, while we know their history very well.

They keep referring to the past. They keep referring to what governments have done. They were never able to tell us, not in 100 days, what the complete plan is. What is it they are trying to do?

We would like to hear from them what the plan is, in dollars and cents.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Madam Speaker, I find it fascinating how the Conservatives always speak on behalf of their grandchildren. It is about the debt we are going to leave to our grandchildren, how we have to stand up and fight for our grandchildren.

That was a government that ridiculed the Canada pension plan day after day in the House. Even today they are telling us that the TFSAs are better than the Canada pension plan. They are telling their grandchildren that if they make a lot of money they do not need to worry, but hard-working Canadians without defined pension plans are on their own.

This has been the operating culture, to undermine and attack pension systems in our country while we have an ongoing pension crisis. I do not know what world my colleague lives in, but wherever I go I am meeting people in their fifties who are telling me that they do not have enough money to retire, that the Canada pension plan is not sufficient, and that they do not have the company pension plan that existed before. They are asking how they are going to get by.

The member is hiding behind his grandchildren. When was the last time the Tories ever looked to anything for the future?

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

Madam Speaker, all members should worry about their grandchildren.

By the way, as proud Conservatives, we do spend based on what we make. We make money, then we can spend money. We do not spend out of the pocket of the future generations. Our grandchildren matter to us.

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

Madam Speaker, again, I have more of a comment.

For our hon. colleagues across the way, I just want to make note of the document we are referring to, which as of about an hour ago was still on the Department of Finance's website. It is one of its documents, “The Fiscal Monitor”, a publication of the Department of Finance, as of November 2015. The Conservative government left Canada with a $1 billion surplus.

The question I have is this. Is it misinformation, is it confusion within the ministry of finance, or did the Minister of Finance just misread his cue cards from the PMO?