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.

[Trevor McGowan]

The general rule for trusts is they're subject to taxation at the top marginal rate on all of their income. The two exceptions to that rule are qualified disability trusts and graduated rate estates that arise when an individual dies.

For qualified disability trusts, as you pointed out, the policy is that these are trusts that are set up to support a disabled individual. They are therefore provided access to the graduated rates and not the top rate of tax, which was 29% last year. Under Bill C-2, that would be 33%.

The access of a qualified disability trust to the graduated rates is predicated on the income of the trust being paid to an eligible beneficiary, someone eligible for the disability tax credit. If ultimately there has been income accumulating in the trust that has been taxed at these lower rates, and income is later paid to someone who would not be entitled for it to continue as a qualified disability trust, then the rules have what is called the “clawback” of the graduated rates. This essentially provides an additional tax in respect of the lower rate in previous years, where an amount has ultimately been paid out to a non-qualifying individual.

This would prevent, for example, a qualified disability trust from being set up notionally in support of someone who is actually disabled and who would normally qualify, but then, after earning income in the trust for a number of years and taking advantage of the lower graduated rates, ultimately being paid out to someone else—perhaps the settler of the trust or whomever—who doesn't qualify. That's the policy underlying the qualified disability trust recovery rules. That's why, with the amendments that are consequential to the introduction of a new top marginal rate, it follows. The existing rules reference the previous top marginal rate of 29%, and the new rules would reference or be built upon the new top marginal rates. That policy actually remains consistent.

[Pierre LeBlanc, Senior Chief, Quantitative Analysis, Personal Income Tax Division, Tax Policy Branch, Department of Finance]

There is a stat that nine out of 10 families will be better off under the Canada child benefit than under the current system of benefits.

If you were to take other measures, the middle-class tax cut that was introduced on December 7, in Bill C-2, the elimination of income splitting for families with at least one child, the elimination of the children's fitness tax credit, and the children's arts tax credit, and took those together, you'd still be better off. One piece of analysis we did do is that about nine out of 10 families would be better off, so it's the net of all those measures.

[Trevor McGowan]

Part 1 implements certain income tax measures that were proposed in the March 22, 2016, federal budget. I'll go through each in order, as I'm aware of the time constraints.

It would eliminate the education and textbook tax credits.

It would exempt from taxable income amounts received as rate assistance under the Ontario electricity support program.

It would maintain the small business tax rate at 10.5% for the 2016 and subsequent taxation years, and make consequential amendments to the dividend gross-up factor and dividend tax credit rates.

It would increase the maximum deduction available under the northern residents deduction as well as eliminate the children's arts tax credit, and eliminate the family tax cut credit. It replaces the Canada child tax benefit and universal child care benefit with the new Canada child benefit. It would eliminate the children's fitness tax credit and introduce a new school supplies tax credit.

It would extend for one year the mineral exploration tax credit.

It would restore the labour-sponsored venture capital corporations tax credit for purchases of shares of provincially registered labour-sponsored venture capital corporations for the 2016 and subsequent taxation years.

It would introduce changes consequential to the introduction of the new 33% individual tax rate that's in Bill C-2 currently.

Part 1 also implements other income tax measures that were announced by the previous government, but had not been enacted. The current government's intention to proceed with these was announced as well in the March 22, 2016, budget.

These include: amendments to the anti-avoidance rule in the Income Tax Act that prevents the conversion of capital gains into tax-deductible intercorporate dividends; a measure qualifying certain costs associated with undertaking environmental studies and community consultations as Canadian exploration expenses; rules ensuring that profits from the insurance of Canadian risks remain taxable in Canada; amendments ensuring that the dividend rental arrangement rules under the Income Tax Act apply where there's a synthetic equity arrangement in place; rules providing specific tax rules in respect of the commercialization of the Canadian Wheat Board, mainly including a tax deferral for eligible farmers; a measure permitting registered charities and registered Canadian amateur athletic associations to hold limited partnership interests; rules providing an exemption to the withholding tax requirements for payments by qualifying non-resident employers to qualifying non-resident employees; rules limiting the circumstances in which the repeat failure to report income penalty will apply; amendments permitting the sharing of taxpayer information within the Canada Revenue Agency to facilitate the collection of certain non-tax debts; and lastly, amendments permitting the sharing of taxpayer information with the office of the chief actuary.

Health

[Don Davies, NDP, Vancouver Kingsway, BC]

Madam Speaker, I am pleased to rise today to speak to the question that I asked the Minister of Health with respect to Bill C-2, the former Conservative government's so-called respect for communities act.

I want to begin by taking a moment to commend the minister for her decision to visit lnsite, Vancouver's life-saving safe injection site, in January. This visit was an important symbol of the welcome and necessary change in tone from the Liberal government with respect to evidence-based, harm-reduction policy within our health care system.

I myself have visited lnsite and can attest first-hand to the incredible work that it does to reduce overdoses, lower the transmission of infectious diseases, provide essential health services, including addictions treatment, and most importantly, save lives.

However, words are not enough. Communities with individuals suffering from addictions, serious mental illness, and infectious diseases need a better, more responsive and more caring health care system. Therefore, I was shocked by the minister's statement in March that she has decided not to repeal Bill C-2. This harmful legislation runs diametrically against progressive health policy, and erects unnecessary barriers to the opening of new life-saving safe consumption sites in communities that need them across Canada.

Upon the passage of Bill C-2 in June 2015, a coalition of 65 health, patient and harm-reduction advocacy groups from across Canada issued a public declaration condemning this legislation. They broadcast a clear warning to the Canadian public about the serious problems with this legislation. The following are a few quotes that sum up their position:

Bill C-2 will put the lives of...vulnerable Canadians at risk by establishing excessive and unreasonable requirements for health authorities and community agencies looking to open or continue operating supervised consumption [sites]....

This bill...establish[es] 26 new requirements applicants must meet before the federal Minister of Health will even consider an approval to operate a [supervised consumption site].

The barriers this bill...presents to accessing [supervised consumption sites will] allow a public health emergency to [be treated] under a law-and-order agenda...expos[ing] patients and communities to infection, suffering, and death.

Among the prominent signatories to this declaration are Toronto Public Health, the BC Centre for Excellence in HIV/AIDS, the Association of Ontario Health Centres, the Canadian HIV/AIDS Legal Network, and the BC Centre for Disease Control. Calls for more harm-reduction facilities are only growing as overdose deaths continue to rise across Canada.

Just last month, British Columbia provincial health officer Dr. Perry Kendall declared a public health emergency after more than 200 overdose deaths were reported in my province in three months. Nearly 300 Albertans died of overdoses in 2015, more than double the 2014 death toll. Similarly, Ontario has seen a 72% increase over the last decade. Health authorities in Montreal, Toronto, and Victoria are now working to open life-saving harm reduction facilities as they struggle to save lives. Unfortunately, the onerous provisions of Bill C-2 continue to delay the opening of new safe consumption sites.

It is time for the minister to move from symbolism to action in harm reduction and commit to repealing Bill C-2 once and for all. Will she do so?

Budget Implementation Act, 2016, No. 1

[Gord Johns, NDP, Courtenay—Alberni, BC]

Mr. Speaker, before I get started, I want to acknowledge my mother since it was Mother's Day yesterday and I was not able to join her. I also want to acknowledge all the mothers in Fort McMurray and Alberta who could not be with their families yesterday. We need to honour them.

As the NDP spokesperson for small business and tourism, it gives me great pleasure to bring our voice and concerns about Bill C-15. Primarily, I will focus on the Liberal promise to reduce taxes for small business from 11% to 9%, and to help those who are not in the middle class to join the middle class.

Before I talk about the tax for small business, I want to touch a little on incorporate taxes in Canada, and the history of that.

Consecutive Liberal and Conservative governments have been reducing taxes over the last few decades. We have seen corporate taxes go from 28% in the late 1990s and 2000s to 15% today, which is a significant tax decrease. During that time, it has shifted the tax burden to the people. It is a reckless way to promote a healthy economy, and it is a failed experiment. It failed in Japan and Hong Kong, and it has resulted in what I believe is an unfairness in delivering taxes.

The result has created huge inequality in our society. The gulf between the wealthy and the majority is growing faster and more widely in Canada than in any other developed nation. The richest 100 Canadians now hold as much wealth as the bottom 10 million combined. However, when we look at small business taxes in comparison, they have remained at about 11% since the 1980s. While Canada's largest corporations have had record profits, they have a lot of dead money. We talk about dead money that is leaving our communities, sitting, and not circulating in our economy.

Recently, over the last few days, while we have been debating the bill, and on Friday notably, there was a lot of Liberal rhetoric about small business. The Liberals painted small business as tax cheats. They talked about small business as being bad fiscal money managers. However, these are the volunteers in our community. These are the people who donate to our local charities. They are the people who serve on our boards. They are the cultural innovators of our communities in Canada. Therefore, it is really disappointing to hear this rhetoric from a government that went across Canada and promised a small business tax break from 11% to 9%.

This proposal was put forward by the NDP in the last parliament, which the Conservatives supported and on which the Liberals ran. All parties ran on a platform to help small business, and this is a group of individual businesses and a business community that are the job creators in our country. They are the economic drivers of our country, and the government has failed them. Promises have be made for decades and we have constantly failed them. As a result, there is a lot of mistrust with small business.

This is a very important time. This is an opportunity for Ottawa to create trust with small business, to create that intimate relationship with it. Small business people are at the front line of our communities. They know when the economy is changing quicker than any other business group in our community.

I will link back to my experience as a previous executive director of a very successful chamber of commerce and as a business owner. I remember in 2008 when the greatest economic downturn since the 1930s happened in our country. There was a huge bailout for Canada's largest corporations, but small business people were left behind. They were left with no bailout and no help from the federal government. They felt betrayed. The distrust with Ottawa was apparent.

I was picked up by a taxi driver the other day and he brought up his story about how he had a car dealership. As he ran his business, he watched all these corporations being bailed out while he struggled to make ends meet. Finally, just a year ago, he lost his business as a result of the recession. He was hanging in there, trying to get behind the big mess that was created, and the government did nothing to help him. He felt no one in Ottawa, in the House, was standing up for him. We had failed to deliver promises to small business, and we are doing it again.

The cost of not delivering this tax break to small business, as we know from the parliamentary budget officer's report, is $2.2 billion over the next four years. On average, that is approximately $3,529 per small business. People were counting on this. I talked a little earlier about how 78% of all new jobs were created by small business. Medium-size businesses create 12.5% of all new jobs, while big business creates less than 10%.

When we talk about their role in economic development, small business plays a key role. We really need to start talking about what kind of economy we want. We want local ownership, we want local jobs, and we want to keep money in our communities.

There's an organization in British Columbia called LOCO BC. It does some great work. It has talked about money recirculating in the communities. It did some research and found that if $100 was spent at a business in the local community, $46 would be recycled in the community versus $18 at a multinational corporation.

We talk about economic development and doing it differently. If we invest the $2.2 billion that were promised for small business, that money will circulate 2.6 times, rather than what is spent on giving tax breaks to multinational corporations. This is an opportunity.

Instead the government has chosen to do the reverse. It told small business that it would get a tax break, then failed to deliver on that promise. This, instead of plugging the economic leakage in every riding across the country, and really keeping money in our communities.

Many small business owners were counting on that tax break. They were relying on it to buy new equipment so they could grow, maybe even give someone a raise in their. This is an opportunity right now for us to build trust with small business people, show them that Ottawa is listening, and start tackling inequality.

We keep hearing about the middle class, helping to grow the middle class, helping those who are not in the middle class to join the middle class. We saw in Bill C-2 that anyone earning less than $45,000 would get nothing. We know that a lot of small business people do not earn $45,000 a year. While we talk about helping those to join the middle class, it is not being delivered by the Liberal government.

I read a quote from the Canadian Federation of Independent Business, from the vice-president for B.C. and Alberta. He calls the budget about as close as it can come to a betrayal as is humanly possible. He said that the Canadian Federation of Independent Business was hoping and expecting to see the tax cut, and the fact that the government had put it on hold was extremely disappointing.

This is, again, a tax break that was promised, door to door, city to city, community by community across the country. The government is failing to deliver on this promise, but it is clear that it is doing what Liberal Parties have done in the past. It is about big business and about protecting CEO stock options instead of taking care of the people who have built our communities.

Are the government members in the House willing to go home and ask their small business owners if they are okay that the government is not going to deliver the tax cut promised, 11% to 9%? I would like them to ask them how they feel about that broken promise.

In survey after survey, the number one thing small businesses have asked for is fairness in tax breaks, so they can get the same fairness that big corporations have been getting for decades.

Second Reading

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Mr. Speaker, I will be splitting my time with the member for St. John's South—Mount Pearl.

I am pleased to rise today to speak to Bill C-15, the budget implementation bill.

Just a short time ago, I had the opportunity to stand and speak to budget 2016, which I referred to as a middle-class, or better yet, a growth budget. I spoke about a budget based on the fundamental principles of investing in and strengthening our middle class as well as revitalizing the Canadian economy with a historic $120-billion infrastructure investment plan.

I also talked about how the budget would help ensure a prosperous future for the residents of my riding of Vaughan—Woodbridge, and in fact, for all Canadians.

Most important, I spoke about how, as a father of two young daughters, Natalia and Eliana, budget 2016 puts in place a plan for economic growth not only for today, but for successive generations so that all our children will inherit a more prosperous and hopeful country.

Bill C-15 is the concrete foundation emanating from the budget 2016 blueprint. The bill makes real the principles and commitments laid out by our government, such as the principles of greater tax fairness for Canadians, the belief that we should be there for our seniors to ensure they have a dignified retirement, a firm commitment to families with the introduction of the truly transformational Canada child benefit, a large step forward to honour our commitments to Canada's veterans, and significant improvements to the Employment Insurance Act.

Bill C-15 also continues to work on strengthening our financial system with the introduction of a bail-in regime for banks, which ensures that Canada's banks remain the soundest in the world, and very importantly, that Canadian depositors and taxpayers remain protected.

Bill C-15 contains 15 divisions. It had to be substantial, because our budget made substantial commitments to Canadians, and the technical underpinnings of these commitments are contained in this piece of legislation. Because there is so much to speak about in the bill, I am going to focus on a few sections.

I have stated how proud I am of this government's commitment to families, and Bill C-15 makes good on that commitment by introducing the Canada child benefit. The Canada child benefit will replace the current system of the Canada child tax benefit and universal care benefit. This transformational CCB will be simpler, tax-free, and paid monthly to eligible families beginning in July of this year.

Nine out of ten Canadian families will receive more under the Canada child benefit than under the current system. Overall, about 3.5 million Canadian families will receive this benefit, with the average increase in child benefits at almost $2,300 annually.

Independent analysis, and I emphasize independent analysis, indicates that 300,000 fewer Canadian children will be living in poverty in 2016-17 than in 2014-15.

I am proud to be part of a government that is taking this bold step to build a better and what I believe is a more just and inclusive society.

As I have stated repeatedly, seniors built this great country and we will always be indebted to them. Bill C-15 contains measures to increase the GIS, the guaranteed income supplement, by providing up to an additional $947 per year to our most vulnerable seniors, single seniors, the majority of whom are women. Seniors with personal incomes, excluding OAS and GIS payments, between zero and $8,400, will see increased benefits. This step will help improve financial security for about 900,000 of our most vulnerable senior Canadians.

Members should know that budget 2016 does not impact pension income splitting for seniors. This will remain in effect.

A large portion of the budget implementation bill addresses regulatory changes to our financial system. There is a very good reason for this emphasis in the legislation. The strength of our economy and the middle class in large measure rests on the stability of Canada's financial institutions. Canadians rely on our banks and credit unions on a daily basis for virtually every aspect of their lives.

While the failure of a large Canadian bank is very unlikely, it is still important that authorities have adequate tools to promote and preserve financial stability as well as to protect taxpayers in a crisis. Canadian banks are among, and I would argue are, the soundest in the world. They have robust levels of capital, lending practices that are sound, and stood out as pillars of strength during the 2008 global financial crisis.

I had a first-hand view of the global financial crisis. I know full well the benefits of the sound regulatory environment governing our financial system.

I would be remiss if I did not add that, while I worked in New York City during the 1990s, it was a Liberal government under Prime Minister Chrétien and finance minister Paul Martin that said no to the Canadian banks merging. I believe this decision is the major reason our banks came out of the 2008 global financial crisis with flying colours.

The bail-in regime contained in Bill C-15 would strengthen the tool kit and only apply to Canada's domestic systematically important banks and allow our regulators to recapitalize a failing bank by converting eligible long-term debt into shares.

More important, the bail-in regime makes it clear that the shareholders and creditors of Canada's largest banks are responsible for the banks' risks, not taxpayers. This way Canadians are not stuck with the tab in the event of an economic crisis.

This regime is consistent with international best practices and standards that were developed following the financial crisis of 2008 and although we have a robust banking sector, the provisions contained in the legislation would provide the legislative framework for the regime, with regulations and guidelines to follow.

I wish to make clear to all Canadians that insured and non-insured deposits would continue to be protected by the Canada Deposit Insurance Corporation.

In addition to the bail-in provisions, there are also a number of technical changes in this legislation which would help strengthen credit unions and the CDIC.

Bill C-15 would also help Canadian families by putting into place changes to the Employment Insurance Act which would assist those Canadians impacted by the very unfortunate situation of a job loss. In fact, the changes our government would implement would increase employment insurance payments to unemployed Canadians by $2.5 billion over the next two fiscal years.

Key improvements include extra weeks of benefits for workers in regions affected by a downturn in commodity prices. In addition, the waiting period would be reduced from two weeks to one week and would provide unemployed workers with hundreds of dollars more at the time they need it most.

Our government will work and create the conditions for all Canadians to find meaningful employment. That is what we want. However, we must ensure a system that would provide help when Canadians and their families require it.

During the election campaign, one of our key commitments was to greater tax fairness for middle-class Canadians and all Canadians. Our government has also introduced Bill C-2, which would lower the income tax rate for middle-class Canadians. Today, over nine million Canadians are benefiting from lower taxes, with a total tax reduction of approximately $3.4 billion.

Bill C-15 would provide even further tax fairness measures with amendments to the Income Tax Act contained in the first three parts of the bill. For example, we have added insulin pills and needles, feminine hygiene products, as well as catheters, to the list of items that are exempt from GST/HST.

The budget bill contains provisions that would increase the maximum benefit under the northern residents deduction, exempt taxable income amounts received as rate assistance under the Ontario electricity support program, and, quite proudly, introduce a teacher and early childhood educator school supply tax credit. This measure alone would provide a benefit of $140 million over five years in tax relief to our educators.

These are just a few examples of the elements contained in Bill C-15.

As I had previously stated, budget 2016, the middle-class or growth budget, provides a blueprint for a hopeful future for all Canadians. Bill C-15 is a solid legislative foundation for the future.

I hope my colleagues on both sides of the aisle will join with me in supporting the bill.

Finance

[Wayne Easter, Liberal, Malpeque, PE]

Mr. Speaker, I have the honour to present, in both official languages, the third report of the Standing Committee on Finance, in relation to Bill C-2, an act to amend the Income Tax Act.

The committee has studied the bill and has decided to report the bill back to the House without amendment.

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

Thank you very much.

During the various committee meetings on Bill C-2, I have quite frequently brought up the change in the tax rate and its potential effectiveness in reducing inequalities or stimulating the economy. To me it is clear that all of the presentations we have heard on this show that the tax cut for the so-called middle class introduced by the government is probably the least effective measure among those that were presented or promised by the government, despite the fact that this is a key measure.

If we really want to reduce the tax paid by the middle class through an amendment that would still fit into the framework and the mandate of the bill, we could amend this proposal; rather than reducing the tax rate of the second bracket from 22.5% to 20% as proposed in the bill, a measure that would cost about the same would be reducing the first tax bracket from 15% to 14% for all incomes of over $12,000, rather than targeting incomes above $45,000.

That is the proposal we have made. I won't debate it any further, because I think I have had ample opportunity to do so in the work of the committee. I sincerely hope that the government, if it really wants to give the middle class a break, will allow all of the middle class to benefit, and not only a certain number of them by including incomes that are far superior to what can be defined as middle class, such as incomes of $200,000 to $217,000.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you both very much for your responses.

I would like to thank the witnesses for their presentations. This will conclude our witnesses on Bill C-2.

We will suspend for a few minutes and come back to deal with clause-by-clause.

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

The measure in Bill C-2 was among the most discussed topics during the election and after it. It is supposed to provide a tax cut to the middle class. However, everyone agrees that that is not really the most effective way to help the middle class. That is the conclusion I have come to.

The government points out that it is the first in a series of measures. The second, which is also contained in the federal budget, is the Canada Child Benefit. However this will not help seniors who earn less than $45,000 a year, nor childless couples where both spouses earn less than $45,000, nor single people who earn less than $45,000. In the final analysis, none of these people will derive any benefit from these measures that are supposed to reduce inequalities.

Is that also your opinion?

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

What do you think about that, Mr. Veall? I don't know if I need to repeat my question. I would simply like to hear your opinion as to the impact on inequalities of an alternative measure, which would have been to reduce the first tax bracket from 15% to 14%, rather than the measure contained in Bill C-2 which reduces the second tax bracket from 22% to 20.5%.

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

Thank you very much.

I thank all of you.

With the greatest respect, I would like to correct what Ms. Raitt said. She mentioned that the tax cut would give the average Canadian 90¢ a day. That is not quite accurate. The average Canadian will not benefit from a tax cut, since we are talking about Canadians who earn $45,000 or more. The average is well below that, which was in fact mentioned by Mr. Zorn in his presentation. So when we talk about 90¢ a day, that does not apply to the average Canadian, but to Canadians who have higher incomes.

Mr. Zorn, I really liked your presentation and your report on Bill C-2.

My questions will be addressed to Mr. Zorn, Ms. St-Hilaire and Mr. Veall, if I have the opportunity.

You will have looked at the report of the Parliamentary Budget Officer on the impact of the tax cut and on an alternative measure which would have been to reduce the first tax bracket by one percentage point. Rather than reducing the second one from 22% to 20.5%, we could have reduced the first from 15% to 14%. Of course, this is a hypothetical measure, since the government decided not to take that route.

I would nevertheless like to hear your opinion, Mr. Zorn. According to your knowledge of the group of experts and the methodology, how would such a tax reduction have affected inequalities overall?

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you, Mr. Chair.

I thank all of the witnesses for being here, those who are here in Ottawa, or participating by video conference or by telephone.

The main finding that emerges from most if not all of your comments is that Bill C-2 largely meets with the government's objective to reduce inequalities. This can be compared to the first act of a play, the second one being the 2016 budget tabled in the House by the Minister of Finance. With that in mind, I would like you all to comment.

You also pointed out in your respective presentations that the tax system needs to be reviewed.

I know, Mr. Mintz, that you've written about this as well, in your comments in The Globe and Mail on April 18, saying that it's time to look at the Income Tax Act. Other witnesses here today have mentioned that this is probably a necessary exercise, because there are a number of distortions in the act; that whether you look through an inequality lens, a tax-simplification lens, or a proper-incentives lens, tax reform is something that is more or less urgently needed in Canada.

I'd like you to briefly address both of those points, the inequality point and the tax reform point.

[Nicolas Zorn, Policy Analyst, Institut du Nouveau Monde]

Good morning. My name is Nicolas Zorn. I am a policy analyst at the Institut du Nouveau Monde. I thank you for your welcome.

For a few years now, our institute has studied economic and social inequalities in Quebec and Canada.

We know that income inequality has increased significantly since the 1980s: the average income has not really increased, while the richest 1% have seen their income increase considerably, much more so than the rest of the population. Thanks to the work of hundreds of researchers in international organizations such as the IMF or the OECD, we now know that significant inequalities, in addition to impeding economic growth, undermine the well-being of the population, social mobility, life expectancy, and the health of our democracy.

It is in that context that the three tax measures in Bill C-2 are going to affect income distribution and inequalities generally. The purpose of my presentation and the brief I submitted to the committee is to assess the impact of those measures on income distribution, in two ways.

First, the Institut du Nouveau Monde produced two budget bulletins, last year and this year, a non-partisan exercise for the purpose of assessing how the measures in the federal and Quebec budgets will affect inequality.

This year, we asked 33 economists and recognized public policy experts, from the left, the right and the centre, to assess the main measures in the last federal budget. Basically, we summarized the experts' replies, we examined the level of consensus among them, and we present their comments, which confirm or nuance the results.

In the opinion of the participants, the three fiscal changes in Bill C-2 could potentially reduce income inequalities. The results, the methodology and the names of the expert panellists are provided in the brief.

That being said, the overall effect of the rate cut in the second tax bracket—one of the three measures in Bill C-2—is that the overall impact on inequalities is weaker than in the case of the other two measures. However, the experts we consulted had more differences of opinion on this measure than on the other two. The first half of the specialists considered that this measure would reduce inequalities, but the other half felt that the measure would have no effect, or, worse, that it would increase income inequality in Canada.

When you look at the details of this measure presented as a tax cut for the middle class, you can see that it will be most beneficial for the richest members of the population, in particular those with taxable incomes in excess of $90,000. For instance, for an individual with a taxable income of $50,000, who would be considered by some as being in the middle class, this tax cut represents around $70 in savings. For someone who has taxable income of $100,000 or $200,000, the tax gain is 10 times higher. In other words, people with incomes of more than $90,000 will have tax savings of approximately $700 per person.

If the objective of parliamentarians and the Government of Canada is to reduce income inequalities and lower the amount of income tax paid by the middle class, there could be more targeted measures that would allow them to reach that objective.

If you have questions, I will be pleased to answer them.

I will now move on to my second and last point.

We estimated that adding a fifth tax bracket for those who earn $200,000 or more would have a significant effect on inequalities. This is also shown in the brief. Essentially, the richest 1% have seen their incomes go up because their incomes have increased four times faster than the rest of the population.

This measure will slow the growth of the income of the richest 1% just enough so that the income of the poorer 99% will increase at approximately the same rate. In other words, this measure will check the growth in inequalities we have seen over the past 30 years. However, inequalities will remain at a historically high level despite that. To bring the inequality back to a historically lower level, for instance the level that prevailed in 1985, the tax rate of the new bracket would have to increase from 33% to 39%. To get back to the ratio that existed 25 years ago, that would have to be the case for the next 25 years.

In conclusion, if the government and Parliament want to reduce the inequality between the richest 1% and the poorer 99%, and if they want to help the middle class more, the introduction of additional tax brackets for higher incomes and a review of the entire tax system would be more effective, according to several experts, than simply increasing the tax rate in that fifth tax bracket.

To the extent that there are many tax credits that increase opportunities for tax avoidance, abolishing deductions that mainly benefit the wealthiest people might be more appropriate.

Thank you for your attention. Do not hesitate if you have questions.

[The Chair, Liberal, Wayne Easter]

Thank you witnesses, for your indulgence.

Pursuant to the order of reference of Monday, May 21, 2016, we are studying Bill C-2, An Act to amend the Income Tax Act.

From the Institut du Nouveau Monde, we have Nicolas Zorn, policy analyst. From the Institute for Research on Public Policy, we have France St-Hilaire, vice-president, research.

Via video conference, we have Michael Veall, professor, department of economics, McMaster University.

On the telephone at the moment, we have Jack Mintz, who is with the school of public policy at the University of Calgary. Those are our witnesses for the first hour of our session.

The floor is yours, Mr. Zorn.