Mr. Speaker, I am very pleased to rise in the House as the NDP's finance critic to debate Bill C-2, which was introduced in December and which is now being debated in the House.
I had the opportunity to ask the Minister of Finance a question earlier today after his opening remarks. Unfortunately, I did not get an adequate answer. I did not get an answer to the fundamental question raised by this bill: how does the Liberal Party define the middle class?
This is a fundamental question, because since the election, the Liberal Party, which now forms the government, has boasted about making tax cuts for that much talked-about middle class. However, as the Parliamentary Budget Officer's report very clearly and succinctly states, the middle class will get nothing from the tax cuts the Liberal government is promising.
With Bill C-2, there is the good and there is the bad. I will start with the bad, and then talk about the good.
Any definition of the middle class must be based on a common definition. One way to define it would be to use the median income, which is $31,000 a year per person in Canada. That means that half of Canadians earn less than $31,000 a year and the other half earns more than $31,000 a year.
Will someone earning the median income benefit from this tax cut? No. In fact, those earning $45,000 or less a year will not benefit at all from the tax cut promised by the Liberals. Even those earning between $45,000 and $90,000 a year will only receive part of what was promised. The devil is in the details. In reality, someone earing $50,000 will probably only receive twenty or thirty dollars.
Taxpayers earning more than $90,000 a year will benefit the most from this tax cut. Even someone who earns $200,000 a year will receive the maximum from this tax cut. An individual would have to earn $210,000 a year before receiving less, due to the new tax bracket, but they would still still receive a large part of this reduction.
If we take this definition of the middle class, whose members earn around $31,000 a year, and exclude all those whose income is among the top 20% and those whose income is among the bottom 20%, then we have a middle class that makes up 60% of the population. The range of income of that middle class would be between $20,000 and $60,000 a year. A very small portion of those people would benefit only slightly from the tax cut.
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.
When the ways and means motion was tabled, we made a counter-proposal because if we really want change, and considering that on October 19, Canadians voted for a tax cut for the middle class, then this tax cut has to be given to the middle class.
That is why we proposed a change to the Liberal proposal. Instead of targeting the second tax bracket, as the Liberal government wants to do, we should change the first tax bracket so that a larger portion of the population can benefit from such a tax cut. Our proposal seeks to reduce the first tax bracket from 15% to 14% to ensure that all taxpayers, those who pay income tax, can benefit from this change.
Our proposal seeks to give people earning the median income a tax cut as high as $250 annually, as those people are currently receiving nothing.
Someone who earns $200,000 per year and who will get a tax cut worth about $600 would be forced to pay a portion because of the higher tax rate and the new bracket that we would leave in place.
It is clear that the Liberals' proposal is merely a smokescreen. In his response to my question about the Liberal Party's definition of the middle class, the minister did not answer the question. He simply said that this is just the first step and that the next step is the child benefit. We have not seen that yet. Maybe it will actually be a good thing for families with children, or maybe not—we will see. However, that does not answer my question.
This measure will not really help the middle class at all. A child benefit might help families with children, but it will not do a thing for single people, couples without children or seniors. Any of those people who earn less than $45,000, and especially if they earn less than $90,000, will not benefit at all from the Liberal promises for the middle class, even if their income is lower.
It is important to look at everything the Liberals are proposing. We believe that our proposal would help the middle class much more effectively than the Liberal measure, which, as I said, will benefit only the top 20% of income earners and do very little for everyone else.
I began by talking about the bad, and there is a lot of it, but now I would like to talk about the good, and one key measure that we support in this budget. I am talking about dropping the contribution limit for tax-free savings accounts, or TFSAs, from $10,000 to $5,500. We regard TFSAs as a useful tool for saving, and they should be used for that purpose. However, what the previous Conservative government proposed, raising the contribution limit to $10,000, is very harmful to Canada's public finances and does very little to help taxpayers and investors who want to use that tool.
This is because anyone can open a TFSA, and among those who can afford to do so, only 7% are contributing the maximum at this time. This measure is extremely costly. The numbers speak for themselves. In 2020, if the limit stays at $10,000—and it could even be indexed later on—it is estimated that it will cost the Canadian treasury $2.3 billion, all for a single investment tool that benefits only a small minority of Canadians. In 2030, 10 years later, the lost revenue or tax expenditures are estimated to be $9 billion. In fact, the parliamentary budget officer, whose job it is to study the impact this would have on the Canadian treasury, went as far as to say that in the medium term—I am talking about 2040-50, since the horizon might well extend that far ahead—tax expenditures, which is income lost by the Canadian government, will account for nearly 0.7% of GDP.
I would like to point out that this House is not budging and that previous governments did not budge on the issue of international aid and reaching the target, which was set at 0.7% of GDP under the agreements. The previous government considered it to be too costly to move forward on that. We were never even close to the 0.7% target. According to the parliamentary budget officer, with the TFSA alone we would reach 0.7% of GDP in foregone revenues, those revenues that would no longer be paid to the Canadian government, by 2040-2050. The TFSA is a savings vehicle that we fully support. However, if we were to head in the direction that the Conservative government proposed, it is a measure that could be extremely debilitating for Canada's fiscal capacity and its ability to provide the quality programs and services that Canadians expect.
As I was saying, the TFSA is a beneficial savings vehicle. The $5,500 contribution limit, indexed to inflation in $500 increments when this amount is reached, is quite adequate. Only 7% of Canadians currently contribute the maximum. If we look at just individuals who have already opened a TFSA, only 17% of them contribute the maximum. Increasing the contribution limit will only help the 17% who already contribute the maximum. Thus, this is a very expensive measure that very few people take advantage of.
If I am dwelling on the tax-free savings account, it is probably because outside of the tax cut in Bill C-2, it is the key issue in terms of finances. The TFSA is a useful tool for promoting savings and a tax shelter appreciated by those who use it properly. However, it could also become a means of tax avoidance, and that is what we must prevent.
I say that, because when we are talking about $10,000, which will one day be indexed, a lot of Canadians see the tax-free savings account as an account where they put after-tax money, which will yield non-taxable interest. They can then withdraw that money as they see fit, which is not a bad thing. However, what these people often do not know is that you can put many things other than cash in these accounts. You can put in stocks or financial instruments, and anyone who can afford it can put up to $10,000 in stocks, for example, into a tax-free savings account and enjoy capital gains that will not be taxed within that account.
Right now, 50% of capital gains are taxed, at a rate of about 40%. The TFSA can be an attractive vehicle for those who want to avoid paying tax on capital gains and are able to contribute up to the limit of $10,000, in which case they do not really need to save.
In that sense, the TFSA can be useful for Canadians, and that is why we support it. However, we want to prevent these accounts from becoming a way for people to avoid paying taxes, and that is why we oppose increasing the contribution limit to $10,000. We think that the $5,500 limit is a perfectly adequate way of helping Canadians who want to ensure their future financial security.
Let us remember that there are also other savings vehicles, such as RRSPs. These private savings are one of the main ways to ensure one's financial security. Others include company pensions, the Canada pension plan, the Quebec pension plan, and old age security, which can be supplemented with the guaranteed income supplement.
If we tally the good and bad points that I talked about earlier, it is clear that the Liberals' decision to reduce taxes for the richest 20% and increase them for the richest 1% is not an appropriate measure if the government really wants to help the middle class.
Eventually, under an NDP government, there will be a way to review this decision and really help the middle class. We are extending an olive branch to the government here, because the other thing that could be done is to make the necessary changes in committee so that we can come back to the House and adopt a measure that will really help the middle class.
We are therefore going to resubmit this proposal in committee for review. It is largely based on the excellent work done by the parliamentary budget officer.
Lowering the TFSA limit is extremely important from a tax perspective in order to ensure that the Canadian government can offer these services, function properly, and ultimately, or so we hope, make significant reinvestments in areas where the Conservatives cut funding to the bone or even deeper.
That is why we will support the bill at second reading. We hope the government and its members will be willing to listen in our committee meetings. This would eventually open the door to amending the provision to lower taxes for the richest 20% of Canadians and instead helping 80% of Canadians, many of whom are getting nothing right now. Of course we will support the second measure, which is to lower the contribution limit for TFSAs.
This is the first bill introduced in this new Parliament. I truly hope the government will take a new approach. I think all parliamentarians have already noticed a change in tone and dynamics, which is very much appreciated. However, after four years of hearing meaningless slogans and catchphrases to try to justify things that are simply not supported by the facts, we might still be in for another four long years.
This morning, when the Minister of Finance introduced Bill C-2 and delivered his speech justifying the tax cut, I was hoping he would at least understand or acknowledge the auditing work done by the parliamentary budget officer, but that was not the case.
I wish he would accept a fact that has been proven over and over. The middle class will not benefit from these measures; only the richest 20% will. The facts prove it. The parliamentary budget officer proved it, and we ourselves proved it before the report was released. He wants to stay the course and perpetuate the myth that the middle class will benefit. This is a snow job.
A lot of Canadians are going to be surprised and disappointed when they fill out their income tax returns. They thought they voted for a party, the Liberal Party of Canada, that would give them a tax cut, but they are going to find out that they are not eligible. A good 80% of people will find out that this does not apply to them. I predict some nasty hangovers for them.
I sincerely hope that the government will pay more attention to the opposition parties, especially when we are trying to help by suggesting improvements that should help the government achieve its goals. I would like it to say so publicly.
The most disappointing thing about the Minister of Finance's speech is the fact that he is trying to deal with the problem by sending up yet another smokescreen. We have not yet seen the Canada child tax benefit, which is really just going to be a remix of existing programs. That is still nothing but a promise.
The fact is that only couples with children and single-parent families will benefit from this money. Those people will be happy to get some extra money. Couples without children, singles without children, and seniors, even the poorest of them, even those who earn, say, $45,000, $30,000, $20,000, or $10,000, will get nothing. They will not get a tax cut, nor will they benefit from the Liberals' upcoming measure.
I would like the Liberal government to be consistent, to respect the Canadian public, and to tell the truth about the real impact of the measures it is introducing. This was the government's first opportunity to do so. I think it has missed its opportunity, but it will have another chance in committee. I hope that the government will be listening. If the government continues in this direction, I think that the next four years will be very long and full of hype, catch phrases, and empty rhetoric, but very thin in terms of measures that will truly help Canadians, especially middle-class Canadians and those with such low incomes that they struggle to make ends meet.
I look forward to questions from my colleagues in the House, but I want to reiterate that we will support the bill at second reading, because it maintains the TFSA contribution limit at $5,500, which has considerable tax implications, and we will try to make changes to the bill in committee.