Mr. Speaker, I appreciate the opportunity to speak to this important bill. I will say at the outset that it is good to be back talking about the business of the nation again. As much as the conversation that happened this morning needed to happen, it is very good to be back to the things that Canadians are most concerned about, which is the economy, jobs, their well-being and that of society as a whole.
There are some significant concerns about the bill that we need to draw particular attention to. We in the opposition have been doing that over the course of this debate, and we will continue to do that. We will continue to do our job, which is to highlight problems with government legislation, suggest improvements, and to do so in a fair-minded and constructive way.
Just by way of some review, the legislation that is before us would make two different changes to our tax system.
The first change is that it would make a modest reduction to some middle-income earners' taxes while introducing a tax increase for those at the high end. However, this change would not be revenue neutral. Rather, it would significantly add to the deficit, and over a number of years, significantly add to the debt. That is one of the changes.
The second change that the legislation would make is that it would do away with the higher cap on tax-free savings accounts that was implemented by our previous government and did exist. There was a limited opportunity for Canadians to save at that higher level. However, it would now cut back on the amount that Canadians can save tax free.
I want to start my remarks here by talking about one specific aspect of this issue, and that is the issue of equality. Members on all sides of the House are concerned with equality. They want to ensure that everybody has a shot. They want to ensure that everybody in Canada has a similar shot at doing well. That is really a principle that we all come at perhaps from slightly different perspectives and slightly different emphases.
On its face, it seems that the bill was advanced with an eye to equality. However, if we dig into the details, I think there are some serious problems from an equality perspective in terms of the actual impact that the bill would have. I would describe it as maybe a first-year undergraduate version of equality. It may be well-intentioned but it would not actually have the desired impact.
Let me start by saying that for me the most important measure of equality is something called “intergenerational earnings elasticity”. This is a measure of the likelihood that a person will perform at the same economic level as their parents relative to the rest of society; in other words, it measures movement between different income quintiles. Therefore, if I come from a high-income family and was almost certainly going to have a high-income family myself, that would be bad from an equality perspective using this metric of intergenerational earnings elasticity. This does not mean that we want people who are well off now to do worse. Rather, it means that, relative to each other, we want to have a society where people who had lower incomes can move ahead of others, and vice versa, a society where opportunity is more fluid and not fundamentally shaped by who our parents are or where they came from.
This information is tracked, and there was a report that came out in 2012 that looked at intergenerational earnings elasticity. What was interesting to me, and made me very proud as a Canadian, was that we performed particularly well. As I recall, we were fourth place in the world overall. It is interesting that we actually performed better than stereotypically more left-wing countries, and we performed better than stereotypically more right-wing countries. Where we were at, and likely where we have been over the course of our history, was in a relative sweet spot by providing not only necessary social programs but also allowing a healthy level of free enterprise that allows for economic growth and allows people to pursue economic opportunities that perhaps their parents did not have. That is one measure, intergenerational earnings elasticity. It is a measure on which we have historically done very well.
The other question might be the performance of the middle class. I have quoted this before. This is a quote from the former secretary of state, now presidential candidate, Hillary Clinton, when talking about the Canadian middle class. She said:
Canadian middle class incomes are now higher than in the United States. They are working fewer hours for more pay, enjoying a stronger safety net, living longer on average, and facing less income inequality.
There are two ways of measuring the performance of the middle class. Well, there are more than two, but these are two significant ones: looking at median income and median net worth. Between 1999 and 2012, the median net worth of Canadian families rose by 78%. That translated to more than a 50% growth in net worth for every income quintile, except the lowest, which still grew but did not grow as much. Therefore, when it comes to median net worth, we are doing very well.
Median, by the way, is typically used as a measure of the middle class performance. It is better than an average measure, because an average metric can be skewed upward by groups who are doing particularly well, but median gets us closer to looking at those actually in the middle and how they are doing.
There was a study that came out in The New York Times in 2014 that showed real inflation-adjusted median income—I am talking about median income now—went up by more than 20% since the beginning of the last decade. By the way, at the same time, median income was roughly stagnant in the United States.
When it comes to intergenerational earnings elasticity and the performance of the middle class, Canada historically has done and is doing very well. That is important by way of context, because it seems that some members in the House have this revolutionary spirit when it comes to our economy—that we need to upend the way our economy functions now as it just is not working—but if we look at any credible measure of equality or middle-class performance, Canada is in a strong position. That does not mean we cannot do better, but we should recognize where we are and recognize the risks of dramatic or revolutionary changes in our fiscal policy.
I want to say, on the equality front, that at the same time as being very much concerned about equality, I and most of us on this side of the House would strongly reject the politics of envy. We would reject the idea that we should in some way regret the success of those who are doing well. The focus of public policy should be on helping the poor and the middle class. We do not need to focus on improving the lot of those who are well off, but we should not regret the fact that there are some people doing well.
Those people are important members of our community as well, and very often those who are well off are contributing to the community in ways that they are able to do, in particular, because of their wealth or position. That is an important point about equality. It is not about trying to level down those at the top. Rather, it is trying to build up those who are in the middle and those who are particularly struggling. Those are some underlying equality principles, at least as I understand them.
Let us, then, talk about specific measures in Bill C-2 and how they would impact equality. First, we know that this bill would provide a tax cut that would not impact those who are worse off. The tax cut specifically targets those who are making between $45,282 and $90,563. It would not have any impact on those who are making less than $45,000 a year, and that could, by the way, be families with a family income of $70,000 or $80,000 a year, if the earnings are shared by a couple. There would be absolutely no impact of this tax reduction.
Canadians should know that and reflect on the fact that this has a somewhat strange view of middle class. To get the benefit of the middle-class tax cut, one has to already be doing reasonably well. This certainly does not do much for those who, in the Prime Minister's oft-repeated phrase, are seeking to join the middle class.
However, more than that, this bill would lower the limit for putting money into tax-free saving accounts. The data suggests that many people who have low and middle incomes make very good use of tax-free saving accounts.
More than half of those who max out tax-free savings accounts are making less than $60,000 a year, so reducing the power of this vehicle is the only thing in the bill that impacts those who are making less than $45,000 a year, who arguably need the help the most.
This is a rather strange concept of equality, and although taxpayers get a benefit when they start to make $45,000 year, we know the way the tax system works here that they benefit from this change to a greater extent the more of that income tax bracket they cover. Therefore, people who are making just over $90,000 like this policy the most. They are going to benefit the most. A family making $180,000 is really in that sweet spot for earning the tax cut. Again, there are newer, higher taxes when they hit $200,000. However, a family income approaching $400,000 could actually be significantly to the positive because of these tax changes. Therefore, that is a bit of a strange approach if the objective is equality.
The impact on people making less than $45,000 a year with this tax change would be they would be losing the opportunity to invest in a tax-free savings account. They would be losing the opportunity to save in the same way, to the same degree, for their future.
One other point I want to make about tax-free savings accounts is that there are specific things within them that are pro-equality. The impact of TFSAs is greater for those who are lower income. This is because of the relative value of an investment in a tax-free savings account versus an investment in an RRSP. These are different savings vehicles. Canadians who are doing financial planning will potentially choose between putting money in a tax-free savings account or in an RRSP. The difference is that if they put their money in an RRSP they get a tax deduction at the beginning, but then they pay tax on it when it is converted to a RRIF and withdrawn from the RRIF in the future. On a tax-free savings account they have to pay tax on that money up front, but then they can accumulate interest tax free.
They are different kinds of vehicles, and I would obviously encourage Canadians to save their money in one or both of these vehicles. However, the greatest value of an RRSP is for those who can achieve a significant tax differential between the taxes they would have paid on that money. They are not paying tax on it during their working years, but then they do pay tax in the future. Therefore, if they are paying income tax at a very high rate and they can reduce that amount during their working life, but then during their retired years they can draw on that and pay a much lower rate of tax, that is really where the greatest value is in an RRSP.
On the other hand, Canadians who are making more modest incomes, who are not in the higher tax brackets, are more likely to opt for the use of the tax-free savings accounts because they do not get the same benefit from that differential. This explains why Canadians of modest and lower incomes clearly use tax-free savings accounts at very significant levels.
The argument has been used on the other side that it is only well-off people who have $10,000 they can save. I am not convinced that is true. There are many modest- and low-income Canadians who make significant sacrifices, not necessarily because they have to this year, but because they believe it is important for them to put money aside for a rainy day or for opportunities for themselves and their children in the future. There are many Canadians who do that, and that is often a very good choice to make.
With regard to the specific point about the difference between the tax treatment of TFSAs and RRSPs, if very wealthy Canadians have $10,000 sitting around, they are probably more likely to put it into an RRSP than in a TFSA. The point is that, as much as well-off people have more money to save, TFSAs are a specific vehicle that is specifically providing a greater relative advantage to those who are of modest and lower income. Therefore, it is important to understand that TFSAs are in many ways inherently more of an equal or pro-equality type of saving vehicle.
As we talk about equality, I think it is important to say, as well, that inherently debt is regressive; that is, accumulating deficits and debt is inherently a measure that is not conducive to income equality because it assigns costs to future generations, to children, people who do not have economic means, at least not right now. It says to the next generation, “Here is more money that you have to spend, in addition to dealing with your needs, because we expect you to be working hard to take care of our needs”. It assigns the cost of present needs to future generations. That, obviously, is not conducive to equality.
Telling my three-year-old daughter, Gianna, that she has to pay for social programs that I want to use today is not something that those who are genuinely seeking equality should be doing. We should be paying for present needs with present dollars.
It is worth underlining, in terms of the measures of Bill C-2, that because the tax changes do not balance out, this is going to cost a significant amount of money over the next few years. We are going to be spending billions of dollars simply because of the poorly thought-out hole in the government's budget. It is telling that the Liberals said, during the election campaign, that it would be revenue neutral. They told Canadians that their tax changes would be revenue neutral and, in fact, they were not.
Maybe this is because they were not being truthful; but maybe it is that they just did not know, because they got the numbers wrong. I think either of those is pretty concerning. This is a problem. I think it is a problem that the government should have remedied, and could still remedy.
I think it is very clear, looking at the bill, that there are significant equality problems with it.
Measures that would have been more pro-equality would have been to look for ways to lower taxes for those who are at the bottom.
I have to say that this is exactly what the previous Conservative government did. We lowered the GST from 7% to 6% to 5%. That is the tax that everybody pays. That is the tax that all Canadians pay. We also lowered the lowest marginal tax rate. That was one of the important tax changes we made. We made necessary EI reforms, which would have allowed reductions to EI premiums over the long term. It is no coincidence that all of these taxes that we sought to impact were taxes that had the biggest impact on lower-income Canadians. Cutting the GST, cutting the lowest marginal tax rate, and undertaking those necessary steps that opened the door for lower EI premiums were necessary measures to help those, in particular, who needed the help the most.
If we then compare that with what the government would do in Bill C-2, there is a clear difference. When I sometimes hear members opposite, even the Prime Minister, say that the previous government was helping those who are better off, it is always telling that they never mention a specific tax measure. I have never heard the Prime Minister cite specific tax measures or tax changes we made, in the context of that claim. That is because all of the tax changes we made were really with an eye to those on the low- and middle-income end of things.
Of course, we did cut business taxes, as well. Those are the kinds of measures that help job creation. They help low-income Canadians. They help unemployed Canadians get jobs.
I think it is important, when we think about social equality, to dig deeper into it than just the slogan. It is important to look at how we are performing as a country, first, to look at measures like the performance of our middle class, to look at things like intergenerational earnings elasticity, and then say, “This is where we are now. Now, how do we improve our performance?”
Bill C-2 would not improve our performance. By getting rid of TFSAs and by denying any benefit of these tax changes for those who are less well off, the bill is not pro-equality. We could do better. There are better measures that we could be proposing, and I would hope to see the government be willing to make some of those changes.