When it comes to tax cuts, remember it’s your money, not Ottawa’s
A dollar for me, a dollar for them. That’s what being a taxpayer in Canada feels like. Between inflation, a trade war and economic stagnation, Canadians are stretched thin. But finally, like a crack in the wall that lets in the light, we’re hearing commitments from all parties about tax relief.
Nearly every major federal party is pledging income tax reductions. The Liberals want to reduce the rate for the lowest tax bracket from 15 to 14 per cent, saving the average Canadian about $400 a year. The Conservatives would go further, reducing the rate to 12.75 per cent, a $900 saving per taxpayer. Even the New Democrats and the Green Party are promising tax cuts. That’s not something we see every election cycle.
But just as the consensus around tax cuts is forming, so too is the spin. Commentators and pundits are already warning about “the cost” of these promises. Get that? Letting people keep money they have earned involves a “cost.” The implication is that the money in your pocket is somehow really government revenue that Ottawa, in its kindness, has generously decided to give up to you.
Let’s be clear: a tax cut is not a cost. It is not a gift. It is simply the government taking less of what didn’t belong to it in the first place. When revenues fall due to a tax cut, money is not leaving Ottawa’s coffers — rather, Canadians are keeping more of what they earn.
What should be deemed a cost is the investment, productivity and living standards we’ve sacrificed under policies that have removed Canada from the ranks of business-friendly countries. The U.S.-based Tax Foundation dropped Canada two spots in its latest Tax Competitiveness Index, from 15th to 17th, largely because of the now-defunct plan to increase the capital gains inclusion rate.
Most parties promise tax cuts, which is good. But analysis focuses on the ‘cost’ to Ottawa. Keeping your money is not a cost.
Though that tax hike has been scrapped, it was in perfect lockstep with Ottawa’s overall economic agenda. Over the course of what is now widely being called Canada’s “Lost Decade,” Canadians have suffered through a high-tax, heavy-regulation government that has left us with sluggish growth, ballooning public spending, and, yes, a rising personal tax burden.
Meanwhile, Ottawa has been extending its reach and racking up a big tab. Federal debt now stands at nearly $1.4 trillion and Canadian taxpayers are forking over tens of billions of dollars a year to pay interest, not to mention the salaries of more than 110,000 new federal bureaucrats added in recent years. Despite all this growth, Canadians haven’t seen an improvement in services, only higher costs.
A 2022 study showed that 86 per cent of middle-class families now pay more in federal taxes than they did in 2015, a trend that has undoubtedly worsened since. In 2023, the average Canadian family paid more in taxes than it spent on food, housing and clothing combined.
Last year, an MEI-Ipsos poll found that 72 per cent of Canadians felt overtaxed, up five points from 2023. Unsurprisingly, nearly two in three said they were dissatisfied with how Ottawa spends their money, while 77 per cent think the taxes they pay are too high for the services they get in return.
Canadians have good reason to be upset in this way. This is a government that has been living large while our living standards decline. It doesn’t take a Ph.D. in economics to understand that when you tax productivity, you get less of it. When you punish investment, it flees. And when the public sector expands faster than the private sector, that’s a recipe for stagnation.
Whoever is elected at the end of the month will have to cut taxes and spending and reduce the size of government. But don’t heed the alarms currently being sounded about the “cost” of these cuts. Let’s stop pretending tax cuts are a favour bestowed upon us, or that the government has first dibs on our paycheques. It doesn’t. It’s your money. And it’s time Ottawa remembered that.
Samantha Dagres is a communications adviser for the Montreal Economic Institute. The views reflected in this opinion piece are her own.