The Liberal government’s tax cut will cost about $1.2-billion more per year in reduced federal revenues than estimated during the election campaign, according to a new report from the Parliamentary Budget Officer.
The Liberal Party platform said the tax cut would reduce federal revenues by $5.66-billion a year once fully implemented in 2023-24.
However in a new report released Tuesday, Parliamentary Budget Officer Yves Giroux said the estimated cost of the tax cut for that fiscal year is now $6.85-billion.
The government is planning to introduce legislation that would make the tax cut effective Jan. 1, 2020. The change would raise the Basic Personal Amount, a non-refundable tax credit that essentially sets the threshold that income can be earned before owing tax.
The BPA for 2020 before the change is $12,298. The tax cut would raise the BPA to $13,229 in 2020 and gradually increase it to $15,000 in 2023.
The latest PBO report would appear to contradict the office’s own costing, given that the Liberal Party platform relied on an independent estimate provided by the PBO. For the first time in 2019, political parties had the option of obtaining cost estimates from the PBO for specific campaign promises.
However PBO officials say there are two main reasons why Tuesday’s estimate is higher than the estimate the PBO released during the campaign. The first is that the Liberal Party asked the PBO to exclude the spousal and dependent benefits from the campaign estimate, but the Liberal government has included those benefits in the proposed tax cut presented to Parliament.
The second factor is that Tuesday’s report is based on more current economic data for economic growth and tax revenue.
Tuesday’s report also provides new detail regarding the distributional impact of the tax cut.
Canadians with incomes between $103,018 and $159,694 will receive the largest benefit, with a $347 tax cut. Canadians earning $159,695 to $227,504 are next with a $257 tax cut. Individuals with incomes between $51,510 and $103,017 will receive $337. Those with incomes between $15,001 and $51,509 will receive $211 and individuals with income below $15,000 will save one dollar, on average, compared to the status quo.
The Liberal tax cut claws back the benefit at the highest income levels, meaning Canadians with incomes above $227,505 will end up owing $11 as a result of the change.
The report also shows that couples with children will receive the largest benefit – $573 – while a single person family will receive the smallest tax cut: $189.
The NDP has called on Finance Minister Bill Morneau to adjust the tax cut so that the benefit is phased out at lower income levels. The NDP said this could be done as a way of paying for new social spending in areas like dental care.
https://www.theglobeandmail.com/politics/article-liberal-tax-cut-will-cost-12-billion-more-annually-than-promised/?cmpid=rss
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