Social Policy in Ontario

Platform Crunch: Tax cuts are alive and well in this federal election, but who benefits? (Hint: Look up, way up)

Posted on April 18, 2025 in Governance Debates

Source: PolicyAlternatives.ca — Authors: David Macdonald

PolicyAlternatives.ca – news/research
March 25, 2025.   David Macdonald

Both the Liberals and Conservatives are promising to cut personal income taxes—9.6 million low-income Canadians won’t benefit.

The first full day on the election trail and both the Liberals and Conservatives have pledged the same thing: to change the personal income tax rate of the lowest federal tax bracket. The Liberals would cut it from 15 per cent to 14 per cent and the Conservatives drop it to 12.75 per cent (over two years).

The Liberals are promising a personal income tax cut that they say will benefit middle- and low-income Canadians the most: “More than 22 million Canadians will benefit directly from this tax cut,” according to their press release.

The Conservatives are promising a personal income tax cut and say “modest-income Canadians will feel the most savings” from their tax cut plan, according to their press release.

A costly measure: Both Conservative and Liberal policies will be expensive. In 2025, the Liberal version will cost $5.4 billion and the Conservative version will cost $12.2 billion (although the Conservative version won’t be fully implemented until 2027, I’m simulating them both in 2025 for a fair comparison; the Conservative plan will cost over $14 billion in 2027 when fully implemented).

In case you were wondering, those are incredible amounts of money. For comparison, you could cut child poverty in half for about $6 billion a year.

But that’s not what’s on offer, by any party, so far in these early election days.

[We’re examining all party platform promises; the other parties haven’t come out with a promise on this issue to date.]

Let’s fact check both parties’ promises

The Liberal/Conservative statement is correct: 22.2 million Canadians would see some benefit from this tax cut promise (same for both parties, actually).

Some people will be net losers: These proposals drop the tax rate for the lowest bracket, but they also drop the value of tax credits (for like the caregiver credit, the age credit, the disability credit, etc). So, people are better off with a lower tax rate, but that benefit is cut as their tax credits decline in value. For 235,000 tax filers (Liberal promise) or 195,000 filers (Conservative promise), they are worse off because they claim a lot of credits (likely due to age and disability) and the tax cut doesn’t offset this.

Low-income people are left out: In fact, 9.6 million Canadians—basically all low-income earners—would see no benefit at all. Low-income filers already have enough tax credits to not pay federal income tax, so changing the rate doesn’t help them.

Proportion who see any benefit by total income decile

Very small proportions of lower income deciles will see even a dollar from the Conservative or Liberal tax cuts, while basically all high earning Canadians will see a benefit.

See chart:  https://www.policyalternatives.ca/news-research/tax-cuts-are-alive-and-well-in-this-federal-election-but-who-benefits-hint-look-up-way-up/?utm_source=CCPA+Master+List&utm_campaign=0f3ac5db6e-EMAIL_CAMPAIGN_2022_01_07_02_51_COPY_01&utm_medium=email&utm_term=0_243d98559a-0f3ac5db6e-51935605&mc_cid=0f3ac5db6e&mc_eid=26a8b9335a#:~:text=Very%20small%20proportions,Created%20with%20Datawrapper

Benefits for the poor vs. the rich: Only 14 per cent of those living in poverty see any benefit, versus 98 per cent of filers making over $129,000 (the richest 10 per cent). The average benefit for those living in poverty is $11 a year (Liberal promise) or $25 a year (Conservative promise). For the richest, the average benefit is $310 a year (Liberal promise) and $694 a year (Conservative promise).

The benefits claimed by both parties are exaggerated: Only one per centof tax filers would reap the full hypothetical benefit of $412 a person (Liberal promise) or $928 a person (Conservative promise). This is due to the rate for tax credits also falling (as noted above), which offsets the benefit of a lower tax rate.

Average benefit by total income decile

Both the Liberal and Conservative tax plans deliver much less than promised in the real world. Although highest earned get the most and lowest earners get almost nothing

See chart:  https://www.policyalternatives.ca/news-research/tax-cuts-are-alive-and-well-in-this-federal-election-but-who-benefits-hint-look-up-way-up/?utm_source=CCPA+Master+List&utm_campaign=0f3ac5db6e-EMAIL_CAMPAIGN_2022_01_07_02_51_COPY_01&utm_medium=email&utm_term=0_243d98559a-0f3ac5db6e-51935605&mc_cid=0f3ac5db6e&mc_eid=26a8b9335a#:~:text=Both%20the%20Liberal,Created%20with%20Datawrapper

In come the rich: The richest 40 per cent of Canadians would enjoy three-quarters of those promised savings (for either party), while the lowest-income earners in Canada would, on average, enjoy zero benefit. Not great preparation for a tariff war that would hit low-income families the hardest.

What about the middle class? The middle 30 per cent of Canadians have an 83 per cent chance of seeing some benefit from these cuts. On average, they can expect $151 a year (Liberal promise) or $336 a year (Conservative promise). However, these are massive overall expenditures that could easily mean service cutbacks in health care, child care or Employment Insurance (EI) to pay for them. Your taxes go down a few hundred bucks but your local hospital closes, perhaps.

Bottom line: This is a pricey measure that disproportionately benefits the rich and some middle-income earners (and only a sliver of them) and it barely moves the needle for the lowest-income earners. The expenditures are so large and these parties are so concerned with having no deficits that they’ll require massive cuts elsewhere to balance the budget. We are yet to see a detailed list of those cuts, but I look forward to examining them when they come.

Methodology:

All figures are using statistics Canada’s tax modelling software SPSD/M 30.3. All figures are projected for 2025 to provide an “apples to apples” comparison of the proposed changes in the same year.

The Conservatives would phase in their tax cuts until 2027, at which point they estimate it would cost $14 billion, but this simulation examines the impacts of the Conservative plan in 2025 so timing differences don’t come into play and the two proposals can be directly compared.

https://www.policyalternatives.ca/news-research/tax-cuts-are-alive-and-well-in-this-federal-election-but-who-benefits-hint-look-up-way-up/?utm_source=CCPA+Master+List&utm_campaign=0f3ac5db6e-EMAIL_CAMPAIGN_2022_01_07_02_51_COPY_01&utm_medium=email&utm_term=0_243d98559a-0f3ac5db6e-51935605&mc

Tags: economy, tax

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