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The federal tax deduction for child-care expenses has long been criticized, in large part because it is fiscally regressive, favouring higher-earning families.

But the measure has also been critiqued for being socially regressive, too, in that its structure puts pressure on women to stay home rather than in the work force.

Under the existing rules, the lower-earnings spouse in a couple must claim the deduction against their taxable income. And the amount claimed cannot be more than two-thirds of earned income. (There is also a per-child limit and, of course, only actual expenditures can be claimed.)

It goes without saying that the legislation’s wording is gender neutral, but that hardly matters in the real world, where women are overwhelmingly more likely to be that lower-earning spouse in a heterosexual relationship.

That means the two-thirds of income rule tilts the economic landscape for lower-earning women toward the home and away from the workplace. As a recent paper from the C.D. Howe Institute explained, that structure not only reduces the value of the deduction for families (since the lower earner is subject to lower tax rates, most likely) but also reinforces “the framing that child-care costs are a trade-off for maternal earnings only.”

Now, the Conservatives are proposing to eliminate the deduction and replace it with a much heftier refundable child-care tax credit, along with scrapping the Liberal plan to spend billions of dollars over the next five years to reduce the fees parents pay and to build up the number of subsidized daycare spaces.

The Tory plan would reverse the fiscally regressive nature of federal tax breaks for child-care expenses. Lower-income families would see as much 75 per cent of child-care costs of up to $8,000 reimbursed, for a maximum payment of $6,000. That proportion falls as family income rises, with the highest-income families eligible for a maximum payment of $2,080.

But the Conservative proposal is based on family income, rather than individual income, notes Wilfrid Laurier University economics professor Tammy Schirle. That poses two issues for a couple with a high-earning parent (in many cases, a man) and a lower-earning parent (in many cases, a woman).

Initially, the lower-earning parent will need to decide whether working is economically viable at all. On that front, the Tory plan still acts to discourage a return to work, even though it does pay out much more for lower-income families than the current child-care deduction. Under the Tory plan, a family with one parent earning $120,000 and second parent earning $30,000, for a total of $150,000, would receive a benefit of up to $3,860. But a family where both parents earned $30,000, for a total of $60,000, would get a benefit of up to $4,800. And a single parent earning $30,000 would be able to claim the maximum benefit of $6,000.

As family income rises, the reimbursement for child-care costs decreases, eroding the economic incentive to return to work. The same calculus holds as a lower-earning parent decides whether to increase their working hours, Prof. Schirle says.

Taxing questions

Walter Howell of Peterborough, Ont., asks about the long-term tax impact of a transition away from fossil fuels. “As we transition to more electric vehicles over the next decade there will be less gasoline sold,” he writes, adding, “These taxes pay for all the road infrastructure that all vehicles use. I expect that governments will have to apply some taxation to licence plate renewals on electric vehicles and other things to generate the income needed.”

Mr. Howell is right about a couple of things. First, gasoline taxes do generate significant revenue. Ontario, for instance, said in its most recent fiscal update that it expects to take in $2.4-billion in revenue this year from gasoline taxes. Once that revenue withers, there will indeed be a gap to make up in the provincial budget.

As a side note, jurisdictions that choose to reduce other taxes to offset the cost of carbon pricing (as New Brunswick has indicated it will do), will face an even bigger gap. Eventually, carbon pricing revenue will start to fall as emissions decrease, creating an additional funding gap. File that one under “nice problems to have.”

It’s a misconception that gasoline taxes pay for road infrastructure. Governments like to say so, but generally speaking, notes University of Calgary economist Trevor Tombe, it’s more of an accounting fiction. In other words, if gasoline tax revenue goes up (or down), nothing obligates a government to increase (or decrease) its road infrastructure budget.

So, while governments might very well need to make adjustments for any shortfall, that cost wouldn’t necessarily be shouldered by drivers.

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Two out of three ain’t bad: The Parliamentary Budget Officer has published the baseline economic data it will use to cost campaign platforms. There are at least two pieces of good news: a slight revision upward in projections for the growth in real gross domestic product, particularly in 2022, and a slight reduction in the outlook for 10-year bond rates, which would tend to reduce debt-servicing costs. On the other side of the ledger, the projected inflation rate has crept up slightly. Can’t win ‘em all. Unless, that is, you are a debt-laden federal government. Then, a little bit extra inflation equals a slightly lighter debt burden.

Follow me on Twitter, @PatrickBrethour or ask your Taxing Question here.

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