The federal government’s tax cut will cost about $1.2-billion more per year 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 revenue 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 for that fiscal year is now $6.85-billion.
The government is planning to introduce legislation that would make the tax cut effective as of Jan. 1, 2020. The change would raise the basic personal amount – a non-refundable tax credit that essentially sets the income threshold before owing tax – from the current $12,298 for 2020 to $13,229, then gradually increase it to $15,000 for 2023.
The latest PBO report appears to contradict the office’s own costing, given that the Liberal Party platform relied on an independent estimate provided by the PBO. Last year, for the first time, political parties had the option of getting cost estimates from the PBO for specific campaign promises.
However, PBO officials say there are two main reasons Tuesday’s estimate is higher. The first is that the Liberal Party asked the PBO to exclude the spousal and dependant benefits from the campaign estimate, but the government has included those in the proposed tax cut presented to Parliament. The second is that Tuesday’s report is based on current data for economic growth and tax revenue.
Tuesday’s report also provides new details about the distributional impact of the tax cut in 2023.
Couples with children will receive the largest benefit, $573, while a single-person family will receive $189.
Individuals with incomes between $103,018 and $159,694 will be $347 better off. Those with incomes between $51,510 and $103,017 will receive $337. People earning $159,695 to $227,504 are next in line, with a $257 tax cut. Those with incomes between $15,001 and $51,509 will receive $211, and individuals with incomes below $15,000 will save one dollar, on average.
The benefit of the tax cut starts to be phased out for individuals in the second-highest tax bracket and is fully phased out when individuals reach the highest tax bracket, which is estimated to start at $227,504 by 2023. As a result, the PBO said Canadians in the highest tax bracket will end up owing $11, on average.
The NDP has called on Finance Minister Bill Morneau to restrict the scope of the tax cut so that it no longer applies to individuals earning more than $90,000. The NDP said this would help pay for new social spending in areas such as dental care.
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