Conservative Leader Andrew Scheer has revealed where he stands on the long-running debate among Conservatives about the merits of broad-based tax cuts versus more targeted credits aimed at key voter targets: He will do both.
In his biggest policy announcement to date, Mr. Scheer promised Sunday to reduce the rate of the lowest federal income tax bracket from 15 per cent to 13.75 per cent by 2023 – a move estimated to cost Ottawa more than $6-billion a year once fully implemented.
He followed that up on Monday in British Columbia by announcing that a Conservative government would bring back tax credits for parents who enroll their children in either arts or sports programs.
“We’re going to have a great package of tax cuts that includes some targeted measures, as well as broad-based measures,” he said
Since the party last promised broad-based personal income tax relief – and lost – in the 2004 election campaign, the party has largely shelved that direction in favour of more direct and visible tax breaks.
Tom Flanagan, the campaign manager for Stephen Harper’s 2004 campaign, said the challenges faced then in trying to communicate the details and benefits of a broad personal income tax cut led the party to switch course in 2006.
The 2006 election that brought the Harper Conservatives to power shelved their earlier plan in favour of a two-percentage-point cut to the GST, a move that proved to be an easy sell with voters although many economists called it bad policy. That platform also promised tax credits for children’s programs and a Tools Tax Deduction for tradespeople.
“These things are complex,” Mr. Flanagan said of his experience in promoting the party’s broad-based tax plan in 2004. “It’s hard to explain to millions of people during the heat of a campaign.”
In contrast, he said all federal parties have come to embrace boutique tax cuts even though the credits are frowned upon by economists.
“It’s an eternal story of politics versus economics. There’s no end to it,” Mr. Flanagan said. “All parties are committed to boutique tax cuts, they just have a different set of clients that they’re aiming at. From an economic point of view, these things clutter up the tax code, they make tax filing more expensive.”
Another consideration is that a broad-based personal tax cut has a big impact on Ottawa’s bottom line.
The Parliamentary Budget Officer estimates Mr. Scheer’s proposed personal income tax cut would reduce federal revenues by more than $6-billion a year once fully implemented.
“It’s a big tax cut,” said Mostafa Askari, chief economist with the University of Ottawa’s Institute of Fiscal Studies and Democracy. “Six billion dollars is a budget of a couple of big departments essentially. So you have to see the whole platform before you can say whether this is credible or not because you really have to know where are they getting the money to fund this.”
The PBO also said that the four tax credits proposed by Mr. Scheer – including a public-transit credit and a maternity- and parental-leave tax credit – would reduce federal revenues by nearly $1.7-billion in 2025-26.
The Conservatives’ cuts to the GST following the 2006 campaign – to 6 per cent in 2006 and to 5 per cent in 2008 – marked a historic reduction in the level of tax revenue coming in to the federal government, as a percentage of GDP.
Before Mr. Harper’s 2006 campaign win, federal revenues as a share of GDP had never dipped below 15 per cent over the four previous decades for which data is available. Yet in the years since, federal revenues have remained under 15 per cent of GDP.
The Liberal government has not altered that revenue trend, but program expenses as a percentage of GDP grew from 13 per cent in 2014-15 to 14.5 per cent in 2017-18. As a result, the Liberal government did not deliver on its pledge to balance the books by 2019.
Instead, the PBO says the federal deficit is projected to exceed $20-billion this fiscal year and next before declining to about zero by 2028-29.
Mr. Scheer promised a fully costed platform will show how he can cut taxes while balancing the books within five years.
“It’s a question of controlling the rate of growth of federal departments," he said.
Liberal Leader Justin Trudeau said his party’s platform is based on federal spending in areas such as infrastructure, housing and child care that will not be affordable under the Conservatives’ approach to budgeting.
“Unfortunately, the Conservatives are proposing cuts instead,” he said during a campaign stop in Southwestern Ontario. “They will not be investing in the kinds of ambitious infrastructure that we know growing, flourishing communities like [Kitchener-Waterloo] so desperately need.”