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Federal tax revenue from Canada’s highest income-earners bounced back in 2017 after a one-year dip as the flow of money coming in from the Trudeau government’s new tax on the top 1 per cent is showing signs that it will stabilize in line with the Liberal Party’s original projections.

But the revenue will still fall short of paying for a tax cut for lower-bracket income.

Finance Minister Bill Morneau’s office on Thursday provided the preliminary tax data for 2017. The figures were highlighted in response to questions about a new report by Parliamentary Budget Officer Yves Giroux, who looked at how the government’s new personal tax regime played out in 2015 and 2016.

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The new information provides an updated assessment of the impact of the Liberal Party’s core 2015 campaign platform pledge, which promised that a new tax on Canada’s top 1 per cent would raise the full $3-billion cost of a tax cut for lower-bracket income.

Shortly after the Liberals formed government in 2015, the Finance Department released a revised estimate in late 2015 that said the tax cut would cost $3.4-billion, the tax hike would only raise $2-billion and the revenue gap would widen over time. The PBO provided a similar assessment around that period.

However, Thursday’s PBO report and Finance Canada’s updated figures suggest that while the tax hike still won’t cover the full cost of the tax cut, the annual revenue gap will not be as wide as those earlier estimates.

The Finance Department’s preliminary tax data for 2017 shows that individuals with taxable income above $202,800 – the new inflation-adjusted top tax bracket created in 2016 – paid $36.7-billion in taxes that year. That’s up from $31.4-billion in 2016. However, the 2016 figures represented a drop from the $36-billion received in 2015. Revenue for the same category was $31.5-billion in 2014.

The fluctuation in recent years is explained in Thursday’s PBO report, which confirms previous Finance Department comments that high-income individuals shifted income – such as dividends – from the 2016 to 2015 tax year as a one-time tax planning measure in response to the changes. The tax changes took effect on Jan. 1, 2016, but were announced in late 2015, providing high-income earners with enough time to make year-end tax planning decisions.

Thursday’s PBO report notes that it is “notoriously difficult” to calculate the degree to which tax-revenue changes can be attributed to specific policy and tax measures.

Nonetheless, the PBO report said a “static” assessment of the tax changes – meaning outside factors such as behaviour and changes to economic growth are weeded out – suggests the total tax package will still result in an annual revenue shortfall.

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Looking at 2016 from that static perspective, the tax hike generated $3-billion in revenue, while the tax cut reduced federal revenue by $3.5-billion in 2016.

In an interview, Mr. Giroux said that while his report did not look at the 2017 tax figures, his research suggests that similar results will play out in future years and that the total tax package will produce an annual revenue shortfall that is in the hundreds of millions.

The 2016 tax cut lowered the second rate to 20.5 per cent from 22 per cent on income between $45,282 to $90,563. The report notes, however, that people in the next highest tax bracket also gain from that tax cut and that it is not until people reach about $200,000 in taxable income that they start to pay more tax over all under the changes.

While the Liberals called it a “Middle Class Tax Cut,” there is no widely accepted definition of middle class.

Thursday’s PBO report said that of the $3.5-billion in reduced revenue from the tax cut in 2016, $1.9-billion benefited individuals with taxable incomes exceeding $90,563 while less than half – $1.5-billion – went to individuals with income between $45,282 and $90,563.

Francis Fong, chief economist for CPA Canada, said the data show the cost of the tax cut has not been fully offset by revenue from the tax hike. However he agreed with the PBO’s assessment of the difficulty in linking government revenue changes to specific actions, in light of so many outside factors such as a downturn in the energy sector.

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“How do you pick apart these numbers?” he said. “I think, ultimately, it’s hard to just look at these numbers and say ‘Yes, the Liberals were successful,’ or that ‘No, it didn’t actually work out.'"

Conservative finance critic Pierre Poilievre said the figures show that taxing the rich has not proved to be the major source of revenue the Liberals were counting on to fund their many spending promises.

“The magic money tree he promised he would find at the top of the hill isn’t there,” he said.

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