Even by Liberal standards of chutzpah, it came as a bit of a surprise.
Just two days after being reduced to minority government status with an historically low share of the vote, Prime Minister Trudeau said that he would closely consult with the other parties. But, he added, he would make a personal income tax cut his major policy priority when Parliament reconvenes.
The Prime Minister is surely aware that he narrowly hung on to power by appealing to an important swath of progressive voters. While the NDP under Jagmeet Singh fared much better than widely predicted with 16% of the vote and 24 seats, the fact remains that the party did less well than in the two previous elections as some supporters, especially in urban Ontario and in Quebec, switched to the Liberals to defeat Andrew Scheer’s Conservatives.
Neither the NDP, nor the Bloc, nor the Greens proposed to cut taxes, giving the priority to dealing seriously with the climate crisis, the lack of affordable housing and the yawning gaps in public health care. By contrast, the Conservatives championed an income tax cut that closely resembles the Liberal plan.
So it turns out that the top Liberal priority is not the climate crisis or pharmacare or housing but rather a tax cut taken straight out of the Conservative play book. It does not even appear to have been a major motivating issue for Liberal voters compared to fear of the Conservative environmental and social agenda.
The Liberals have proposed to phase in an increase in the basic personal tax exemption from $13,000 to $15,000 by 2024. The maximum annual tax saving for an individual in 2024 will be about $300, more or less across the board. While it would not benefit very high income earners, the tax cut will still go in full to persons earning as much as $150,000 per year.
The tax cut will will be less than $300 and as low as zero for those working part-time and/or part year with taxable incomes of less than $15,000,
The Liberals claim that their tax cut would lower poverty, but in fact the poverty rate measured by the new official poverty rate, the MBM, would fall by just 0.1 percentage points. If the purpose is to help those with the least, it would be far more effective to increase tax credits for the working power, and to phase them out more slowly as earned income rises, or to invest more in affordable rental hosuing.
If the purpose is to reduce inequality, a flat tax cut for almost everybody will have only a very small impact. Lowering the cost of post secondary education would be a much more effective way of equalizing opportunities.
The major reason to not support this tax cut is that it is costly since a small cut is spread across so many people. Annual federal government revenues will fall by about $6 Billion per year, a significant chunk of change which will increase each year as and when the economy grows. Moreover, the federal government’s fiscal base is likely to be ratcheted down in perpetuity since it is unlikely that any party will propose a future across the board increase in personal income taxes.
Most progressives would prefer the Liberals to abandon their tax cut, and use it to fund other priorities such as investment in affordable housing, clean and renewable energy, public transit, public health care, child care, or post secondary education. $6 Billion added to seriously inadequate Liberal promises to fund a national pharmacare program would be sufficient to make the promise a reality.
The opposition parties in Parliament, the Conservatives aside, would likely agree. But the Prime Minister seems to have already made up his mind.
Call me a cynic, but this looks like yet another case of the Liberals campaigning from the left, and governing from the right. After just two days!