Families that include at least one child under 18 will be facing a tax hike of $2,218 per year thanks to Justin Trudeau, Conservative Leader Andrew Scheer tweeted out on Monday.
That’s certainly an alarming amount for any parent to contemplate. Scheer argued that the situation is only made worse when you consider the cost of child care, rising interest rates and the inevitable increase in mortgage payments.
“These tax hikes are unfair and we’ll keep fighting them every step of the way,” he wrote.
But how accurate is this number? Should Canadian families with kids really be bracing for an average tax increase of over $2,200 a year?
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The study behind the estimate was authored by the right-leaning Fraser Institute and released last Thursday. It’s available here.
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When you drill down into the numbers, a few things stand out.
First, the $2,218 estimate leans heavily — although not exclusively — on the increased contributions Canadians will soon start making to the Canada Pension Plan.
The Liberals, together with provincial and territorial governments, agreed in 2016 to gradually increase the premiums Canadians and their employers pay into the CPP (outside of Quebec, which has a separate pension plan) starting next year and extending through to 2025.
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How much more you’ll pay will depend on how much you earn, but an average worker making $55,000 will, for example, pay an additional $7 a month in 2019. That is expected to increase to $34 more a month by 2023.
It’s important to note that the Fraser Institute analysis treats these changes as if they are already fully implemented. In other words, as if the full $34-a-month burden is currently in place.
Calling the CPP contributions made by Canadians a “tax” is problematic, argued Lindsay Tedds, an economics professor at the University of Victoria whose research focuses on tax policy.
Once Canadians retire, she noted, they’ll see a corresponding increase in CPP payments into their bank accounts, which the government has said will help avoid a looming poverty crisis among older Canadians.
“Legally speaking, CPP contributions are absolutely not a tax,” Tedds said. “This is deferred compensation … we’ve had this since the 60s, and there’s a reason for it.”
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But Ian Lee at Carleton University’s Sprott School of Business agreed with the Fraser Institute’s assessment.
“The OECD defines a tax as a compulsory, unrequited payment to general government,” he said.
“It’s compulsory, I have no discretion. Yes, I’m getting benefits, but you can make that argument about all taxes. Taxes pay for garbage collection, they pay for roads, they pay for universities, they pay for health care … So I’m willing to cut the Fraser Institute slack on that.”
To calculate the $2,218-per-year increase for middle-class families, the Fraser Institute also counted not only the employee’s increased contribution to the CPP pot but also the employer’s.
That may seem counterintuitive, but Tedds explained that there is some logic in including at least a portion (although perhaps not all) of the increased employer premiums because employers will often adapt to higher costs by shifting the financial burden to their employees.
“Just because you levy it on a particular entity, doesn’t mean that that’s who actually bears the burden,” she said. “At least 25 per cent of that cost is actually borne by the employee through reduced remuneration, and it may be higher than that if we think of not just wages but also benefits.”
In addition to the CPP changes, the Fraser Institute’s report factors in things like the Liberal government’s changes to personal income tax rates (lowered for middle-income earners, raised for higher income earners), the elimination of Harper-era income splitting for couples with children, and the axing of a few other tax credits like the children’s fitness tax credit, the public transit credit and the textbook tax credit.
But the report ignores the Canada Child Benefit, a monthly cheque that every parent of a child under 18 is eligible to receive from Ottawa.
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The benefit replaced three separate benefits handed out under the Conservative government and is adjusted for family income. The CCB provides families with a maximum of $6,400 a year for each child under the age of six and $5,400 per year per child aged six to 17. It is set to increase with inflation.
“Is what (the Fraser Institute) did wrong? No. If you just want to look at taxes, that is a research question that you can ask,” Tedds said of the omission.
“But to not then consider the value we get from those contributions, it’s not the whole picture, and I think we should be considering both the tax and transfer system when we look at the net outcome in terms of where a family will come out in this.”
Lee agreed, citing yet another report authored by veteran economist Philip Cross that highlights just how much Canada’s low- and middle-income earners benefit from government transfers.
“When you talk about the tax system in Canada, he correctly argues that you have to talk about the tax and benefits system,” Lee noted. “A more accurate reading … would be to include not only taxes paid but benefits received.”
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