The Liberal government’s first budget is eliminating many of the personal tax credits enacted by the Conservatives, focusing instead on larger benefits programs.
The Children’s Fitness Tax Credit and Children’s Arts Tax Credit will soon be gone: cut in half in 2016 and eliminated in 2017. Income-splitting for parents is also gone.
Post-secondary students will notice a change on their tax forms: tax credits for textbooks and the Education Tax Credit will be eliminated by 2017. And, a promised tax reduction for small businesses is also being “deferred” to an undefined date.
“I don’t think there’s any doubt that they’re trying to expunge or eliminate all evidences, vestiges of Harper’s government throughout the bureaucracy in terms of policy,” said Ian Lee, professor at the Sprott School of Business at Carleton University.
With that said, he doesn’t think that taking these away is a bad thing.
“These are things that don’t enhance the productivity or efficiency of the economy. They diminish it, albeit in very small ways.”
Lee added that “when you get rid of these tax credits, you’re freeing up money.” And, some of that money is being directed into larger benefits programs targeted at bigger groups.
Middle Class Tax Cut
The centrepiece of the Trudeau election campaign, the Middle Class Tax Cut, is spelled out in some detail in the budget.
Starting in January 2016, these tax changes decrease income taxes for those making between $45,282 and $90,563 from 22 per cent to 20.5 per cent. It also increases taxes on those making above $200,000 from 29 per cent to 33 per cent.
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This change is off-target, said Armine Yalnizyan, senior economist withthe left-leaning Canadian Centre for Policy Alternatives.
“It’s unfortunate that we’re still referring to it as the middle-class tax cut,” she said, as she believes it mostly affects higher-income Canadians.
“Nobody defines the middle class as the top three deciles… so effectively we are spending over three billion dollars on a tax cut that does very little to stimulate the economy.”
Lee agrees that this measure mostly helps higher-income people.
“I’m assuming that there were some politics involved,” he said.
Parental benefits, including the existing Canada Child Tax benefit and Universal Child Care Benefit, are rolled into a single Canada Child Benefit. This program, beginning in July 2016, will provide money to parents depending on their family income and number of children.
Parents can receive a maximum of $6,400 per child under the age of 6, and $5,400 for each child between the ages of 6 and 17. But only families who make less than $30,000 a year in net income will be eligible for the full amount.
For income above $30,000, a percentage of that full amount is held back, depending on the number of children. Even more is held back for all income above $65,000.
For example, a family of four making $120,000, with two children aged 7 and 4, will receive $3,940 in Canada Child Care benefit payments. According to the budget, under the old system, they would have received $1,901.
“It will reduce child poverty by about a quarter,” said Yalnizyan. “This is a huge success story.”
In exchange for removing tax credits on education and textbooks, post-secondary students will see a 50 per cent increase to the Canada Student Grants program.
Grants to students from low-income families will increase from $2,000 to $3,000 per year. For middle-income students, the grants will increase from $800 to $1,200. And grants for part-time students will increase from $1,200 to $1,800.
The government estimates that these changes will benefit nearly 247,000 students from low-income families, and another 100,000 from middle-income families.
Additionally, students will have longer to pay back their loans. Starting in 2016-17, no students will have to repay their student loans until they’re making at least $25,000 a year.
Benefits for seniors
Low-income, single seniors will see an increase in Guaranteed Income Supplement payments of up to $947 annually starting in July 2016. Single seniors with an annual income of $4,600 or less (other than Old Age Security and GIS benefits) will receive that full amount, with diminishing benefits up to an income of roughly $8,400. OAS and GIS benefits will also eventually be tied to increases in the cost of living.
Lee supports these changes, as they are targeted at specific groups that badly need help.
“These are the 20 per cent of Canadians at the bottom,” he said. “They’ve targeted very precisely and surgically more money to put into the pockets of the poorest Canadians who are elders.”
Pencils for teachers
The 2016 budget does introduce one boutique tax credit: for teachers and early childhood educators. They will now be able to claim a 15 per cent refundable tax credit on up to $1,000 in school supplies.
“It shows that politicians cannot resist tinkering with the tax code to come up with their own favourite supports to give them a bit of recognition,” said Lee.