The country’s top one per cent of earners paid a slightly bigger share of federal income taxes after a policy shift from the Trudeau Liberals designed to make the rich contribute more, according to new federal data.
Having high income earners pay more, however, only appears to have materialized after efforts by some at the top to escape a bigger tax hit.
The Liberals came to power in 2015 on a signature campaign pledge dubbed the “middle class tax cut,” a reduction they planned to pay for by raising taxes on the wealthiest Canadians. Starting in 2016, they lowered the tax rate on the middle income bracket and hiked taxes on all income earned above $200,000.
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With so many economic factors to consider, experts say the exact effects are hard to pin down – especially since there is evidence many high earners moved income forward to the 2015 tax year to take advantage of a lower tax rate.
On Thursday, the Finance Department released 2017 figures showing the share of overall personal taxes paid by top earners that year was 25.1 per cent. It was an increase of 0.9 per cent compared to the 24.2 per cent share in 2014, which was the last full tax year before the Liberal measures were announced.
The plan was unveiled in late 2015, but only took effect at the start of 2016, giving top earners time to shield their income. Because of this, a more fitting before-and-after look required a comparison of 2014 figures to those from 2017.
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A separate report released Thursday by the parliamentary budget office highlighted the late-2015 income movements and how the tax-planning efforts affected numbers for 2015 and 2016.
The budget watchdog’s report estimated many top earners brought forward their income as part of behavioural changes that raised government tax revenues by $5.6 billion in 2015 and lowered them in 2016 by $3.2 billion.
In addition to the tax planning, the Liberal changes on their own reduced income-tax revenues in 2016 by another $400 million, the report said. Combined, the tax increase on the highest earners fell short of fully offsetting the tax reduction for middle-income earners.
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Parliamentary budget officer Yves Giroux said in an interview Thursday that there was more income shifting than expected.
“People in high income brackets, they can adjust their behaviour and they can adapt their tax-planning strategies according to changes in the tax system,” Giroux said.
He said other factors blur the picture even more, like the natural growth of the economy, inflation and demographic changes.
Jack Mintz, a tax policy expert at the University of Calgary, said it doesn’t look like the changes generated a lot more revenue from high earners after weighing other factors.
“When you actually look at the total increase in revenues in personal tax for 2017, compared to 2014, allowing for some normal growth in the economy and inflation, it looks to me that they didn’t get a lot of money out of the rate hike,” Mintz said.
The 2017 Finance Department numbers released Thursday show that 362,000 people – or 1.3 per cent of all tax filers – earned enough to reach the top bracket. In 2016, there were 326,000 people in the upper category, while in 2015 there were 356,000.
Income above around $200,000 generated tax revenues of $31.5 billion in 2014 and $36 billion in 2015. The tax changes brought in $31.4 billion in 2016 and $36.7 billion in 2017.
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During the 2015 election campaign, the Liberals told voters the tax changes would be revenue-neutral. But a few weeks after taking office the newly installed Trudeau government said the plan would actually lower net revenues by $1.2 billion in each of the first five years.
The new upper bracket was no longer expected to generated as much revenue, in part because experts predicted the biggest earners would make more of an effort to avoid taxes.
At the time, the Liberals argued their tax-bracket tweaks would help the country’s weakened economy because middle earners were likely to spend what they save on income taxes.
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