While the Prime Minister may have made the case for continued borrowing in his address to the nation two weeks ago, the prospect of additional revenue tools are likely being examined by finance officials ahead of the next federal budget. At the same time, some provincial parties are suggesting tax cuts to put more money in people’s pockets – even as debts continue to climb. Here’s some of the political considerations taken into account around the decision to tax, or not.
Income Taxes
During the last federal election, Prime Minister Trudeau pledged to cut income taxes for the middle class. While this has long been a popular tax policy for governments, most Canadians don’t notice subtle differences in the amount of income taxes they pay year over year. One tax change they may have noticed in 2020 was the government’s offer to defer payments until September 30th because of COVID-19. Most countries around the world have offered similar income tax policies for their own citizens, but some have gone a step further to help vulnerable segments of their population. For instance, Indonesia recently announced it would waive income taxes for certain individuals working in the manufacturing sector as a way to boost purchasing power. When the Canadian government turns off the tap on CRB, this could be an additional way to help vulnerable workers in the aerospace, automotive, steel, hotel and services industry who continue to be hit hard by the impacts of the pandemic.
Goods and Services Taxes
Many will recall the 2006 election when Conservative leader Stephen Harper promised to cut the goods and services tax. This popular campaign promise resonated well with Canadians and ultimately helped Mr. Harper land the job as Prime Minister. Fourteen years later, Mr. Harper’s tax policies are being recycled by the Liberal Party of British Columbia. Andrew Wilkinson has promised to eliminate the PST for a year in order to help stimulate the economy amidst the COVID-19 crisis. While this election pledge would certainly seem appealing to voters, critics argue that the lack of revenue in government coffers will ultimately lead to cuts in vital services. One thing is for sure, we can expect politicians across the country to pay close attention to the BC election and perhaps adopt a similar stance on goods and services taxes if it appears to be popular with voters.
Corporate Taxes
From a business standpoint, Canada continues to have one of the lowest corporate tax rates of the G7 countries. This gives Canada a competitive advantage in attracting businesses to set up and invest here. This leads to benefits for workers, boosts productivity and increases wages. The Liberals, however, will be under significant pressure from the NDP to increase taxes on business and to introduce a levy on the very wealthy. That being said, the senior decision-makers who hold the pen at the Department of Finance will probably be reticent to increase corporate taxes, given the backlash Bill Morneau received in 2017 when he proposed unpopular business tax changes.
Other Revenue Alternatives to Consider
With the growing deficit, the Conservative opposition will try to frame a political narrative that Liberals will raise taxes to pay for big-ticket social programs like pharmacare and childcare. There are however, some other interesting policy proposals out there that would help generate revenue while not directly increasing taxes for Canadians. For example, some within the Green Party have proposed a Border Carbon Tax, which would place a tariff on imports from countries with lax environmental policies. This would not only serve as a revenue-generating tool, but it would play well with domestic industries like steel and aluminum. They are trying to compete with an influx of dumped products from countries with bad environmental records like China and Turkey. The policy initiative is also currently being considered by the European Union to ensure their own domestic companies stay competitive.
With several provincial elections coming up and a possible federal one next year, political parties of all stripes will be looking for creative ideas to increase government revenues, without reaching deep into our wallets. We are looking forward to seeing what the policy wizards come up with.
