The Liberals’ and Conservatives’ proposed income tax cuts will not significantly benefit most Canadians, economists across the political spectrum say.
“They’ve been pitching this as proposals for lower- and middle- income households,” said David Macdonald, a senior economist at the progressive think tank Canadian Centre for Policy Alternatives. “They’re certainly not for lower- and middle-income households.
“They’re for higher-middle and upper-income households.”
Jack Mintz, an economy professor at the University of Calgary and senior fellow at the C.D. Howe Institute, agrees.
He says individuals will save less through these proposed income tax cuts than what the Liberals and Conservatives announced. But, if enacted, either of these proposed tax cuts would be a noteworthy change.
“They are significant,” he said. “There’s going to be quite a large reduction.”
‘Very simple’
Both the Liberals and Conservatives began the election by promising to reduce the amount of tax Canadians pay on income in the lowest tax bracket.
The Liberals were the first out of the gate on March 23, when they promised to cut the tax rate on the lowest bracket by one per cent.
“Every Canadian should be able to afford necessities, feel secure, and get ahead financially — and this tax cut will help them do that,” Liberal Leader Mark Carney said in a press release.
The lowest income tax bracket includes taxable income of $57,375 or less. This income is taxed at 15 per cent.
On March 24, the Conservatives released their own pledge to lower the tax rate on the same bracket by 2.25 per cent.
The Liberals have said a one per cent tax rate decrease could save individuals $400, and save two-income families nearly $800 a year. The Conservatives said their plan could save individuals $900, and two-income families up to $1,800 a year.
But these projections are based on a very rare scenario, economists say.
The parties are “trying to make it very simple,” said Mintz. These estimates assume that the only tax credit individuals are claiming is the non-refundable tax credit on basic personal income. For 2024, this threshold was about $15,700 for those with net incomes under $173,000.
For those earning more than $246,750, the threshold drops to $14,150.
There are dozens of tax credits, besides the basic personal amount, that people may claim. Very few tax filers only claim this exemption.
“It is certainly possible to not have any tax credits, except for the basic personal exemption, and that’s where you get the maximum value [the Liberals and Conservatives are claiming],” says Macdonald. “It’s just extraordinarily unlikely.”
Both Mintz and Macdonald say the average tax filer would save less than the Liberals and Conservatives claim.
Under the Liberal plan, Mintz estimates the average filer would save $283, while MacDonald estimates $300. For the Conservative plan, Mintz estimates the average filer would save $635, while MacDonald estimates $700.
Little relief
The Liberals’ and Conservatives’ proposals will not do much to help low-income tax filers, and nothing to help people without taxable income, sources say.
John Stapleton, a policy analyst in Ontario, called the announcements “politically safe” but irrelevant for Canadians with the lowest incomes.
“Low-income people who don’t pay tax, who are on assistance or fixed incomes, are not going to see much from this unless they pay tax in the first place,” he said.
One of the most effective ways to assist low-income people through the tax system is through refundable credits, which he likens to “gift cards” from the government. People benefit even if they do not pay taxes.
The NDP released its proposed changes to income tax on March 26. The party said it would raise the amount of exempt income to $19,500. Those who earn less than that would not pay federal income tax.
The party estimates this would save $505 for people who earn between $19,500 and $177,800.
The party also promises to double the amount of the Canada Disability Benefit for low-income adults with disabilities and increase the Guaranteed Income Supplement for low-income seniors.
This proposal provides more, on average, to middle-income individuals and families than either the Tories’ or Grits’ plans do, says Macdonald. The NDP’s plan specifically helps lower-income Canadians more than those with higher incomes, he says. But overall, it more evenly benefits Canadians across the income spectrum, he says.
Others say the federal government should consider merging the bottom two income tax brackets.
The Montreal Economic Institute argued in a March 13 paper that the bottom two income tax brackets should be combined into one. Under this proposal, all income under $144,750 would be taxed at 15 per cent.
At present, income in the second bracket, which runs from $57,375 to $144,750, is taxed at 20.5 per cent.
Combining the two bottom tax brackets would lower income tax for people in the three higher tax brackets because of Canada’s progressive tax system, says Samantha Dagres, manager of communications at the institute.
“It’s substantial and it’s permanent, which is what we want to see for middle-class Canadians,” said Dagres.
Productivity problem
Not all economists are convinced the income tax cuts proposed will increase Canada’s productivity.
Income tax cuts, like the ones the Liberals and Conservatives are pitching, will do nothing to help productivity, says Macdonald.
“It’s going to give high income households more money, which they’ll probably save and not spend in the economy.”
Mintz says cuts to personal income tax address affordability concerns more than productivity concerns.
“It’ll help people save more for their retirement, even at lower income levels and it will encourage, especially younger people, to invest.”
However, he says reducing the amount people with lower incomes are taxed could encourage them to work more.
“Given the potential downturn in the economy as a result of the Trump tariffs, an income tax cut will help buoy up the Canadian economy, create more consumption and more purchases of goods and services in Canada,” he said.
But Ottawa needs to encourage more private investment in Canada, by restructuring corporate taxes and removing regulations that stifle growth.
“That could actually lead to more tax revenues coming in,” he said.
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