FELDSTED -- If this government can’t design a simplified system that we can live with, we need to find a government that can do the job

Story Reference:  Liberals move to deliver tax cut they say will help 20 million Canadians. Finance minister says new measure will lower taxes for people earning less than about $150K a year

This is a classic exercise in making an announcement of doing (almost) nothing. The Basic Personal Amount (BPA) for personal federal income tax 2018 was $11,809, increasing to $12,069 for 2019, and scheduled to be $12,298 for 2020.

According to Finance Minister Bill Morneau, the increase from 2020 to 2023 will be from $12,069 (2019) to $15,000 by 2023 spread over four years -- that works out to about $733 per year. 

The 2020 BPA will be $12,802 rather than $12, 298 -- or an increase of $504. 

Morneau is adding complexity to an already incomprehensible Tax Act.

At a basic tax rate of 15% a taxpayer will save ($504 x .15 =) $75.60 or $6.30 per month in 2020. That will not offset carbon taxes or other pressured on increases in cost of living. There is also a catch to increases in BPA; if an employee does not file a new TD1 form with his employer in January, deductions will be based on the last TD1 form filed and payroll deductions will not diminish. The benefit will not be realized until the tax forms are filed in the following year.

What is particularly irking is that for taxpayers in the lowest two tax brackets – 15% (roughly $60K gross and under) and 20.5% (Roughly $61K to $120K gross), what matters is net income, that is income after taxes, CPP premiums and EI deductions.

• Canada Pension Plan (CPP) premiums of 5.1% kick in on all earnings from $3,000 to $60,000.
• Employment Insurance (EI) premiums of 1.62% apply to all earnings $55,000 and under.A person earning $37,000 annual sees about $5,600 or 15% of his or her gross pay eaten up by federal taxes, CPP premiums and EI premiums.
• A person earning $140,000 annual sees about $28,250 or 20% of his or her gross pay eaten up by federal tax, CPP and EI.
• Add in provincial income tax and the situation for those earning $120K or less is even more dire.

There are better solutions

The first ... is to overhaul the entire Employment Insurance program, which has become a welfare system.

Rules should be universal across Canada and not tweaked by province or region. Maternity benefits, parental leave, and coverage for illness and disability should be separate, opt-in programs with separate premiums. Students working to raise funds to offset tuition should be able to opt out of EI premiums if they are attending accredited college, university or apprentice programs.

The second ... is to raise the earning limits for the Canada Pension Plan (CPP) -- without changing the benefits levels -- and eliminating disability coverage. That can provide funding for increases in Old Age Security (OAS) and Guaranteed Income Supplement (GIS) programs to assist pensioners dependent on CPP for their retirement income and living in poverty. That is preferable to raising income tax rates for the wealthy.

The third ... is to simplify our federal income tax system.

There is no justification for the highly complex and cumbersome tome we currently suffer with. If this government can’t design a simplified system that we can live with, we need to find a government that can do the job.

John Feldsted
Political Commentator, Consultant & Strategist
Winnipeg, Manitoba