Grading the Liberal leadership candidates on tax fairness

Grading the Liberal leadership candidates on tax fairness

The Liberals’ rapid rise in the polls since Trudeau’s resignation has brought a new importance to the policy proposals being put forward in the Liberal leadership race. Another Liberal government, which seemed impossible only a month ago, is once again a distinct possibility. By now, the top candidates — former Bank of Canada Governor and Chair of Brookfield Asset Management Mark Carney, former Finance Minister Chrystia Freeland, and former Liberal House Leader Karina Gould — have all made significant tax policy announcements. Let’s take a look at which candidates (if any) actually have a plan to improve tax fairness and make life more affordable.

Table 1. Major Liberal leadership candidates’ tax policy proposals.

Fairly taxing capital gains

Mark Carney, the current frontrunner, and Chrystia Freeland, have both stated that they would scrap the government’s planned legislation to reduce tax exemptions for capital gains. This would be a huge loss for tax fairness, returning billions of dollars in tax revenue to the pockets of wealthy Canadians and large corporations, funds that could be used to support dental and pharmacare, build affordable housing, or invest in creating green jobs. Karina Gould has been less clear on this issue, saying, “I don’t think we got the capital gains tax increase right”. Unfortunately, this suggests that all the leading Liberal leadership candidates are planning some course reversal on a major policy that was slated to bring tax rates on profit from asset sales closer to those on wages from work.

Consumer carbon tax

Poilievre’s “axe the tax” misinformation campaign has been so successful that all the leading leadership candidates for the party that introduced the consumer carbon tax have now backed away from it. This is despite the fact that, because the consumer carbon tax is coupled with a rebate, the current policy actually saves most Canadians money overall. To avoid making most Canadians worse off by abandoning the consumer carbon tax, Carney has proposed to pay Canadians for climate-friendly purchases. He has not committed to any specific numbers but he appears to be aiming to make this policy net-neutral from a tax fairness and affordability standpoint.

Freeland has said she would end the consumer carbon tax but has not offered any details on what she would replace it with. Gould has promised to halt the increases in the price of carbon. This would render the policy much less effective at mitigating carbon emissions - the policy’s primary purpose.

New progressive ideas

Gould and Freeland have both made some progressive policy proposals that would improve tax fairness and affordability. Gould has pledged to raise the corporate income tax (CIT) rate by 2% on profits over $500 million a year. We previously proposed a 5% increase to the CIT rate on profits over $100 million a year. Although Gould’s policy would only raise about 25% of the revenue that our proposal would raise, it is a step in the direction of tax fairness and reversing the endless reduction in corporate taxes Canada has engaged in for 40 years. 

Gould has also proposed to reduce the GST by one percentage point for one year and fully eliminate the GST on some essential items. Because the GST is a regressive tax, this would benefit low-income Canadians more than high-income Canadians. But, like the recent GST holiday, there are better ways we could spend this money.

Freeland, on the other hand, has proposed to cap profit margins on essential groceries. This could have huge benefits by stabilizing essential prices for Canadians, preventing the sort of price-gouging that was observed across the economy during the pandemic. However, Freeland has not released any details on how this would be achieved and it would certainly face huge pushback from the business community. Freeland also voted against an NDP motion to cap grocery prices just last year. 

“Middle class” income tax cuts

Income tax cuts have been proposed by Carney and Freeland. While Carney has not provided any details beyond that he would cut income tax for the “middle class”, Freeland has provided some specifics. Freeland has proposed to lower the income tax rate on the second income tax bracket, which is currently $57,375 to $114,750, from 20.5% to 19%. While this sounds like a progressive move, this is misleading.

The income tax rate on the second income tax bracket is paid on the portion of taxable income that is between $57,375 and $114,750 for everyone, regardless of how much they make in total. This means that a CEO making $1 million per year would benefit more from this policy than a teacher making $60,000 a year. Specifically, anyone making over $114,750 would save $860.62 from Freeland’s proposed policy. The teacher making $60,000? They would save $39.38. A cashier making $30,000 would not save a dime under this policy. Any use of the income tax system to give more money to average Canadians must ensure that it does not give more money to the wealthiest among us. This can be easily achieved by pairing a tax cut in the lower brackets with an increase in top income tax rates, as the Ontario Green Party recently proposed.

Conclusion

So, where do these candidates stand overall? Carney has provided very few policy details, taking advantage of his status as frontrunner. What little he has proposed — eliminating the increase to the capital gains inclusion rate and the consumer carbon tax and cutting “middle class” taxes — is clearly regressive and will benefit the wealthy more than anyone else. Freeland’s policies are very similar to Carney’s, however we award her a better grade for taking aim at limiting profiteering by Canada’s large grocery chains. Gould has some bold, progressive ideas, but they fall far short of meeting the moment and offering a transformative path to resolving our ongoing climate and housing affordability crises.

To truly meet these crises head-on, politicians should be putting forward transformative policies like a wealth tax, a super-profits tax, and an immediate end to all tax loopholes that allow the wealthy to pay a lower tax rate than working Canadians.