This blog has received a very warm reception. It is clear that
it fills a void in political information focused on young people. I have since
added “A young person’s guide to each political party” which can be found on
the sidebar to the right. When you click on each link, it takes you to a page that
details the position of each party on fundamental issues.
This post is going to be the first of many Issues posts
where I will break down issues that affect young people in the upcoming
election campaign. Comment below if there’s anything you want to see covered.
In the future, I would like to cover: Bill C-51; water issues; healthcare, pharmacare
and why-u-care; student loans, tuition, and scholarships; greenhouse gas
emissions; youth employment.
What each party’s tax plan means for you
Instead of boring theories and principals, I’m going to
introduce you to 5 very different hypothetical individuals under 25 and examine
how each party’s tax proposal would affect them. Between the 5 characters, you
can look a bit at each party’s policies through very different eyes. So let’s
join the gang in their mystery machine:
- Daphne is a 20 year old philosophy student at York University. She works as a bartender and a dance instructor to afford school and living expenses. Her annual income is $18,000, and she carries a student loan of $8000.
- Shaggy is 21 years old. He finished his high school degree then took a job as a derrick hand. He works long dangerous hours and earns $70,000. He is away 2 out of every 3 weeks and must live at a camp when he is away. He hopes to eventually get promoted to a supervisory position where he would earn close to $200,000
- Velma is 25 years old and graduated teachers college when she was 22. She was fortunate to find a job as a teacher and currently teaches 2nd grade. She has a student loan of $15,000 that she is working to pay off with her $40,000 a year teacher’s salary. She wants to settle down with her new husband, a lawyer, and start a family in Saskatoon where her teaching job is.
- Fred is 24 years old and is in his second year of med school at McGill. He worked very hard and managed to maintain scholarships through his schooling. Between that and summer jobs, he carries no debt. When he graduates, he wants to return to Halifax to be with his family and work as a surgeon there.
- Scooby is 19
years old. He went backpacking this year, and came home this year and moved
back in with his family on the Sunshine Coast. He has no interest in school,
and wants to eventually open up his own dog grooming studio. For now he works
as a dog walker and has no expenses, and can save for his eventual dog grooming
studio. His dog-walking income earns him $12,000 a year, and he has minimal
expenses since he lives with his parents.
Here’s what each party could mean for these 5 people’s
pockets
Conservative Party
- Daphne would be paying very little/no income taxes because of the Canadian basic personal amount and the credit for tuition and textbooks. She is also a continued beneficiary of the Conservative lowering of the goods and services tax which saves her an estimated $235 per year[i].
- Shaggy is living at work camps for 8 months of the year, so he is able to save much of what he earns. Since he is earning less now than he will be later, a tax free savings account (TFSA) is the best investment vehicle for him. Under the Conservatives, he can save $10,000 per year limit, but the other three parties will restrict his TFSA to $5500 annually. The way the TFSA works, is he is still taxed on everything he earns, but when he puts it in his TFSA, it grows without taxation from the government so he is not taxed again when he withdraws the money.[ii]
- Velma benefits from income splitting if her husband is in a different tax bracket than she is. She’s not in a position to max out her TFSA, but would benefit from the Conservatives proposed increase in the “First Time Home Buyer’s allowance” being increased to $35,000 from $25,000 which would let her use money she puts in her RRSP as her down payment tax free. This could give her a better mortgage and lower her debt in the long run.
- Fred benefits from the GST being lowered now, and as a future doctor would benefit from continued low taxes in the future.
- Scooby, who’s saving for his dog grooming studio, should try to max out his TFSA as his main savings instrument. At $5,500 per year, it will take him much longer to save for this studio than it would at $10,000, which prolongs his dependence on his parents. When he finally does get that dog grooming studio opened, he will benefit from an a Conservative small business tax cut from 11% to 9%
Green Party[iii]
Under the green party, we would see a big increase in taxes,
and they are not trying to hide this. To quote their website, “paying more taxes for a cleaner environment, better
health care and education, and to support people in need.”[iv] Whether
this is a good trade-off is up to you to decide.
- Daphne would stand to benefit from the Green’s eliminating all income tax below $20,000. If she drives a car or likes an occasional glass of wine, she would face a large increase in taxes on alcohol, and a polluter pays tax on her gasoline. Not to mention that the costs of everything she buys that’s made in countries without a carbon tax (such as the USA and many south east Asian countries) would become more expensive thanks to the proposed Green Party carbon-based tariffs.
- Shaggy would be the most immediately impacted by the Green Party tax plan. The Green Party has publicly said they would like to shift investment away from the energy industry, instead focusing on green energy. While this will definitely create some new jobs to replace the one’s lost in the energy industry, will one of them be for Shaggy?? Nobody knows.
- Velma would benefit from her income tax being reduced, but would face steeper consumption taxes on alcohol, tobacco, and carbon based products. She would also face an increase in costs for all her goods from countries without a carbon tax such as the US. She could however benefit from tax rebates and incentives to refit her home and classroom with green technology
- Fred benefits as well from the first $20,000 being tax-free but would face steeper alcohol, gasoline, and tobacco prices. The green party would create incentives to donate to charities, so he could benefit from that. If Fred is committed to an environmentally cautious technology house and business, he could benefit substantially from these tax breaks, but he will pay a proportionally higher amount of income and consumption tax
- Scooby would be a beneficiary of all his income being tax free until $20,000. If his dog studio is environmentally friendly, there would be tax incentives for that as well. However, much of the fancy dog grooming equipment that is made in the USA would be substantially more expensive thanks to the Green Party’s proposed carbon based tariffs.
Liberal Party
- Daphne would face by and large the same tax system as she would under the current Conservative government. The Liberals will reduce taxes on income between $44,701 and $89,401, which could help Daphne later on. Likewise the proposed Universal Childcare benefit will provide her over $500 a month should Daphne choose to have any kids.
- Shaggy would have his income tax reduced by $380 as part of the Liberals middle class tax break. If down the road he earns more than $200,000, however, he would then be taxed at a marginal federal rate of 33%.
- Velma gets some great tax breaks that the Liberals have created for teachers. Specifically, she will get a tax credit on the first $1000 she spends on school supplies such as stickers and motivational posters (Second Graders will do anything for a sticker). This could lead to up to $150 back in her pockets. She would also benefit from the tax breaks for the middle class if she earns more than $44,701.[v]
- Fred’s going to be faced with a tough decision under a Liberal government. While he won’t be too affected right now, if he wants to return home to Halifax, and becomes a surgeon, he’s going to be taxed at 54% on income over $200,000[vi]. That makes it awfully hard to incentivise Fred to work hard and become a high-earner with a 54% marginal tax rate. That or he will have to go to lower tax provinces
- Scooby doesn’t have much to gain or lose from the Liberal party. If he is wildly successful with his dog grooming he will be taxed at a higher rate, but if it puts him in the middle class, he will be taxed slightly less.
New Democrat Party
I wish I could tell you exactly how the NDP’s tax policy
will affect young Canadians, but unfortunately, I don’t have that answer, and
if people do, they aren’t telling. The NDP have not released a plan to finance
their spending, except to say they will increase corporate taxes and reduce
small business taxes. I strive on providing you guys with straight information,
but I can’t provide it when the parties won’t release it. The moment the NDP go
live with their tax policy, I will update this post. Depending on who you ask,
the NDP have between a 7-8 billion dollar gap between their promises and what
they will bring in in revenue for a balanced budget. [vii]
There’s no such thing as a free lunch, so either people will pay more taxes to
fund it or these programs will be cut. That answer will be revealed when the
NDP unveil their policy more than just increasing corporate taxes.
A Quick Word about Corporate Taxes
Why tax students when you can tax corporations, am I right!?
The thing with Corporate taxes is economists are divided as to if they even
work. Hungerford with the Economic Policy institute concludes “no evidence that either the statutory top
corporate tax rate or the effective marginal tax rate on capital income is
correlated with real GDP growth.”[viii]
In other words, corporate
tax is not obviously linked to the strength of the economy. What’s more significant
for the NDP is that corporate tax cuts and hikes do not affect government revenue,
that’s right, raising a corporate tax
will not necessarily raise government revenue. In the two graphs below from
Maclean’s magazine, it is evident that higher corporate taxes do not equal
higher government revenue. [ix]
As a result, corporate taxes are not a viable option to increase government
revenues because businesses adjust or move headquarters to other countries to avoid the tax. So
it’s fair to say that Daphne, Shaggy, Velma,
Fred and Scooby will need to fork over a bit of tax if the NDP want to keep
their promises. For more information, there’s a great global overview of Corporate
Taxes in the developed world. https://www.pwc.com/en_GX/gx/paying-taxes/pdf/pwc-corporate-income-tax-report.pdf
 |
| Over the last 30 years, Canada has lowered corporate tax rates and maintained corporate tax revenue |
 |
| Most OECD countries have similar corporate tax revenues regardless of their corporate income tax rates |
Conclusion
So there you have it, federal taxes and you in 2000 words or
less. Hope it didn’t put too many of you to sleep. Ultimately, taxes are a part
of life, they are unavoidable, and no matter what, you will pay taxes. The
trade-off that you need to consider is what do I get for my money, and do I
value it more than the money it costs me. How important is a search and rescue
station in Newfoundland for a 22 year old in Saskatchewan? Government programs
are extremely important, but if you’re a starving student, does an increase in
GST to help fund fisheries patrols work in you favour? That’s your decision,
and hopefully the framework above helps you to make an educated decision on
what’s best for you and your pocketbook.
[i] Is
Cutting GST the best approach? Simonova and Lefebvre http://www.cga-canada.org/en-ca/ResearchReports/ca_rep_2008-03_gst.pdf
Page 11, Note: the savings of a two
percent GST cut have been converted to 2015 terms in accordance with the Consumer price index measure of inflation.
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