Trudeau’s Millionaires & Everyone’s Tax Hike

trudeau-wynne-20150129As a rule I dislike large majority governments. Far from believing that minority or coalition governments are unworkable, we have a good history of weak governments focusing on practical solutions that usually avoid the trappings of their respective ideological ends. Because the thing that worries me most about governments is not the promises they won’t keep, but the promises they will.

The resounding victory for the Liberal Party and Justin Trudeau means that the big worry for Canadians should be exactly this. Trudeau has promised rollback TFSA contributions, decreases in the planned rise of OAS, and add a new tax on people earning more than $200,000. Tax hikes haven’t been a popular part of political platforms over the past few decades, yet Trudeau’s platform was successful for precisely that, tackling perceived inequalities benefiting “millionaires” and a promised difference in governing style from the more insular and autocratic Harper.

While I may personally quibble over defining (and vilifying) “millionaires” as people earning more than $200,000, we must acknowledge that an upper tax rate of 33% on income over $200,000 isn’t so cumbersome that we should start panicking and freaking out. That is until you add in the provincial taxes.

Assuming that everything goes to plan, the top tax bracket in Ontario will be 54% sometime next year. That won’t even make Ontario unique. More than half of the provinces will have a top tax bracket in excess of 50%, with the highest being New Brunswick, clocking in at an impressive 59%. And what of the tax cut for earnings between $45,000 to $90,000? While it is estimated to put around $670 back into your pocket, it’s relief may be short lived in Ontario.

Hot on the heels of that cut will be the new ORPP, or Ontario Retirement Pension Plan, which will take about 1.9% of your salary by 2017, easily eating up whatever tax savings you were just given and then some.

ORPP Schedule

It’s easy to lose perspective on taxes and become an annoyance at family dinners, complaining about your money being stolen by evil government officials. But that shouldn’t mean that we aren’t vigilante about how much we pay in taxes either. On the docket across the country tax hikes are poised in every corner. In Alberta the NDP has raised taxes on corporations, even as the economy weakens. In Ontario the Liberals have decided to allow each municipality to set their own land transfer tax, representing a likely hike for many cities. And of course federally, the ending of income splitting, the rolling back of TFSA contribution room and the aforementioned new tax bracket all represent new costs for citizens.

I have an open dislike of Trudeau’s use of the term “millionaires” and “the wealthy” to talk about people earning $200k, it seems like a semantic trick. Few of us, after all, can muster the courage to defend an income that many will never see. But as unsympathetic as we may be to the “1%”, we should be mindful that taxes go up to cover costs, and if the economy slows or debt balloons, we may find that the “millionaires” encompasses an increasing number of us.

TFSAs Aren’t Just For The Rich

“Justin is in favour of making you pay more taxes! Vote Justin!” Okay, maybe it needs work…
We recognize that articles that involve politics can be pretty personal. The Walker Report is not endorsing or denouncing any politician or party, but merely commenting on current events.

On Tuesday the Conservative government effectively outlined their election campaign in their federal budget, and the most contentious issue (so far) has been the expansion of the annual TFSA contribution room from $5500 to $10,000. The TFSA is still a small part of the makeup of most Canadians savings, and yet the proposal of this program has already prompted Justin Trudeau to denounce it and promise to roll back the reform.

The growth of TFSAs definitely will hit tax revenues for the government. This year alone it is estimated to reduce revenue by $85 million, and in a few years that number will be over $350 million. By 2035 estimates put it will be close to $650 million in lost tax revenue. However we should be wary about attaching too much importance to long term estimates. Economic growth, population trends, even the price of oil will play a larger role in government revenues than the TFSA. We can barely get a fix on the price of oil over the next six months, so there is little use in getting worked-up over decade scaled predictions.

This leaves the other chief complaint about the TFSAs, that they only benefit the wealthy. There is some truth to this. The wealthiest Canadians are certainly in a better place to capitalize on multiple different forms of tax sheltering. But that is always the case. The wealthiest among us are able to capitalize on all things more effectively, from designer purses to sports cars. The question for average Canadians is can we also benefit from TFSAs?

Notably, this car will likely only benefit the wealthy.
Notably, this car will likely only benefit the wealthy.
I think the answer here is a resounding yes, and in some ways we may be able to capitalize on TFSAs more effectively. For young Canadians who still find their finances precarious it can be beneficial to place money somewhere to grow while still retaining access to it. For Canadians who receive an inheritance (a situation that will become increasingly common in the coming decades) such a sum might overwhelm available RRSP room. The TFSA will prove to be welcome relief for intergenerational wealth. For retirees who are forced to take more from their RRIFs than they would like or need, the TFSA is a suitable home to reinvest going forward.

Savings rate

But we should all keep in mind how often a dollar that is earned, invested and spent again will be taxed. Income taxes come off your earnings, capital gains and dividend taxes will be carved from your investments, and sales taxes will be collected when it is spent again. TFSAs promise to relieve only one part of this equation, we should welcome even this small relief. Canadians in particular have need of it. Our savings’ rate is pitifully small, and has been declining for decades. The number of Canadians without pensions and suitable retirement funds is alarmingly high, and we have no simple solution to fix any of it. Decreasing long term tax revenues in favour of creating better savings opportunities isn’t a crime, it’s a blessing, one that we can all benefit from.