A new middle-class tax cut just came into effect that the Canadian government says can save dual-income families up to $840 per year, but two experts say it might not be enough relief.
On Monday, the federal government announced that the tax cuts are now in effect across Canada, while Prime Minister Mark Carney reinforced the news in an X post during Canada Day.
The initiative was first proposed in May, when the newly-elected government tabled a motion with measures to bring down living costs for Canadians, including the tax cuts.
According to the government, the levy hopes to benefit almost 22 million Canadians by reducing the lowest marginal income tax rates from 15 per cent to 14 per cent.
The reduction applies to the first $57,375 of taxpayers’ taxable income, regardless of how much they earn, providing the most relief to those in the two lowest tax brackets, who earn less than $114,750 per year.
The tax cut aims to save more than $27 billion for Canadians over five years, saving a two-income family up to $840 a year or $70 a month.
Canadians are now reacting to the new tax levy, with many claiming that the cut won’t make much of a difference to low-income families.
“Yes🥂 0.76 cents per day per person can’t even get a coffee at a cheap restaurant,” one X user said.
“The whole 76 cents a day will not be [of] any help whatsoever to those struggling to pay rent, mortgages and food. Let alone pay for utilities or transportation to get to work,” another user chimed in.
“This is a good start but the problem is it isn’t enough, it needs to be higher because this won’t help struggling Canadians that much,” a different user added.
Meanwhile, other users say that they appreciate the cut.
“Much needed relief for hardworking Canadians, every dollar counts, especially right now,” one user said.
“Good news, we all understand that little by little can add up to a lot,” a different user commented.
“I’m not sure why people always look for the negatives in things that are good for all,” another user added.
EXPERTS SAY TAX CUT WON’T MAKE MUCH DIFFERENCE
Meanwhile, Canadian Centre for Economic Analysis (Cancea) President and CEO Dr. Paul Smetanin says that while the tax cut is a good idea, it is in fact not enough to provide significant relief for low-income Canadians on its own.
According to the economist, given today’s high living costs and the high rate of Canadian income taxes, only $840 a year wouldn’t make much difference.
“We do pay quite a lot of tax in this country. And part of the problem with paying a lot of tax is that [it’s] okay as long as it’s been spent and invested appropriately… So, any reduction in the tax rates, we would definitely endorse,” he said. “Is it going to change people’s lives? Probably not.”
Smetanin explains that because many low-income Canadians are now struggling to meet basic living expenses, he believes that the money will also not be enough to increase Canadians’ savings.
“Most people within those tax brackets, that first tax bracket, they do struggle to have an affordable living. So, my suspicion is that it would probably be spent because a lot of people in that tax bracket [are] already spending all of their income,” he added.
Similarly, Associate Professor at TMU’s Ted Rogers School of Management Alison Kemper, who specializes in financing and society, says that a lot more is needed from the government to tackle the affordability crisis.
According to her, most living costs that come from housing and food result from the government’s inability to control prices and market competition.
“The problems with affordability cannot easily be solved with tax cuts. The reasons that people can’t afford to pay for housing have to do with the fact that for nearly 40 years, the provincial and federal governments have not built non-market housing like we used to have,” she said.
“We have very few people competing to sell us groceries. And then what they figured out during the…pandemic is that they can charge us whatever they want, and we still paid for it.”
The professor says that to make a real difference, the government needs to focus on investing in agriculture and affordable housing, instead of trying to alleviate the issue with tax cuts, which she believes isn’t enough to impact Canadians’ pockets.
Nevertheless, Smetanin hopes that the initiative might encourage other levels of government to propose their own tax reliefs.
As explained by him, since Canadians pay both federal and provincial income taxes, a relief that tackles both taxes could make a difference in taxpayers’ pockets.
And Carney’s initiative might just be the push for more tax revisions, as governments become more sensitive to Canadians’ issues with affordability amidst the trade war with the U.S.
“You might also want to think of it as a signal to the provinces to possibly think about their own tax rates… It’s a direction that all governments will follow into the future, and the hope is to also work on the other side of how our tax dollars [are] being spent and invested,” he said.
