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Third reading of Bill C-2, An Act to amend the Income Tax Act

Third reading of Bill C-2, An Act to amend the Income Tax Act

Third reading of Bill C-2, An Act to amend the Income Tax Act

Third reading of Bill C-2, An Act to amend the Income Tax Act


Published on 5 December 2016
Hansard and Statements by Senator Joseph Day

Hon. Joseph A. Day (Leader of the Senate Liberals):

Thank you, Your Honour.

Honourable senators, the Government Representative in the Senate very kindly stepped in to move third reading of this bill last Wednesday while I was chairing the Standing Senate Committee on Banking, Trade and Commerce on another government matter.

Some of what I have to say, therefore, may repeat some of what honourable colleagues have already heard from the Legislative Deputy to the Government Representative in the Senate, namely the deputy leader, who spoke on third reading last Wednesday, but I hope that you will not mind as I give you my own views on this bill as the sponsor.

I want to begin by expressing my appreciation to Senator Smith, the Chair of the Standing Senate Committee on National Finance, and Senator Cools, the deputy chair, and the other members of our National Finance Committee for their work with respect to this bill.

The committee examined this bill over six meetings. They heard a range of considered opinions: that the bill goes too far in certain respects; that it doesn’t go far enough in exactly the same respects. And the Minister of Finance said it strikes just the right balance, as you might expect.

There was vigorous debate, particularly during clause-by-clause consideration when, as colleagues know, Senator Smith proposed an amendment to the bill. That amendment, it turned out, would have increased the taxes to be paid by certain Canadians, something that of course we cannot do here in the Senate. So our Speaker, using the term for this type of process, evacuated the committee report, and the bill was, therefore, deemed reported here without amendment.

I will take a few minutes to describe the bill that we’re now dealing with at third reading.

Bill C-2 makes three fundamental changes to the Income Tax Act.

First, the bill enacts in the Income Tax Act what has been called “the middle class tax cut.” That reduces the federal personal income tax rate from 22 per cent to 20.5 per cent for individuals with taxable income of $45,000 to $90,000. Those are approximate figures.

The second change would create a new tax bracket in the Income Tax Act for taxable income above $200,000. That income would be taxed at a new rate of 33 per cent.

Both those changes were major planks in the Liberal party platform in the last federal election.

The third major change contained in Bill C-2 concerns Tax-Free Savings Accounts, or TFSAs, as they are commonly referred to. Colleagues will recall that the previous government had increased the maximum annual contribution limit for these Tax-Free Savings Accounts, doubling it from $5,000 to $10,000 per year, at the same time that it did away with the annual indexation of the contribution limit to account for inflation. When that change was announced by the previous government, the current Prime Minister, Justin Trudeau, announced that a Liberal government would reverse that increase.

Bill C-2 makes good on that promise and returns the annual maximum contribution limit to the previous limit of $5,000 while also returning indexation for inflation, which means a limit of $5,500, which will increase in line with inflation in years to come. We heard evidence at committee that the projected next increase to $6,000 is likely to occur in 2018.

Following traditional practice in financial budgetary matters, these three changes took effect January 1, 2016, shortly after they were announced. That means that Canadian taxpayers will have had the advantage of these initiatives for nearly one year now.

Colleagues, many of us who participated in the work of the committee on this bill were disappointed to learn that 65 per cent of Canadians would not benefit from the tax reduction in Bill C-2, and furthermore that most of the benefits would be concentrated in the top 20 per cent of Canadians, leaving the bottom 80 per cent with very little change in their after-tax income.

Part of the reason for this is that the median income in Canada, honourable senators, is just over $30,000. This means that half of Canadians have annual incomes below $30,000. In fact, 35 per cent of Canadians don’t pay any tax at all; their incomes are too low. Another 31 per cent pay taxes but have taxable income below the $45,000 threshold for that bracket of $45,000 to $90,000 that we’re referring to, that has the reduced rate from 22 to 20.5 per cent. They do not benefit at all from these tax savings because their income is too low.

As witnesses told our committee, most of the gains from the new tax rate accrue to the top 20 per cent of Canadian families, that is, families that make over $97,000 a year.

I believe that this is part of what motivated Senator Smith to propose his amendment. His amendment also proposed to increase revenue to make the changes revenue neutral.

But, honourable senators, the Liberal Party didn’t promise the broader tax reduction for all taxpayers, as much as many of us would like to have seen. They promised to do exactly what is set out in Bill C-2.

Let me read to you from the election platform of the Liberal Party of Canada. It said:

We will cut the middle income tax bracket to 20.5 percent from 22 percent — a seven percent reduction. Canadians with taxable annual income between $44,700 and $89,401 will see their income tax rate fall.

We often round that off to $45,000 to $90,000.

Those people will see their income tax rate fall. Honourable senators, that is what the government felt it could do at this time, taking into consideration all of the other government initiatives, including a major change relating to the Canada Child Benefit.

Colleagues, that was a very clear, unequivocal promise. The bill before us is numbered Bill C-2 because it was the first substantive bill introduced by the newly elected government, introduced specifically to implement this central promise in the Liberal platform.

As senators, we have to respect the policy decisions of the elected branch of government, especially so when that policy alternative had been put to the people of Canada in a general election and approved by Canadians. It is not for us to say that we have a better plan. This is the plan promised by the Liberal Party, approved by Canadians in the general election and waiting to be passed into law by Bill C-2. That is what is before us today.

Indeed, one might suggest that if the Liberal government had done anything else, including the arguably more progressive tax changes proposed by Senator Smith, that many Canadians, including some in this chamber, might have felt betrayed, arguing that a major promise had been broken by the government.

As Sir John A. Macdonald said in his famous quote that has been so often referenced in this chamber. The Senate:

. . . must be an independent House, having a free action of its own, for it is only valuable as being a regulating body, calmly considering the legislation initiated by the popular branch, and preventing any hasty or ill considered legislation which may come from that body —

This is the part of that quote I would like to emphasize.

— but it will never set itself in opposition against the deliberate and understood wishes of the people.

Let me repeat that:

. . . it will never set itself in opposition against the deliberate and understood wishes of the people.

If we ever needed an example of what that particular quote meant, Bill C-2 is a perfect example.

Honourable senators, the second change in Bill C-2, the new tax bracket of taxable income over $200,000 a year with a new tax rate of 33 per cent for income in that top bracket, that too fits into that definition of what Sir John A. Macdonald said, “never set itself in opposition against the deliberate and understood wishes of the people.”

The Liberal platform with respect to this particular matter says:

To pay for this tax cut —

The middle class tax cut, that is.

— we will ask the wealthiest one per cent of Canadians to give a little more. We will introduce a new tax bracket of 33 per cent for individuals earning more than $200,000 each year.

With respect to the Tax-Free Savings Account, which is the third element in this bill that I mentioned at the beginning, it was also another clear election promise. In fact, very few Canadians, only 6.7 per cent, were investing the maximum in the Tax-Free Savings Account when that maximum was $5,500. The average contribution, the committee was informed, was $2,880 a year, and that was before the change to $10,000. So doubling the maximum annual contribution limit to $10,000 was a benefit that would have gone to a very small group of Canadians.

A number of senators were concerned that this change would have a particular impact on senior citizens. The argument is that quite a few seniors who have accumulated considerable wealth in their RRSP encountered the mandatory withdrawal from the RRIF, and you convert an RRSP to a Registered Retirement Income Fund, so that they take the money out of their RRIF and put it into the Tax-Free Savings Account. That was the argument being made.

Many people have assumed that seniors want the higher Tax- Free Savings Account contribution level to be able to move from a RRIF to a Tax-Free Savings Account. But, colleagues, we heard from Wanda Morris of the Canadian Association of Retired Persons. Her organization, which represents some 300,000 individuals across the country, conducted a recent poll of their membership to dig down into what tax options their members actually want. They learned that in fact increasing the contribution level for the Tax-Free Savings Account is not the first priority of most seniors.

The most important issue for their members is to remove the mandatory withdrawal of the RRIF, or the Registered Retirement Income Fund. They wanted the mandatory percentage withdrawal each year reduced. Almost half their members listed that as their first or second choice of policy priority for a tax option.

As Ms. Morris explained, the second policy matter, with 43 per cent of CARP members ranking it either as first or second, was to follow through with the government’s promise of a special index for seniors in Old Age Security and Guaranteed Income Supplement. They wanted a special index for those two items for seniors in order to keep up with inflation.

This illustrates how various fiscal initiatives are inter-related, but we don’t have all programs before us for consideration when we consider Bill C-2. That’s the important point, honourable senators. There are many other things that we might want to look at, and maybe we should look at, but we’re dealing with some very narrow issues in Bill C-2.

The previous higher limit for the Tax-Free Savings Account was quite far back on the list of priorities for seniors; that is, leaving the Tax-Free Savings Account at $10,000 as opposed to the current government changing it back to $5,500. It was tied for third place, with only 38 per cent of members choosing it. That is the same number who chose returning the age to qualify for Old Age Security to 65 rather than staying at age 67, which had been planned by the previous government.

Those of us who were concerned about the possible impact of this policy change on seniors can take some comfort from this, reassurance from seniors themselves that they have more concern about items other than these particular changes to the TFSAs.

Colleagues, Bill C-2 is a short, straightforward bill that would fulfill and enshrine in the Income Tax Act three important promises made during the last election. This is something I think everyone in this chamber supports, that this government keep its promises to Canadians.

Before I conclude, I want to highlight an issue that I know is of concern to a number of us, which has not yet been addressed by the government, and that is the extreme complexity of the Income Tax Act. Several witnesses who appeared before our National Finance Committee on Bill C-2 highlighted this as an increasingly critical issue.

Aaron Wudrick of the Canadian Taxpayers Federation told us that his organization tracks the size of the Income Tax Act, and it is now over a million words, twice as long, honourable colleagues, as Tolstoy’s epic War and Peace.

There has not been a thorough review of the Income Tax Act since the Royal Commission on Taxation, the well-known Carter commission in 1966. Honourable senators, that is 50 years ago. Think of the transformations that have taken place in the past 50 years here in Canada and around the world.

Colleagues, I asked the Minister of Finance about the need to simplify our tax system. He assured me that he shares this concern, and it is indeed something to which the government is committed.

Honourable senators, therefore, I support Bill C-2, and perhaps even more. I support the principle that the government should keep its election promises, and they are doing so here. That is what Bill C-2 would do.

I respectfully request honourable senators to support this bill, as I shall be doing.

 

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