The Conservative Party has cited a NAPO discussion paper in support of their GST tax cut proposal to make the case that their plan will help the poor. NAPO has received a number of enquiries about whether we endorse the Conservative GST tax cut proposal and is therefore issuing this clarification on where it stands on this issue.
1. The proposed Conservative GST tax cut is slightly more progressive than the Liberal income tax cuts, but neither will do much to help the poor.
The Conservatives selectively quote from a Discussion Paper on Federal Tax Relief for Low Income People prepared for NAPO by Andrew Mitchell and Richard Shillington in November of 2004. This paper shows that 70% of the Federal taxes low income people pay are consumption or sales taxes. Only 12% are income taxes.
Research done for NAPO suggests that a 1% reduction in the GST would cost the Federal government about $5 billion, and result in only about $143 per year in tax savings for low income families. Approximately 8.5% of the benefit would go to low income families.
Increasing the basic personal amount exempted from income taxes from $8,148 to $10,000, as the Liberals have proposed in their mini-budget, would cost the Federal government $6 billion and result in about $113 in tax savings but only 3.5% of the benefit would accrue to low income families. The Liberals have also proposed decreases in the income tax rate starting with reducing the lowest 16 per cent rate to 15 per cent immediately and further reductions to higher brackets in 2010. This would add about $100 in tax savings for low income individuals and cost about $3 billion in lost revenue for the Federal government in the first year. But when fully phased in, the cuts will give an individual with an income of $40,000 a tax break of only $270, while someone with an income of $150,000 will get a tax cut of over $2,000. A two-earner family with an income of $60,000 would get a tax cut of only $247, while a similar family with an income of $150,000 would receive over $1,000.
The NAPO paper the Conservatives cited is a discussion paper and not a policy paper. NAPO policy, as stated in its Submission to the Standing Committee on Finance presented in October 2005, is a call for fairer taxes. This includes an increase in the GST credit, (a measure that would target 19% of the benefit to low income families), imposition of a wealth transfer tax, raising the capital gains tax and restoring higher rates for high income earners.
2. Tax cuts are not the answer to reducing poverty
Poor families would save only a couple of hundred dollars, at the most, from either of the Conservative or Liberal tax cut proposals. This hardly makes any impact on the depth of poverty which is anywhere from $5000 to $9000 below the poverty line for an individual working full time at minimum wage, depending on the province. Nor would it be noticed by the family of four on social assistance in Ontario who falls $18,937 below the poverty line.
Past income tax cuts have provided disproportionate benefits to those with middle and upper incomes. Half the benefits over the last decade have gone to those 10% of families with incomes over $100,000. The Canadian tax system is no longer progressive. If all taxes, including provincial, and local property taxes are included, we have essentially a flat tax with all people paying a similar percentage of income in tax, regardless of income.
NAPO would welcome tax measures that would make the income tax system more progressive. And tax measures, especially tax benefits such as increasing the Child Tax Benefit, the GST credit or the Guaranteed Income Supplement which target benefits to those most in need, are an important part of a poverty reduction strategy.
But we need to make sure that there is sufficient tax revenue to fund badly needed investments in social programs such as social housing, childcare and increasing the Social Transfer. The personal and corporate tax cuts proposed by the Liberals and by the Conservatives (especially if their GST rate cut is in addition to what the Liberals have already proposed) add up to a lot of money, especially down the road. This could seriously undermine the government’s capacity to fund social programs, especially if there is an economic down-turn in the next five years.
3. We need a poverty reduction strategy
Despite a healthy economy, the number of people living in poverty in Canada has remained high and for some groups, such as recent immigrants and youth, has increased significantly. Economic growth and tax cuts have not solved this challenge. If any of the political parties wish to claim that they are serious about wanting to help the poor, they will need to spell out details of exactly what they would do to reduce poverty. Which party will support the development and implementation of a poverty reduction strategy for Canada? NAPO and those living in poverty who they represent are waiting for a response.