Discours du sénateur Larry Smith au sujet du projet de loi C-2 /Senator Larry Smith's Speech on Bill C-2

October 6, 2016

Le prononcé fait foi  – Check against delivery

Bill C-2 – (Second Reading)

Projet de loi C-2 (Deuxième lecture)

Ottawa - 6 Octobre 2016

 

Honorable colleagues,

I began studying Bill C-2, an act to amend the Income Tax Act, when it was introduced in the House of Commons on December 9th of 2015, following the General Election of October 19th, 2015.

Le projet de loi donne suite à une promesse électorale faite par le Premier ministre l’automne dernier, et à un engagement souligné dans le tout dernier budget fédéral, et je cite :

« Je demanderai aux Canadiens les plus riches de donner un peu plus pour renforcer la classe moyenne au Canada. » Fin de la citation.

 

For clarity and I quote: “I will be asking wealthy Canadians to pay a little more in order to give more to growing a healthier middle class in Canada”.

Lorsque j’ai entendu cette déclaration, j’ai trouvé que c’était une bonne idée.

 

But when I took the time to read this bill, well, I started to have second thoughts as to whether C-2 would achieve this.

 

You’ll have to forgive me, but I fail to understand how anyone can make the middle class any healthier by giving someone earning $180,000 a tax cut of $820.

 

Perhaps it’s me, but I just can’t see how a tax measure designed to shuffle less than a thousand dollars from someone making $220,000 a year, to someone making $180,000 a year – can grow anything but more red tape and bureaucracy with little to no real benefit to grow the economy.

 

Especially when the Parliamentary Budget Officer calculates Bill C-2 will create a shortfall of $8.9 billion dollars over the next 4 years.

 

Worse - after taking the time to crunch the numbers – if C-2 were to pass, the real winners will be those making between $150,000 and $200,000 a year like MPs and Senators and not

Canadians one would think need the help the most.

 

Beaucoup d’entre vous savez que mon expérience est en affaires, et en tant qu’homme d’affaires, j’essaie toujours de garder les choses simples.

 

Je crois que si l’objectif du gouvernement est de renforcer la classe moyenne au Canada, deux choses doivent se produire :

 

  • 1 : Il faut aider ces Canadiens travaillants qui aspirent à faire partie de la classe moyenne.

  • 2 : Il faut aider ces Canadiens travaillants qui font partie de la classe moyenne à y demeurer, à mesure que progresse leur carrière.

 

Honourable Senators – this is not rocket science.

 

The question is:

does this legislation help build the middle class, does it meet its intended goal?

 

Unfortunately Bill C-2 as written does not fulfill the intended goal.

 

Honourable colleagues, it is our role to analyze legislation to be sure it benefits Canadians; most citizens don’t bother with the details in legislation. They trust parliamentarians to get it right. Partisan politics caused Bill C-2 to pass through the House of Commons with votes of 167 yeas vs 122 against. As Senators, we have a duty to review legislation openly and independently.

Three Major Concerns of Bill C-2

There are three major components to Bill C-2, that I believe fail to meet this test:

 

First, the bill does not take money from the wealthiest to give to the middle class, it takes a small portion from the wealthy and gives it back to the wealthiest 35% of the population and is not revenue neutral – and I’ll speak to that in more detail shortly.

 

Second, reducing the TFSA contribution limit from $10,000 to $5,500 just makes no sense. The fact is (according to CRA 2014 data), over 15.1 million Tax Free Savings Accounts are open; almost half of these accounts are held by citizens with income below $45,000 (7.3 million accounts in 2014 CRA).

 

  • 1 million Seniors with incomes under $45,000 are holders of these accounts (2013 data).

 

  • another 4.4 million Canadians under the age of 65 with incomes less than $45,000 have accounts, believe in the TFSAs and want more access to them, not less. (2013 data).

I believe the majority of you in this chamber today know this to be true and are willing to work with me to ensure this legislation gets thorough review.

 

Third, adjusting the tax for split-incomes and trusts, to the “highest individual percentage,” just doesn’t make economic sense given the state of the economy.

 

With the resource sector in the doldrums, MPs and Senators need to do everything we can to give risk-takers and innovators a break – tightening up access to cash is a step in the wrong direction.

Let’s have a closer look at what the government is proposing in terms of changes to the lower income tax brackets – and why the proposal in C-2 just doesn’t make sense.

 

When we look at the five income groups identified in the proposed legislation:

  1. Up to $45,000 15%

  2. $45,000 to $90,000 20.5%

  3. $90,000 to $140,000 26%

  4. $140,000 to $200,000 29% and

  5. Over $200,000 33%

 

The Finance Minister is trying hard to get us to believe those middle income Canadians in the second tax bracket - making between $45,000 and $90,000 - are about to receive a 7% tax cut.

 

The facts are as follows:

those making between $45,000 and $60,000 — the group barely holding on to middle income status, will only get a net 2.6% reduction in tax - again, well off the 7% claim.

 

The best any Canadian tax payer can expect from the C-2 proposal is 4.2% and that’s only if you are making $89,000.

All those below $44,000 see no benefit,

and groups from $89,000 down to $44,000 will see a declining benefit.

The group between 90,000 and 200,000 will have the greatest dollar figure tax reductions while those above 200,000 will see a declining benefit up to 220,500 at which point they will only begin to pay more taxes than the previous year.

So what all this tells me - in very simplistic terms:

  • To grow a healthier middle class in Canada, the government’s legislation, C-2 aims to give those individual Canadians trying their hardest to stay in the middle class – those earning around $60,000 – an annual tax break of $260 a year: effectively the cost of one week’s worth of groceries.

 

Again –because we have a progressive tax system, only those above the second tax bracket get the full benefit of the reduction as I referenced in my introduction.

 

– the government wants to give $820.00 to someone earning $180,000 a year from someone making over $220,000 a year.

Let’s be clear – all Canadians with incomes below $45,000 will see no benefit.

I am not sure how much sense that makes?

 

Making Sense of the Confusion

Of course – who can blame Canadians for being confused?

Although many of us like to identify ourselves as middle class – even those of us in this Chamber – the reality is, the median  individual income in Canada is only $32,020 (according to Stats Can. 2013). In other words 50% of Canadians earn less than $32,020 annually and 50% earn more than that.

 

This is why the Parliamentary Budget Officer reported that 65% of Canadians will see no benefit from C-2. (The Fiscal and Distributional Impact of Changes to the Federal Personal Income Tax Regime January 21, 2016).

 

Yet, as C-2 will not be revenue neutral as promised, that same poorer 65% will bear equally the burden of giving back money to people who earn more than them.

 

  • 65% of the poorest Canadian population sees no benefit.

  • 100% of Canadians will carry the $1.8 billion deficit cost of C-2 annually as estimated by the PBO.

 

Honourable Senators, the devil is in the details… and having the capacity to take the time to understand them.

 

The government says the tax measure they outline in C-2 will put more money in the pockets of Canadians “to save, invest, and to grow the economy″.

 

 

Yet, C-2 reduces a savings and investment vehicle, the TFSA, and the biggest beneficiaries resulting from change in the second tax bracket, as outlined in C-2, will be upper income earners between $90,000 to $200,000. A tax measure that will not benefit 65% of the population and will pressure the highest earners while costing all Canadians $ 8.9 billion over the next 4 years.  (Not every Canadian has a family/Canada Child Benefit)

 

This begs the question: Who’s going to pay for all these unnecessary changes?

 

The government wants those Canadians who’ve worked hard their entire careers and are now lucky enough to earn in excess of $220,000 a year, to pay a new 33% levy in an attempt to cover some of the costs – knowing full well this measure will never be revenue neutral.

 

Again, on the face of it – it makes sense – rob Peter to pay Paul. I get it because it’s simple.

The problem is, C-2 doesn’t achieve its objective.

 

Honourable Senators, I would encourage you to read Bill C-2, I believe this legislation requires a serious sober second thought and I encourage you to work with me to give C-2 the scrutiny required.

 

As my last thought, let me ask you a serious question:

 

Do you think that when Canadians went to the polls a year ago, they would have agreed to spend $ 1.8 billion per year to give a tax break to the wealthiest 35% of the population?

 

Thank you.

 

 

Note:  Another figure from the PBO report - in 2016 they estimate 17.9 million Canadians will be in the first bracket.

 

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