Replacing the Universal Child Care Benefit (UCCB), Canada Child Tax Benefit (CCTB), and National Child Benefit Supplement (NCBS) expenditures – Canada Child Benefit
The Canada Child Benefit (CCB) is projected to have a net new cost of $1.8 billion in 2016/17, rising to $2.0 billion in 2019/20. This reflects a CCB that invests $21.7 billion in 2016/17, the savings from cancelling income splitting ($2.0 billion), and replacing the CCTB, NCBS, and UCCB ($17.9 billion).
CCB cost projections are based on the number of children under 18 by family income (CANSIM Table 111-0013, Table 111-0022) applied against the CCB’s new benefit levels. Cost projections were compared and confirmed with Statistics Canada’s Social Policy Simulation Database and Model (SPSD/M).
To project future years, the average growth rate for child benefits in recent years was used, based on historical data from Canada Revenue Agency (CRA) and the Public Accounts.
After the announcement of the Liberal CCB, the Conservatives falsely claimed that Liberals had not accounted for federal revenue from the taxable UCCB. This was proven false. As part of that claim, the Conservatives released previously unavailable and more detailed Department of Finance data on CCTB/NCBS cost projections, which showed a reduction in the costs of child benefits in 2014/15.
If there are lower child benefit costs, then the cost of both existing benefits and the new CCB will be reduced. In fact, using those revised projected child population growth rates would reduce the net cost of the CCB below the $1.8 billion that we have estimated. We will, therefore, continue to use our higher starting projections to ensure the most prudent figure possible.
Tax increase on the top one percent
Our projection is based on a Library of Parliament analysis which determined that a new tax bracket of 33 percent on individual incomes in excess of $200,000 would have increased revenue in 2014 by $3.24 billion. With inflation, that estimate increases to approximately $3.4 billion by 2016/17. High earners may attempt to use tax planning strategies to avoid higher taxes. We will increase enforcement resources for the CRA to ensure tax liabilities are collected. However, we have also included a prudence factor of $600 million in our estimates. We project revenue of $2.8 billion in 2016/17, rising to $3.0 billion in 2019/20.
Tax expenditure and Harper spending review
The government of Canada’s budget is approximately $300 billion per year, totalling over $400 billion per year when tax expenditures are accounted for. It is important that the federal government is persistently committed to ensuring federal expenditures are fair for Canadians, efficient, and fiscally responsible. In 2005, then-Prime Minister Paul Martin tasked National Revenue Minister John McCallum with a government-wide expenditure review, which resulted in $3 billion in booked annual savings within four years. We will meet this same target within four years, which in 2019/20 would represent significantly less than one percent of total federal fiscal and tax expenditure spending. Today’s challenges are different than those in 2005, and our priorities reflect the changes that are needed after ten years of Harper’s Conservative government. These include:
- Significantly reducing the advertising budget of the government of Canada, and ending the use of government advertising for partisan activities.
- Conducting an overdue and wide-ranging review of the over $100 billion in increasingly complex tax expenditures that now exist, with the core objective being to look for opportunities to reduce tax benefits that unfairly help those with individual incomes in excess of $200,000 per year. For example, a recent Parliamentary Budget Officer analysis of tax expenditure changes from 2005 to 2013 demonstrates that multiple new measures introduced by Stephen Harper provided new benefits to tax filers in the 96th to 100th percentiles.
- A starting point would be to set a cap on how much can be claimed through the stock option deduction. The Department of Finance estimates that 8,000 very high-income Canadians deduct an average of $400,000 from their taxable incomes via stock options. This represents three quarters of the fiscal impact of this deduction, which in total cost $750 million in 2014. Stock options are a useful compensation tool for start-up companies, and we would ensure that employees with up to $100,000 in annual stock option gains will be unaffected by any new cap.
- Directing CRA to immediately begin an analysis and stronger enforcement of tax evasion, or what the OECD calls the “tax gap.” According to a 2013 analysis by the Parliamentary Budget Officer, the size of the gap totals nearly 7 percent of total tax liability in the United Kingdom and 14.5 percent in the United States. Harper’s Conservative government refused to provide the PBO with the data that is needed to undertake a similar analysis for Canada
- As we reduce the small business tax rate to 9 percent from 11 percent, we will ensure that Canadian-Controlled Private Corporation (CCPC) status is not used to reduce personal income tax obligations for high-income earners rather than supporting small businesses. Michael Wolfson from the University of Ottawa estimates that approximately $500 million per year is lost, particularly as high-income individuals use CCPC status as an income splitting tool.
- Reducing the use of external consultants, bringing expenditures closer to 2005/06 levels. Here are a few examples of how this spending item has increased under Harper:
- Employment and Social Development Canada (formerly Human Resources and Skills Development Canada) has increased its spending on external “Business Services” by61 percent since 2006/07, equivalent to 7 percent compound annual growth – a total increase of $140 million per year.
- Public Works and Government Services Canada has increased its spending on external “Business Services” by 150 percent since 2006/07, equivalent to 14 percent compound annual growth – a total increase of $188 million per year.
- Public Works and Government Services Canada has increased its spending on external “Other” professional services by 212 percent since 2006/07, equivalent to 18 percent compound annual growth – a total increase of $332 million per year.
Phasing out fossil fuel subsidies
We will fulfill Canada’s G-20 commitment to phase out subsidies for the fossil fuel industry. In 2014, the Pembina Institute estimated that more than $1 billion in fossil fuel subsidies still existed in our current tax framework. We will direct the Department of Finance to conduct a detailed analysis of fossil fuel subsidies. A target of $250 million in reduced fossil fuel subsidies is our starting point, and a first step will be to allow for the use of the Canadian Exploration Expenses tax deduction only in cases of unsuccessful exploration.