From the Fraser Institute

By Jake Fuss and Grady Munro

On Monday outside Rideau Cottage in Ottawa, after Prime Minister Justin Trudeau told Canadians he plans to resign, a reporter asked Trudeau to name his greatest accomplishments. In response, among other things, Trudeau said his government “reduced” taxes for the “middle class.” But this claim doesn’t withstand scrutiny.

After taking office in 2015, the Trudeau government reduced the second-lowest personal income tax rate from 22.0 per cent to 20.5 per cent—a change that was explicitly sold by Trudeau as a tax cut for the middle class. However, this change ultimately didn’t lower the amount of taxes paid by middle-class Canadians. Why?

Because the government simultaneously eliminated several tax credits—which are intended to reduce the amount of income taxes owed—including income splitting, the children’s fitness credit, children’s arts tax credit, and public transit tax credits. By eliminating these tax credits, the government helped simplify the tax system, which is a good thing, but it also raised the amount families pay in income taxes.

Consequently, most middle-income families now pay higher taxes. Specifically, a 2022 study published by the Fraser Institute found that nearly nine in 10 (86 per cent) middle-income families (earning household incomes between $84,625 and $118,007) experienced an increase in their federal personal income taxes as a result of the Trudeau government’s tax changes.

The study also found that other income groups experienced tax increases. Nearly three-quarters (73 per cent) of families with a household income between $54,495 and $84,624 paid higher taxes as a result of the tax changes. And across all income groups, 61 per cent of Canadian families faced higher personal income taxes than they did in 2015.

The Trudeau government also introduced a new top tax bracket on income over $200,000—which raised the top federal personal income tax rate from 29 per cent to 33 per cent—and other tax changes that increased the tax burden on Canadians including the recent capital gains tax hike. Prior to this hike, investors who sold capital assets (stocks, second homes, cottages, etc.) paid taxes on 50 per cent of the gain. Last year, the Trudeau government increased that share to 66.7 per cent for individual capital gains above $250,000 and all capital gains for corporations and trusts.

According to the Trudeau government, this change will only impact the “wealthiest” Canadians, but in fact it will impact many middle-class Canadians. For example, in 2018, half of all taxpayers who claimed more than $250,000 of capital gains in a year earned less than $117,592 in normal income. These include Canadians with modest annual incomes who own businesses, second homes or stocks, and who may choose to sell those assets once or infrequently in their lifetimes (when they retire, for example). These Canadians will feel the real-world effects of Trudeau’s capital gains tax hike.

While reflecting on his tenure, Prime Minister Trudeau said he was proud that his government reduced taxes for middle-class Canadians. In reality, taxes for middle-class families have increased since he took office. That’s a major part of his legacy as prime minister.

Jake Fuss

Director, Fiscal Studies, Fraser Institute

Grady Munro

Policy Analyst, Fraser Institute

From the Fraser Institute

By Ben Eisen and Jake Fuss

Over the next weeks and months, there will be much discussion about Justin Trudeau’s legacy as prime minister. To provide some context, it’s worth comparing Trudeau’s fiscal record with that of another long-serving Liberal prime minister—Jean Chrétien.

In the early 1990s Canada’s federal finances were in shambles. Thanks to years of large budget deficits (and high interest rates), debt interest payments were consuming one-third of all federal revenue and the country stood at the brink of a full-blown fiscal crisis. Paul Martin, Chrétien’s finance minister, recognized the gravity of the threat and famously promised to eliminate the deficit “come hell or high water.” And that’s exactly what the Chrétien government did, thanks primarily to reductions in federal spending.

How’d they do it?

The government launched a program review, which examined all dimensions of spending in search of savings. The review led to a substantial reduction in federal government employment, which shrunk by nearly 15 per cent. While there were many components to the federal reforms of the 1990s, this reduction in the size of the federal bureaucracy clearly helped Chrétien and Martin eliminate the federal deficit.

Fast-forward to the present day and Justin Trudeau, who does not share his Liberal predecessors’ commitment to balanced budgets. Federal government employment has increased rapidly in recent years, with the Trudeau government adding more bureaucrats (in absolute and percentage terms) than were reduced during the Chrétien/Martin reform era.

Specifically, from 2015/16 to 2022/23, federal government employment (as measured in fulltime equivalents) increased by 26.1 per cent. By comparison, the Canadian population increased by 9.1 per cent over the same period.

Just as the reduction in federal employment contributed to the deficit reduction in the 1990s, the growth in federal employment has helped fuel the Trudeau government’s unending string of budget deficits since 2015/16. Incidentally, if during its nine years in power the Trudeau government had simply held the rate of growth in federal employment to the rate of population growth, federal spending would be $7.5 billion lower than it is today.

According to the Trudeau government’s latest projections, the federal deficit will reach an eye-popping $48.3 billion this fiscal year. And thanks to years of record-high spending under Trudeau, total federal debt will eclipse $2.15 trillion. Consequently, the federal government will spend $53.7 billion this year on debt interest payments—or $1,301 per Canadian.

Canadian history is clear—it’s difficult to predict the policy orientation of any premier or prime minister based on their political stripe. Prime Ministers Chrétien and Trudeau prove this point. Chrétien reduced federal employment with an eye on eliminating the federal deficit. Trudeau reversed this legacy by rapidly growing the federal bureaucracy. This is one important reason for the divergent fiscal outcomes between the two governments.

Under Prime Minister Chrétien, Canadians saw a string of balanced budgets. Under Prime Minister Trudeau, an unending series of deficits and massive debt accumulation, which Canadians must pay for today and for many years to come.

Ben Eisen

Senior Fellow, Fraser Institute

Jake Fuss

Director, Fiscal Studies, Fraser Institute