Canadians Need Tax Relief, Say Pundits as Poilievre Highlights Marginal Effective Tax Rate

The Canada Revenue Agency headquarters in Ottawa in a file photo. (The Canadian Press/Sean Kilpatrick)

Conservative leadership contender Pierre Poilievre maintains high taxes paid by Canadians are discouraging employment, something economists say is a real problem.

In a YouTube video called “Make work pay,” Poilievre draws attention to the marginal effective tax rate (METR), which measures what someone pays the government on every new dollar earned. The government charges workers in two ways, he explained—through taxes, such as income taxes and gas taxes, and through clawbacks of income-tested government programs, such as Old Age Security and Guaranteed Income Supplement benefits for working seniors.

Poilievre promises to cut payroll taxes and income taxes, cap government spending, create a task force to simplify the tax code, and work with provincial governments to reform “intertwined and convoluted” welfare programs.

Jack Mintz, president’s fellow at the University of Calgary’s School of Public Policy, finds the approach “sensible.”

“Poilievre is absolutely right," Mintz told The Epoch Times by email.

“Governments have known this for years but failed to act and even added on new clawbacks making METRs higher. This can discourage saving for retirement and willingness to work. The last time it was addressed was part of welfare reform pushed by Paul Martin in 1997. It required coordination with the provinces.”

Poilievre’s video has garnered more than 150,000 views since being posted Aug. 19. Franco Terrazzano, federal director for the Canadian Taxpayers Federation, said tax reform and relief are much needed.

“We need some tax relief in Canada. We need lower, flatter, and simpler taxes. There’s far too many Canadians who are working hard and not able to keep enough of their money,” Terrazzano said in an interview.

‘More Spending, More Debt, Higher Taxes’

A federal Department of Finance study released in March 2022 analyzed METRs based on data from 2017. It found that those making $24,739 to $33,724 per year faced the highest average METR, of 41.3 percent—the highest of any income group. The METR gradually fell to 35.6 percent for those earning between $60,904 and $72,547, and then progressively rose to 40.3 percent for those making $114,570 or more.

Such rates might be even higher today. The Liberal government has increased Canada Pension Plan payroll taxes since then, with a plan of gradually raising it from 9.9 percent of wages in 2019 to 11.9 percent in 2023, with the employee and employer each paying half. A federal carbon tax of $20 per tonne was introduced in 2019, rose gradually to $50 in 2022, and will be $170 by 2030.

Terrazzano says the timing is terrible.

“It should have been a no-brainer that, at the very least, the government doesn’t raise taxes during the middle of lockdowns, a pandemic, and sky-high inflation,” he said.

“All we hear from this government is more spending, more debt, and higher taxes. And it’s time that we hear politicians come up to the plate with ways to actually make life more affordable.”

In his video, Poilievre said a single mom with three kids making $55,000 had a METR of 80 percent, taking most of a $25 hourly wage.

“Nobody can work for that. It’s not even minimum wage. She’s earning effectively $5 an hour in Canada. That is crazy. And it’s even worse for many people on disability assistance or on welfare,” he said.

“No wonder we have one million job vacancies in Canada.”

Complex Issue, ‘Inherent Trade-Offs’

In 2018, Poilievre introduced private member’s Bill C-395, the Opportunity for Workers with Disabilities Act. The bill, which was defeated at second reading, said workers with disabilities must always be allowed to earn more in wages than they lose in clawbacks and taxes.

In an interview, UBC economics professor Kevin Milligan said Poilievre had some email and phone exchanges with him prior to the bill’s introduction. He said this tax issue “matters a lot” but will be a challenge to fix.

“He’s identified a real issue out there,” Milligan said. “People who are struggling to enter the labour market, people on social assistance, they do face real issues of losing benefits, losing dental, there’s other things, should they find a job.”

However, he said there may not be a “ready-made solution” by looking at federal taxes alone, noting that “the federal government has a role there, but a lot of the policy levers are in provincial capitals.”

Milligan says tax reform can be back on the table now as the government ran a $10.2 billion surplus for the first quarter of the current fiscal year, from April through June. He believes incremental reform is preferable to “big bang” changes, partly because the worst METR comes in tricky circumstances.

“It really does depend on the person’s circumstances—married or not, working or not, number of kids you have. Some of the higher rates you see are among some seniors with lower income and also people who are on social assistance,” he said.

Bev Dahlby, distinguished fellow at the University of Calgary’s School of Public Policy, says some research suggests a lower METR on higher incomes is more important to maximize economic growth and government revenues. This means tax efficiency and fairness are opposed, and other considerations complicate the matter.

“This is not a new issue because this is an inherent problem, and we can’t sprinkle magic pixie dust over inherent trade-offs,” Dahlby told The Epoch Times.

“Do you really want a single mother with two kids, with young children, to have lower benefits but more incentive to work? Is that really good for that household?”