Liberal government passes 'middle-class' tax cut

The paycheques of nearly a third of Canadian workers will look a little different in the New Year.

The House of Commons made official today the government's "middle-class tax cut" andcorresponding tax-hike for the "oneper cent."Both will kick in on Jan. 1

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Withthe passing of themotion called a ways and means motion the tax rate for the second income bracket will drop to 20.5 per cent from 22 per cent in 2016.

That bracket will catch all income between$45,282 and $90,563. The savings translates to a maximum of $680 for those with income at the top of the range and beyond.

The changes also create a new bracket for income above $200,000 with a rate of 33 per cent. The previous toprate of 29 per cent will still apply to all income between $140,388 and $200,000 in 2016.

NDP Leader Tom Mulcairpointedout those making just shy $200,000 a year said by the Liberals to constitute top"one per cent" of income earners will be among those who benefit most from the changes being made.

"What they are doing is giving a tax-break to people who earn 200,000 bucks a year and leaving out a family with two kids earning 45 grand a year," Mulcair said during question period Wednesday. "They are the middle class, they are the ones who should have gotten help. The rest is a chimera."

Nonetheless, NDP MPs voted in favour of the motion because they support raising taxes on high-income earners.

The motion passed by a vote of 230 to 95.

How does the 'middle class' tax cut work?

9 years ago

Duration 1:04

James Fitz-Morris explains who will benefit - and who won't - from the tax changes Finance Minister Bill Morneau outlined this week

Conservative MPs voted against the motion, which also drops next year's planned increase to contribution limits for tax free savings accounts. Former prime minister Stephen Harper was in the House for the vote.

The previous Conservative government had changed the law to boost cumulativeannual contribution limits toTFSAs by $10,000 per year effective in 2015. As they promised, the Liberals havedropped next year's increase back to $5,500.

The Conservatives say the move will deny seniors an important tool to protect their savings.

Finance Minister Bill Morneau points out that only 6.7 per cent of TFSAsholders hit their contribution limits. "Thatmeans 93.3 per cent were unable to use the [existing]maximum," he said in defending his government's position.

What about the $10B promise?

On Monday, the government concededthe trio of measures it is now passing will not be "revenue neutral," as was promised during the campaign, but would cost government coffers about $1.2-billion.

That has raised the question as to whether the government can keep other election promises made while running for election. Prime Minister Justin Trudeaureiterated some of those when speaking with reporters after his tax measures passed the vote.

"We made two clear commitmentsin the fiscal framework when looking forward during the election campaign," he said, referring to the promise of reducing the federal debt-to-GDP ratio in each year of the government's mandate and bringing the budget back to balance before the next election.

But Trudeau did not mention the third clear promise in that vein that no annual deficit would exceed $10-billion, despite being pressed repeatedly by reporters to address that campaign promise directly.

It's a target that seems increasingly out of reach, as Trudeau and Morneau both repeated the government's financial position is "not what (they) expected" before taking power.

MPs on tax changes

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Duration 8:58

Does the middle-class tax cut target the 'right' Canadians? MPs weigh in.