Liberal tax changes to drain about $100M more per year than expected: watchdog

The federal budget watchdog says the Liberals'tax-bracket changes will drain about $100 million more per year fromthe public treasury than the government expects.

Since winning the election, the Liberals fulfilled their campaignvow to cut federal income taxes for middle-income earners by raising the rate on the highest-earning Canadians.

The Liberals had initially projected the adjustments whichinclude the creation of a new, upper bracket to be revenue-neutral. But last month they acknowledged the plan will actually lower government revenues by more than $8.2 billion over six years.

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The parliamentary budget office now says that figure will be $8.9billion.

The budget office's calculations, like those of the government,made assumptions on how people at different income levels might respond to the tax changes.

The report releasedThursdaysays some people may adjust how muchthey spend, while those in the highest bracket may take steps to lower their tax payments.

"Between 2015-16 and 2020-21, the revenue gains from the new taxrate would fall short of covering the loss in revenues from reducing the rate on the second tax bracket by an estimated $8.9 billion," the report said.

The government's new measures, already introduced for 2016, havelowered the income-tax rate to 20.5 per cent, from 22 per cent, onpeople earning between $45,282 and $90,563 per year.

To help pay for that change, Ottawa added a 33 per cent tax rateon income earned by those who make more than $200,000 per year the top one per cent.

Previously, the highest tax rate in the country was the 29 percent bracket, which applied to incomes between $140,388 and $200,000.

Tax change a revenue drain

Last month, Finance Minister Bill Morneau said the revenue costof the changes would be $1.4 billion in 2016-17 a shortfall that's projected to rise each year until it hits $1.7 billion in 2020-21.

Finance Minister outlines the changes coming to Income Tax

9 years ago

Duration 1:45

Bill Morneau spoke to reporters just after the close of financial markets Monday

On Thursday, the budget office estimated the net cost of themeasures will have a net drain on the public books of $1.6 billion in 2016-17. That number will creep up each year until it reaches $1.9 billion in 2020-21.

The numbers were crunched after New Democrat finance critic GuyCaron asked the budget office to examine the fiscalimpact of theLiberal tax changes.

He also made a request to the office to explore the potentialrevenue loss if the government were to lower the taxrateto 14 percent for the first bracket, from its current level of 15 per cent.

That bracket covers those who earn up to $45,282 of taxable income about 17.9 million people.

The budget office estimates such a change would have a netreduction on government revenues of $3.7 billion in 2016-17, a figure that would grow annually until it hits $4.4 billion in 2020-21.