Deputy Prime Minister and Minister of Finance Chrystia Freeland takes a few steps in her new pair of shoes from direct-to-consumer footwear company Maguire, with company founders Myriam Belzile-Maguire, second from right, and Romy Belzile-Maguire, right, during a pre-budget photo op in her office in Ottawa on April 15.Justin Tang/The Canadian Press
The federal government will make tax changes in Tuesday’s budget aimed at raising more revenue from wealthy Canadians and certain corporations, according to three sources with direct knowledge of the spending plan.
The tax changes for individuals will affect a group of people smaller than the top 1 per cent of earners, the sources said. They did not provide any details on what income levels would be subject to the tax changes. They also did not specify which sectors would be targeted through the corporate changes.
The Globe is not identifying the sources, because they were not permitted to disclose the plans before the federal budget’s release after markets close on Tuesday.
Finance Minister Chrystia Freeland has hinted at tax hikes such as these during news conferences in recent weeks. She told reporters she had ruled out raising taxes on middle-class Canadians, but declined to comment on the fortunes of corporations and wealthy individuals. The NDP, which has an agreement with the Liberals to support them in the House of Commons, made increasing taxes on corporations a key demand of the government in the current budget.
But as talk of tax increases intensified during the government’s pre-budget rollout, private-sector economists and business groups strongly cautioned against them. Several bank economists have warned that such measures will run counter to the government’s stated goal of boosting Canada’s flagging productivity – a key drag on the country’s economic growth that the Bank of Canada has called an “emergency.”
The new revenue is needed to ensure Ms. Freeland can align $38-billion in new spending and loan announcements with fiscal targets she imposed on her government last fall, which she has since repeatedly said she will abide by.
Those included three specific pledges: the government would keep the size of the deficit for the fiscal year that ended March 31 to below $40.1-billion; lower the debt-to-gross-domestic-product ratio in 2024-25 and keep it on a declining track afterward; and keep annual deficits below 1 per cent of GDP in 2026-27 and beyond.
Much of the budget policy rolled out so far has been under the slogan “fairness for every generation,” a nod to the younger demographics who are the most affected by Canada’s rising cost of living and housing shortage.
Millennials and Gen-Xers delivered Prime Minister Justin Trudeau his last two governments, and he needs to improve his standing with those demographics if he hopes to reverse his party’s fortunes. The Conservatives, under the leadership of Pierre Poilievre, have enjoyed a solid double-digit lead over the Liberals in most opinion polls since August.
On Monday, the Prime Minister underscored the Liberal Party’s focus on younger people in a speech to the Canadian Chamber of Commerce.
“Our country cannot succeed unless young people succeed,” he told the business audience, as he repeated recent promises to deliver a budget that is “fair for every generation,” and a government that will “solve the housing crisis.”
The political push has come with a hefty price tag. Of the $38-billion in new initiatives the government has announced in the two weeks leading up the budget, $17-billion is for loan programs. That figure does not include the $10.7-billion over five years announced last week for a new defence policy.
In September, Mr. Trudeau threatened grocery stores with new taxes if they didn’t bring down prices for consumers.
Those chains, as well as telecom giants, have been a frequent focus of attacks by NDP Leader Jagmeet Singh. He told reporters on Monday that the NDP has two demands for the budget.
“We want to see lower costs for Canadians and we want to see big corporations start paying their fair share,” he said.
David Dodge, a former Bank of Canada governor and former Finance Department deputy minister, expressed strong opposition Monday to tax increases on businesses and wealthy Canadians.
In an interview on CTV’s Power Play with Vassy Kapelos, Mr. Dodge said it is “exactly the wrong thing” to tax the people and corporations that the government needs to make investments that will boost productivity, and ultimately improve wages over the medium term.
“What she’s going to try to do is to do something that will slow down the very investment which is going to raise Canadians’ standard of living over time,” Mr. Dodge said, referring to Ms. Freeland.
He said the move is the wrong economic measure at a moment when Canadian companies are not investing enough, and when the economy already relies too heavily on consumption. Instead, he recommended a consumption tax – which Mr. Dodge said the Finance Minister has already ruled out.
The former central banker said he believes Tuesday’s budget will be the worst in decades. It’s “pointing us in the wrong direction as to how we go about raising the incomes of Canadians,” Mr. Dodge said.
Ms. Freeland pointed out to reporters last week that the Liberals ran in 2015 on a pledge “to ask those at the top to pay a little bit more.”
After that election, the government brought in a mix of personal tax cuts and tax increases, including a 33-per-cent personal income tax rate on individual taxable income in excess of $200,000.
Going into Tuesday’s budget, business leaders were concerned the federal government’s changes would be sweeping in scope. Goldy Hyder, chief executive officer at the Business Council of Canada, said in a report that it was rumoured the government was considering a new levy that “targets Canada’s most successful companies.”
Last year, the Finance Department hit banks and insurers with a surtax on each institution’s profits of more than $100-million. The department forecast that the higher taxes on financial institutions would bring in an extra $2.25-billion over five years.
In this year’s budget, Mr. Hyder and other executives have predicted the government could put new levies on regulated sectors made up of a relatively small number of companies that earn significant profits, including telecoms, energy and pipeline companies and grocery chains.
The Finance Department initially considered a surtax this year on oil and gas producers, which are posting record returns, similar to last year’s levy on financial companies, according to two other sources familiar with the budget process.
The department opted to drop that plan in the face of strong opposition from oil patch executives and the Calgary-based Canadian Association of Petroleum Producers, the sources said.