OTTAWA — For many Canadians, 2010 will go down as the year that ended an era of tax relief, modest and brief as it was.
After more than a decade of declining tax rates, the new year brings little in the way of savings for most Canadians as federal and provincial governments cope with a struggling economy and mounting debt.
An analysis by the Canadian Taxpayers Federation shows that only a small fraction of taxpayers — those living in New Brunswick — will realize noticeable savings in 2010.
Other Canadians will be lucky not to pay more taxes.
“The main tax changes for 2010 involve small payroll increases and the HST (harmonized sales tax) in Ontario and B.C.,” said the federation’s national director, Kevin Gaudet.
“Meanwhile, large deficits and rising debt are putting pressures on governments to raise taxes further.”
Most of this year’s tax action is taking place at the provincial level.
Residents of Ontario and British Columbia will realize modest gains, particularly low income individuals, from small tax bracket changes that come into effect Jan. 1.
But middle and upper income taxpayers will see those savings undone, and even turn into losses, when the new harmonized sales tax (HST) comes into effect July 1. The HST will wind up costing consumers more than the combined federal and provincial sales taxes because it will be applied more broadly.
Gaudet estimates the typical Ontario family of four will wind up paying $2,000 more in sales tax annually on goods and services, while in B.C., the pinch will be about half that amount. The key difference is that B.C.’s harmonized tax will not be levied on gasoline.
The provinces don’t regard the HST as a tax increase since it the business sales tax. In theory, any additional cost to consumers should be recouped through lower prices passed on by businesses, although Gaudet is skeptical it will be an even exchange.
The move to the HST, however, represents a major tax saving for businesses in those provinces.
Residents of New Brunswick are the big winners when it comes to tax changes for 2010 and, according to the federation, the only winners in Canada next year.
The federation estimates the reduction in New Brunswick’s tax brackets means an individual earning $60,000 a year will save $488, while a family of four with a single earner making $80,000 will save $922.
That’s welcome news, says the federation, but it notes that the reductions only serve to bring the high-tax province more in line with the national average.
At the federal level, the most significant change is a previously announced reduction in corporate taxes, which fall to 18 per cent from 19 per cent starting Jan. 1.
Meanwhile, the change that will impact most Canadians is the one that will see payments for employment insurance and the Canada Pension Plan increase by $44 for workers making more than $47,200, the result of bracket creep.
Gaudet warns that Ottawa is likely to use real EI premium increases to help bring down the deficit after 2011, something Finance Minister Jim Flaherty has not ruled out.
But CIBC chief economist Avery Shenfeld is not convinced Canadians are in store for a sustained period of tax increases.
Although Ottawa is on track to add $170 billion to the national debt over the next half-decade, Shenfeld thinks Canadians may still be able escape having their pockets picked, at least by Ottawa.
“We have the luxury of having paid down a lot of debt,” he said. “We might be able to afford to run significant deficits for a number of years.”
“The issue is whether, at the provincial level, we might see some jurisdictions reaching for tax increases.”
The taxpayers federation argues that any tax hike is bad, regardless of the size of government deficits. The lobby group contends that lowering taxes increases economic activity, which in turn brings more revenues to government, a controversial idea favoured by conservative economic theorists.
“We would argue if they should do anything, they should get their spending under control and fast, and unfortunately we don’t see any government pushing on that lever,” Gaudet said.
In end-of-year interviews with the media earlier this month, Flaherty suggested there was room to trim from the about $100 billion of the federal budget that goes toward program spending. But he added he was unwilling to touch the bigger part of the budget — transfers that go to provinces for health and education, and to individuals, such as the elderly.