Canadians will vote on Monday, and major national parties have made similar promises to deliver lower taxes, cheaper housing and a stronger Canadian economy.
“All the colours are mushed together,” said Tanya Staples, professor of financial planning at Conestoga College. “Whether you’re orange or red or blue, it’s almost like this prism of colours spinning together. And I think [the parties] realize that that is where most Canadians are.”
Here’s how industry and academic experts told Investment Executive the party’s proposals could affect Canadians’ finances.
Income tax savings
Both the Liberals and Conservatives have proposed to cut the federal income tax rate in the lowest bracket, the former by one percentage point to 14% and the latter by 2.25 percentage points to 12.75%. The cuts could save Canadian couples between $800 and $1,800 a year, but experts say it matters how Canadians spend those savings.
Rather than putting that amount aside for an emergency or for retirement savings, many Canadians will end up spending it, Staples said, which won’t help their overall finances. “We need to be very intentional in how we spend those extra dollars.”
Instead of seeing a larger tax refund as a bonus payday, Scott Sather, president and financial planner at Awaken Wealth Management in Regina, would recommend that his clients contribute it to registered savings accounts, pay down debt or build a legacy for their children.
Canadian investment incentives
The Conservative Party plans to add a $5,000-a-year tax-free savings account (TFSA) top-up for investments in Canadian companies, but most Canadians may not benefit.
Although Canadians have become more conscious of supporting Canadian companies and products, only higher income individuals can afford to make additional investments through their TFSA accounts, Staples said.
Of the 17.8 million TFSA holders, only 1.5 million people maxed out their accounts for the 2022 contribution year, according to Statistics Canada.
Still, the Tories’ TFSA proposal and their proposed deferral of capital gains if the proceeds are reinvested into Canadian companies, will help keep investments in Canada, Sather said.
While he’s not a fan of content rules in registered accounts, like the one that limited foreign content in RRSPs until 2005, Sather believes lots of clients will take advantage of the additional room. For example, a retiree selling a cottage could invest their capital gains into Canadian equities to avoid immediate tax consequences.
RRIF minimum withdrawal rules
The federal government has reduced minimum withdrawal requirements from registered retirement income funds (RRIF) in the past — for the 2008 financial crisis and the Covid-19 pandemic. If re-elected, the Liberal Party has promised to do it again for a period of one year in light of the trade war with the U.S.
At the same time, the Conservatives promised to raise the mandatory RRIF conversion age from 71 to 73.
As retirees live longer, many financial advisors design plans for a client to live up to 100 years old, Staples said. “If they have done well saving and preparing for themselves, why do we force them to take out more than they need other than to collect the tax revenue that it generates?”
Sather also said RRIF withdrawals “definitely” need a review, but he favoured the Tories’ more permanent plan over the Liberals’ temporary fix. “[The Liberals’ plan] is just a short term gut reaction to what’s happened with the market.”
Macroeconomic impact of spending cuts
While the Liberal Party and the NDP’s spending plan over the next four years will both add to the federal deficit, the Conservative Party’s cuts will shrink government spending if the economy grows at an optimistic rate.
The Liberals promised $129 billion in new spending while the Conservatives estimated $29 billion in program savings.
The nearly $160-billion difference in spending could mean fewer public programs, poorer infrastructure and a lower quality of services, Staples said. And with our country at risk of a recession during a trade war with our largest trading partner, it’s not the right time for the government to drastically cut spending, she added.
Under normal circumstances, it would be prudent for a government to balance spending, Francisco Remolino, a bankruptcy trustee and principal at Remolino & Associates, said. But we’re not living under normal circumstances, he said, adding it’s hard to predict how the trade war will impact our economy.
Social supports
Everyone wants to pay less taxes, but low taxes have little impact on low-income Canadians whose income may not even exceed the bottom tax bracket, Remolino said.
As poverty alleviation measures, the Bloc Québécois wants to increase Old Age Security payments by 10%, the NDP plans to boost the Guaranteed Income Supplement and the Liberals promised to double the Canada Disability Benefit.
Social supports like these provide vulnerable populations with some income to get back on their feet, Remolino said. “If those promises turn into policies that are sustainable in the long term, [it would be] perfect.”
Wealth tax unlikely
The NDP (and the Green Party) want to implement a wealth tax for Canadians with over $10 million in assets. The NDP estimated this measure would earn the government $25.1 billion per year by the 2028-29 fiscal year.
Remolino supports the idea of the wealth tax and said that it can translate into benefits for the less fortunate. While the NDP has championed a wealth tax before, turning the proposal into policy has been challenging.
A wealth tax is unlikely to materialize in Canada as it could trigger capital flight, Staples said. In addition, many small business owners in Canada also rely on their businesses as retirement plans, and the government should provide incentives to help them save for retirement instead.
Vote on taxes?
The Conservative Party said it wants any new tax increases to be put to a referendum.
However, tax issues aren’t “fundamental” for a nation, unlike language rights, Staples said. “I don’t think of tax hikes being referendum worthy.”
While Sather supports the idea of reduced government spending and lower taxes, he said he wouldn’t trust all his neighbours to make tax policy decisions. “We’ll see how this election turns out, that’ll tell us how my neighbours are doing,” he said.
The usual parliamentary process for passing laws seeks the opinion of experts and discusses issues in committee before a bill is tabled.
“We know that financial literacy is a serious issue in this country. Do Canadians have the skillset to make that decision? I don’t know,” Staples added.