Tax cuts made during the Williams-Dunderdale era now cost the government $744 million in revenue each year, according to a recently released document from the Department of Finance obtained through an access to information request. This accounts for more than two-thirds of last year’s $1.1 billion budget deficit.
Estimates of the total cost of these tax reductions have been made before (here, here, here), but to my knowledge this is the first time the Department of Finance has released detailed accounting for how much each specific tax cut costs the treasury.
About three quarters of the money went to cut Personal Income Taxes, accounting for $568 million per year in lost revenue. That is a huge amount, equal to almost half of total personal income taxes collected last year. Tax rates were cut at all income levels, but the biggest benefits went to those with the most income, both in dollar terms and in percentage terms. For example, someone making $40,000 received a tax cut of about $900, worth 2 per cent of income, whereas someone making $100,000 received a tax cut of about $4,000, worth 4 per cent of income.
Budget 2015 did introduce small tax increases on people with high incomes, but this is only expected to bring in $20 million in new revenue, less than 4 per cent of what was cut.
A Retail Sales Tax (RST) of 15 per cent on insurance premiums was eliminated in 2008, costing the government $75 million per year. Most provinces do not charge RST on insurance premiums, but Ontario, Quebec and Manitoba still charge between 7 and 9 per cent.
The Residential Energy Rebate (an HST rebate on electricity and heating oil) cost $47 million per year. This rebate was eliminated in Budget 2015.
Senior’s Benefits were expanded repeatedly, in 2004, 2007, 2008, 2010, and 2014, adding up to $25.5 million per year in tax expenditures.
The tax cuts listed above account for 95 per cent of total tax and fee cuts from 2004 to 2014. The full list of cuts is available here.
It is natural to ask: if government slashed income taxes when times were good, shouldn’t they be raising them when times are bad, instead of hiking the HST? I support the HST hike, but when combined with earlier cuts it leaves our tax system less progressive than it was a decade ago, and less progressive than most other provinces.
Our budget problems are not going away anytime soon, so future tax increases will almost certainly be necessary. Raising income tax rates for the rich and upper middle class is something we should be talking about.