Newly elected Canadian Prime Minister, Justin Trudeau has been bedazzling world leaders recently with his good looks and youthful bonhomie. But will the Liberals work similar magic on the Canadian economy with their fiscal plans? I fear not. To its credit, the new Government is delivering on its central tax pledge, to cut income tax for those in the middle and hike tax for those at the top. But one recent study suggests that far from raising extra revenue — money intended to subsidize the middle class tax cut — the plan to shift the tax burden to top earners could actually cost federal and provincial governments. The C D Howe Institute’s Alexandre Laurin, the author of the report, said: “The Liberal election platform said that these changes would be more or less revenue neutral, however we estimate the federal tax changes could result in national tax receipts falling short of commitments for both federal and provincial levels of government by more than CAD4bn (about USD3bn), meaning higher taxes elsewhere, unplanned spending cuts, or larger increases in government debt.”

C D Howe might be proved wrong of course. But hiking top rates of individual income tax, popular though such measures are with the public, doesn’t necessarily lead to higher revenues, as has been shown in other countries. Indeed, in the UK it is widely accepted that the much-maligned former 50 percent tax may have led to lower tax receipts because the rich merely shifted their income into more tax-efficient vehicles, or simply worked less. Justin Trudeau may have to learn pretty fast that populist policies aren’t necessarily the best policies.

For more information on this, and other topical international tax matters, please visit: https://www.cchgroup.com/roles/corporations/international-solutions/research/global-tax-weekly-a-closer-look

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