Will Trudeau tank the economy?

Plus four other financial questions about the Liberal majority

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Online only.

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It’s official. The Canadian population vote to give the Liberals a majority government. It’s a resounding victory for Justin Trudeau, who will become the second youngest Prime Minister in Canadian history, and the first to follow a parent into the office. 

“The Canadian population spoke very loudly and firmly endorsed the Liberal party and by proxy the Liberal platform,” said Craig Alexander, vice president of economic analysis at C. D. Howe Institute. He says by proxy because “some votes were not based on party platforms or the economic policy offered in those platforms.” Historically, the Canadian voting public simply seeks change after a long government term and the Harper Conservatives had been in power for the better part of 10 years. “Plus, the Conservative platform this election offered little more than the status quo,” said Alexander.

But today, even as the cups are still being cleared, the halls swept and shoulders cried upon, many of us are grappling to figure out what impact a regime change might have on ordinary Canadians. Here are five questions we’re left wondering now that we know Harper’s on his way out, and Trudeau’s on his way in.

Is the economy screwed?

Probably not. The change in government shouldn’t be cause for worry either domestically or internationally. “From a fiscal point of view, the Liberal government will be moving Canada from a modestly restrictive economy to an economy with modest stimulus,” says Alexander.

Part of that spending plan is to invest in infrastructure, most of which was put into place in the 1960s and 1970s and is causing fiscal challenges at all levels of government. Alexander believes that by updating outdated infrastructure (which includes bridges, sewers and even hydro facilities) the Liberals could help reduce a bottleneck in the Canadian economy.

It’s one reason why Alexander is confident the $10-billion budget surplus spending the Liberals have promised, won’t impact the overall valuations of the Canadian economy. “Analysts also look at how fast the economy is growing, along with the budget deficits, and even with the modest Liberal spending, the debt to GDP will continue to decline, meaning international investors won’t get too worried as a result.”

Am I going to pay more taxes?

That depends. Are you part of the middle class? I mean, are you really part of the middle class? One way the Liberals promised to help average Canadians is to make the federal tax system more progressive. By raising the marginal tax rate to 33% on those earning $200,000 or more, the Liberals were clear that higher-income Canadians will be shouldering more fiscal responsibility for Canada’s social network—about 4% more.

Alexander says the policy is in line with how the nation’s economy has evolved in the last few decades. “The reality is the labour force is slowing down, due to demographics, and this slows the pace of income growth,” he says. “In the 1990s, income growth was around 3%, now the new norm is around 1.7%.” By creating a new tax bracket—while reducing the marginal tax rate from 22% to 20.5% for middle income earners between $44,700 and $89,401 a year—the Liberals are trying to rebalance disposable income levels in all tax brackets.

Are my TFSA savings safe?

Yes, they’re safe. The Liberals campaigned on a promise to roll-back the TFSA contribution limit from $10,000 to $5,500 (indexed to inflation), starting in 2016.

“I don’t believe the Liberals will make this change in 2015, as there would be too much confusion in the marketplace,” says Pramod Udiaver, CEO of online advisor service Invisor. That means investors will probably have until Dec. 31, 2015 to maximize their $10,000 contribution limit for 2015. “The TFSA was good for savings,” said Udiaver, “but it really only helped higher income earners and retirees, particularly those who needed to manage mandatory RRIF withdrawals.” Still, anything Canadians have socked away in their TFSA to date should remain protected. 

“Canadians do need to save more for retirement,” said Alexander, “but those in higher incomes will continue to maximize use of all tax shelters, including TFSAs and RRSPs.”

What to do with your TFSA (before Trudeau trims it) »

Does an updated CPP mean no ORPP?

It looks that way. Ontario voters who were adamantly against Premier Kathleen Wynn’s Ontario Retirement Pension Plan (ORPP) can breathe a big sigh of relief today. According to Wynn, she would scrap her proposed ORPP if the Liberals were elected into federal office. The reason: Trudeau pledged to reform the national Canada Pension Plan.

Still, Udiaver believes that all Canadians shouldn’t become too reliant on the national program. At current levels, he says the maximum payout a Canadian can expect is roughly $12,000 per year, with the majority of retirees getting an average of $7,300 per year. “Even if CPP is enriched, my advice is for all Canadians to create a savings plan and keep saving in their own retirement portfolio.”

Will middle-class families really come out ahead?

That’s a bit more complicated, but there should be more benefits for middle-class parents. The Liberals promised to scrap the Universal Child Care Benefit and introduce the Canada Child Benefit. This new benefit will be geared to income, meaning that Canada’s wealthiest families would no longer receive a benefit, while Canada’s middle-class parents could see as much as $2,500 more, tax-free, every year (based on a typical family of four).

The Liberals also promised to create a more flexible parental benefits plan that would allow parents to receive their benefits in smaller blocks of time—for example, once every two weeks rather than once per month. Parents would also have the option of taking a longer leave—up to 18 months when combined with maternity benefits (although at a lower benefit level).

For parents of university-aged children, the Liberals campaigned on a promise to increase the maximum Canada Student Grant to $3,000 per year for full-time students ($1,800 per year for part-time students). They also promised to increase the income thresholds for Canada Student Grant eligibility, giving more students access to the program. While, the Liberals will cancel existing textbook tax credits they also promised to eliminate the need for graduates to repay their student loans until they are earning at least $25,000 per year.

—An earlier version of this article misstated, at one point, the amount of budget surplus spending the Liberals have promised as well as the proposed changes in the tax rate for middle-income earners. It is $10-billion, not $10-million and the tax rate change is from 22% to 20.5%, not 22.5% to 20%.—

9 comments on “Will Trudeau tank the economy?

  1. You mean the 10 billion not 10 million in budget surplus spending

    Reply

    • Thank you for catching that. We have fixed the error.

      Reply

  2. Does an updated CPP mean no ORPP?
    No it does not.
    “Wynne said she’s willing to work with Trudeau and the other premiers on retirement security, but will continue with her plan for a provincial pension plan until the federal Liberals make good on their pledge to enhance the Canada Pension Plan (CPP).”

    Reply

  3. The proposed tax bracket change is from 22% to 20.5%. Your article states it’s going from 22.5% to 20%.

    Reply

    • Thanks for catching that. We have corrected the error.

      Reply

  4. Those with RRSP’s, RRIF’s, LIRA’s, LRIF’s, rental properties, vacation properties, having capital gains, recapture of many decades added back as income at time of sale or death, all registered accounts at time of death or transfer to children and other non-spouses that are above $200,000 will pay dearly.

    Just in the last few years, in Ontario, there is an extra 2.00% on $150,000 to $220,000 which is $1,400 Ontario income taxes from $220,000 to $514,090 will be another 3.12% which is 2.00%+1.12% Ontario surtax equals $9,175.56 more income taxes. Assuming a $800,000 RRSP, RRIF, LIRA, LRIF, capital gains from various rental properties, recapture of depreciation etc. this would mean another $8,920.39 additional income taxes.

    Now, add Trudeau’s 4% additional income tax rate above $200,000, it would be another $24,000 federal income taxes. So a total of $42,865.95 n extra Liberal income taxes.

    Remember, this is just the additional income taxes not all the income The total income taxes are around $323,000 from $150,000 to $800,000 and another $42,500 from $11,000 to $150,000, first $11,000 is not taxed for every person. So a grand total of $408,365 in total Ontario, federal income taxes.

    This works out to 51.045% gone in total income taxes fro Wynne and Trudeau’s tax policies. More is coming and on the way. Yes, change will be left in their pockets. If you add the total lost in OAS as well, another $13,600 then it is $421,965 total income taxes or 52.75%. The government gets more then your family and yourself.

    This does not even include other healthcare, medical benefits that are in the tens of thousands like Trillium which in this case would amount to about $35,000 in that year, they lose and pay more for in Ontario. This now brings it to $456,965 or 57.12% gone to the tax man.

    Reply

    • Your right about Wynne’s Libs Jack!They changed the provincial law to make estates a far greater tax and bureaucratic nightmare than before.

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  5. My income tax will prob. not increase with Trudeau,but there are a whole bunch oother tax increases coming our way,everything from more payroll taxes to a new carbon tax,not to mention the increased costs of servicing the national debt after Justin run three years of deficits.I shudder to think of it all !

    Reply

  6. Get ready for the Trillion Dollar Debt Club. Sunny Ways Indeed!

    Reply

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