You’ll all remember that a year ago now, Prime Minister Mark Carney’s income tax cut came into effect.
You remember, right?
Ok, you’re forgiven if you don’t. Many Canadians saw their annual take-home pay increase by $190 — barely making a dent in the ebb and flow of wages, taxes, fees and bills that most households juggle.
Carney has made several forays into the world of tax cuts since he became PM, in the name of easing affordability pressures and reordering the Canadian economy to deal with global disruption.
In addition to the “middle-class tax cut” on income tax, he has also eliminated the carbon tax and the luxury tax on private jets and luxury yachts. He cancelled the Trudeau government’s Budget 2024 proposal to increase the capital gains inclusion rate. In the November budget, he sweetened accelerated capital cost allowances for business. And then he expanded the GST rebate for low-income people.
All of those add up to many billions in foregone revenue. The income tax cut alone costs $27 billion over five years, according to the federal budget.
After a year of tax cutting, the impact on Canadian well-being is worth assessing.
The 25 per cent increase in the GST rebate for low-income people is likely to have the most direct link to affordability.
Meant to help cover the higher costs of groceries and essentials, recipients saw a one-time 50 per cent increase in their GST rebates in June, and starting this month will get a 25 per cent increase for the next five years.
It’s real money going straight into the hands of the very people who need it. The total cost to the federal government is expected to be about $12.4-billion over five years, according to the Parliamentary Budget Office.
Budget 2025’s enhancements to accelerated capital cost allowances are also on point. Dubbed the “productivity super-deduction” that promises to “supercharge growth,” the government rhetoric is undoubtedly over the top. But the measures mirror those in the U.S. and are designed with firm outcomes in mind since companies are only able to claim the writeoffs if they first invest in machinery, equipment or technology.
At a cost of $1.5 billion in foregone tax revenue over five years, it won’t break the bank and stands a reasonable chance at making Canadian companies more competitive with the U.S.
But let’s look at the goals tied to the other tax cuts.
The income tax cut, promised during the heat of the 2025 election campaign in response to a larger promise from the Conservatives, was ostensibly to “make life more affordable.” That’s a very vague deliverable for $27 billion.
The cancellation of the proposed hike in the capital gains inclusion rate — one of the first things Carney did when he became PM in March 2025, at a cost of $17 billion over five years — was meant to “catalyze” private investment.
Is that happening? Hard to tell.
There are many factors at play when it comes to business investment, and the federal government has introduced a range of multibillion-dollar funds and incentives to reverse Canada’s slump. So far, business sentiment has deteriorated, and while investment intentions seem to be on the rise, the Bank of Canada traces that back to higher oil prices spurring on investment in the Prairies.
And let’s not forget why the Trudeau Liberals wanted to raise the capital gains inclusion rate to begin with — to ensure that wealthy Canadians face a marginal rate on their capital gains that is similar to what middle class workers pay on their wages. Instead, the wealth gap has grown.
The policy motivation behind the cancellation of the carbon tax (and its related rebates for households) is the most intriguing of Carney’s tax moves to date because it implicitly recognizes that taxation is a contract between a government and its citizens that needs to be bonded by trust and mutual understanding.
The prime minister was blunt in his recent 17-minute video to Canadians. He said the carbon tax, which was the central plank of Justin Trudeau’s climate strategy, needed to go because the federal government didn’t have the trust of Canadians on its side.
“That plan was not sustainable over the long term,” Carney says. “It would have been too divisive for our country.”
The tax-and-rebate system was initially designed to be fiscally neutral, so cancelling it may not have big fiscal implications. But it will have implications for greenhouse gas emissions and the price of carbon, begging for a new policy solution.
Taken together, Carney’s tax-cut package is a story half-told.
He has cut taxes numerous times, for a range of political reasons. And while the tax cuts may be popular, their policy outcomes are nebulous at best.
The main characters in the other half of the story were on full display this week: multibillion-dollar government commitments to develop infrastructure in British Columbia, build a pipeline in Alberta, negotiate new submarines from a German manufacturer and buy new aircraft.
When Canadians get the bill for all that, they’ll no doubt remember.
