Liberals not helping the middle class
The Liberals have made the middle class the focus of their government, at least as far as their communications strategy goes. But as we head into their second budget, Canadians at the middle of the income distribution could be forgiven for being puzzled. Although it has been the primary focus of the Liberals’ message, the middle class hasn’t actually been the primary focus of policy attention.
There have always been some odd elements to the Liberal government’s messaging about the middle class, mainly to do with its reading of recent Canadian economic history. For example, there was the story told during the campaign of a time when people came of age in an economy where incomes had been rising, only to be disappointed in adulthood by stagnant or declining incomes in an unforgiving labour market. This is a powerful narrative, but it’s not particularly representative of Canadians’ experience — at least, not anymore. The people for whom it would resonate most are in their sixties: these people grew up during the long post- war boom and then had to deal with stagnant and declining incomes during the 20 years spanning 1975-1995. But the workers who entered the labour force during these years certainly aren’t nostalgic for the labour markets of their youths.
Another odd thing is how the last 10 or 15 years are glossed over in the Liberal narrative. Talk of a middle class in crisis is hard to square with a recent past of broadbased income gains across the in- come distribution and of declining top- end income concentration. ( Although it is easier to understand as a partisan refusal to acknowledge the possibility that any positive developments might have occurred under a Conservative government.)
But these are, for the most part, distractions. There are still good reasons to be preoccupied with the welfare of middle-income Canadians, if only because much the damage incurred by the ravages of the 1975-1995 lost generation has yet to be repaired, even after the recent gains. A more serious concern is the implied lack of interest in the welfare of lower-income Canadians, whose incomes also suffered during 1975-1995. Sometimes a rhetorical fig-leaf is added to the Liberal message (“the middle class and those who would like to join it”), sometimes it is not.
Messaging — muddled as it may be — is one thing. What about policy? The first place to start is the “middle- class tax cut” introduced in last year’s budget: a reduction in the tax rate applied on the middle income tax bracket. To be more specific, the tax rate for the tranche of income between $ 45,282 and $ 90,563 ( these are for the 2016) has been reduced from 22 per cent to 20.5 per cent. The maximum tax reduction — for someone with taxable income of at least $ 90,563 — is about $ 680. It’s not a huge amount, but it’s not nothing, either.
It’s also not for the middle class. According to the tax data published by the Canada Revenue Agency, only the top one- third of tax filers in 2015 would have benefited from a reduction in the tax rate on the second bracket. This proportion increases to about onehalf if you set aside tax files with no taxable income (that is, people who mainly file in order to be eligible for benefits), but this would be a difficult point to make for a government that places value on being inclusive.
So the tax cut for the median tax filer — someone reporting total incomes somewhere around $ 45,000 — is either negligible or non- existent. On the other hand, someone with taxable incomes three times as large receives the maximum benefit. In both absolute terms and as a per cent of income, someone earning $ 150,000 gets more than someone making $ 50,000. It’s not really a middleclass tax cut — more like an uppermiddle-class tax cut.
The other big feature of the 2016 budget — the Canada Child Benefit — was a good idea for many reasons. But since middleincome earners without children under 18 aren’t eligible, it’s hard to view the CCB as a measure for the middle class as such.
For middle- income Canadians, the most important policy change has probably been the expansion of the Canada Pension Plan. This is almost certainly a good thing — middle earners were the group that were least well- served by the existing system. But CPP expansion doesn’t actually redistribute income towards the middle — the expanded benefits are financed by increased contributions. It is unlikely that middle-class retirees will regret being forced to save more for their retirements, but increased retirement benefits do come at the cost of lower disposable incomes while they are working. ( The Working Income Tax Benefit is scheduled to be adjusted to compensate lower-income Canadians for their increased contributions.)
If the pre- budget messaging is anything to go by, this focus of the 2017 budget will be on innovation and economic growth, with a generous dollop of verbiage about the middle class. But to the extent that these measures involve new spending, the middle class isn’t likely to see much of it. The people who will benefit directly from new spending on innovation are likely to be well- educated and probably already making a decent living — the sort of people who might have done pretty well from the tax cut on upper-middle-class incomes.
“Do not tell me what you value”, former U. S. vice- president Joe Biden used to say, “show me your budget and I’ ll tell you what you value.” Middle- income Canadians may take comfort in the Liberal message, but this messaging hasn’t yet resulted in policies to increase median incomes. At some point, middle- class Canadians may start to wonder when the Liberal message will finally be backed up with cash.