Tax adjustments will cost more than Liberals expect

OTTAWA — The federal budget watchdog says the Liberals’ tax-bracket changes will drain on average about $100 million more per year from the public treasury than the government expects.

The Liberals fulfilled their campaign vow to cut federal income taxes for middle-income earners by raising the rate on the highestearning Canadians.

The Liberals initially projected the adjustments, which include the creation of a new upper bracket, to be revenue neutral. But last month they said the plan will lower government revenue by more than $8.2 billion over six years. The parliamentary budget office now says that figure will be $8.9 billion.

The budget office’s calculations made assumptions on how those at different income levels might respond to the changes.

The report released Thursday says some people may adjust how much they spend, while those in the highest bracket may take steps to lower their tax payments.

“Between 2015-16 and 2020-21, the revenue gains from the new tax rate would fall short of covering the loss in revenues from reducing the rate on the second tax bracket by an estimated $8.9 billion,” the report said.

The government’s new measures, already introduced for 2016, have lowered the income tax rate to 20.5 per cent, from 22 per cent, on people earning between $45,282 and $90,563 per year.

To help pay for that change, Ottawa added a 33-per-cent tax rate on income earned by those who make more than $200,000 per year — the top one per cent.

The highest tax rate in the country used to be the 29-per-cent bracket, which applied to incomes between $140,388 and $200,000.

The budget office estimated the measures will have a net drain on the public books of $1.6 billion in 2016-17.