Carney government’s proposed tax cut misses the mark—twice

On Monday, Parliament returns to the House of Commons, and the new Carney government will now attempt to implement the policy agenda it sold to Canadians in this year’s election. The government’s first priority is to follow through on its promise to cut personal income taxes for Canadians—a change that is long-overdue at the federal level. But the proposed cut misses two important considerations that will limit its effectiveness.

Specifically, the Carney government plans to lower the bottom federal personal income tax (PIT) rate (on income up to $57,375 per year) from 15 per cent to 14 per cent. The Liberal election platform suggests this change would reduce taxes for a dual-income family by up to $825 per year.

To be clear, the government should lower the tax burden on Canadians. When you add up all taxes (income taxes, sales taxes, property taxes, etc.) Canadians pay, the average family spends 43.0 per cent of its income on taxes—more than on food, shelter and clothing combined. In other words, taxes are the largest single expense families face.

While the Carney government’s proposed tax cut could help chip away at the staggering tax burden imposed on Canadians, the design of the tax cut (beyond the fact that this tax cut is paid for by borrowed money) limits its ability to improve overall economic growth and prosperity.

First, the proposed tax cut fails to improve economic incentives for many Canadians.

“Marginal” tax rates refer to the rate imposed on the next dollar of income earned. For example, consider an individual who earns $100 in income and owes $15 in total tax. If they are taxed at 20 cents on the next dollar they earn, they experience a 20 per cent marginal tax rate.

A wealth of research shows that marginal PIT rates influence the behaviour of individuals. Indeed, for decisions about whether to work more hours, take a new job that pays more but has a longer commute, become an entrepreneur, or whether to save your money and invest it, marginal PIT rates directly affect the rewards you receive from those decisions.

If the government lowers marginal tax rates, it provides a greater incentive for individuals to choose to engage more in these types of productive activities. As a result, Canadians and the overall economy will be more prosperous.

But by only reducing the PIT rate for the lowest federal tax bracket, the Carney government will lower marginal tax rates for some Canadians but fail to meaningfully reduce tax rates for high-skilled workers in particular. Many Canadians won’t see better incentives to work, save or invest, and the positive effect on the economy from the tax cut will be limited. Put simply, the narrow scope of the government’s proposed tax cut limits its effectiveness at improving incentives and increasing economic growth.

Second, the proposed tax cut does little to improve the competitiveness of Canada’s tax system.

In today’s interconnected world, countries must compete to attract the people (doctors, engineers, entrepreneurs, scientists, etc.) and investment that help improve economic growth and prosperity. While there are many factors that determine how attractive (or unattractive) a country is, lower and more attractive taxes play a big role.

There are many things that make Canada an attractive place to live and work, but our uncompetitively high income tax rates are not one of them. If you compare combined (federal and provincial) marginal PIT rates in every Canada province with those in every U.S. state, Canadians in every province face higher tax rates than Americans in virtually every state, across a variety of incomes.

For example, in 2023 an individual earning $50,000, $150,000 or $300,000 per year (in Canadian dollars) would face a higher marginal PIT rate in every Canadian province than they would in every U.S. state. And Canada is not just uncompetitive with the United States but with other advanced countries worldwide at the top levels of income.

By only reducing a tax rate for the lowest income bracket, the Carney government’s proposed tax cut does little to make Canada a more attractive destination for doctors, entrepreneurs, scientists or other skilled workers. In fact, the rate cut will likely have little to no effect on the decisions of people to move to (or keep living in) Canada. And do little to improve our living standards and prosperity.

As the Carney government works to deliver on its campaign promise to lower personal income taxes on Canadians, it should consider that the current plan does little to meaningfully improve economic incentives and tax competitiveness. Instead, it should consider more ambitious and broad-based tax cuts that affect incentives.

Jake Fuss

Director, Fiscal Studies, Fraser Institute

Grady Munro

Policy Analyst, Fraser Institute

Related Topics:#FraserInstitute #GradyMunro #JakeFuss CanadaTaxRates CarneyTaxCut

Up Next

Ontario government will spend more—for less housing

Don't Miss

Canada is falling apart and our leaders don’t seem to care

Todayville

Todayville is a digital media and technology company. We profile unique stories and events in our community. Register and promote your community event for free.

Follow Author

Most Canadians say retaliatory tariffs on American goods contribute to raising the price of essential goods at home

Alberta / 3 hours ago

Cross-Canada NGL corridor will stretch from B.C. to Ontario

Business / 4 hours ago

B.C. premier wants a private pipeline—here’s how you make that happen

Business

Most Canadians say retaliatory tariffs on American goods contribute to raising the price of essential goods at home

Published on July 12, 2025

Todayville

77 per cent say Canada’s tariffs on U.S. products increase the price of consumer goods
72 per cent say that their current tax bill hurts their standard of living

A new MEI-Ipsos poll published this morning reveals a clear disconnect between Ottawa’s high-tax, high-spending approach and Canadians’ level of satisfaction.

“Canadians are not on board with Ottawa’s fiscal path,” says Samantha Dagres, communications manager at the MEI. “From housing to trade policy, Canadians feel they’re being squeezed by a government that is increasingly an impediment to their standard of living.”

More than half of Canadians (54 per cent) say Ottawa is spending too much, while only six per cent think it is spending too little.

A majority (54 per cent) also do not believe federal dollars are being effectively allocated to address Canada’s most important issues, and a similar proportion (55 per cent) are dissatisfied with the transparency and accountability in the government’s spending practices.

As for their own tax bills, Canadians are equally skeptical. Two-thirds (67 per cent) say they pay too much income tax, and about half say they do not receive good value in return.

Provincial governments fared even worse. A majority of Canadians say they receive poor value for the taxes they pay provincially. In Quebec, nearly two-thirds (64 per cent) of respondents say they are not getting their money’s worth from the provincial government.

Not coincidentally, Quebecers face the highest marginal tax rates in North America.

On the question of Canada’s response to the U.S. trade dispute, nearly eight in 10 Canadians (77 per cent) agree that Ottawa’s retaliatory tariffs on American products are driving up the cost of everyday goods.

“Canadians understand that tariffs are just another form of taxation, and that they are the ones footing the bill for any political posturing,” adds Ms. Dagres. “Ottawa should favour unilateral tariff reduction and increased trade with other nations, as opposed to retaliatory tariffs that heap more costs onto Canadian consumers and businesses.”

On the issue of housing, 74 per cent of respondents believe that taxes on new construction contribute directly to unaffordability.

All of this dissatisfaction culminates in 72 per cent of Canadians saying their overall tax burden is reducing their standard of living.

“Taxpayers are not just ATMs for government – and if they are going to pay such exorbitant taxes, you’d think the least they could expect is good service in return,” says Ms. Dagres. “Canadians are increasingly distrustful of a government that believes every problem can be solved with higher taxes.”

A sample of 1,020 Canadians 18 years of age and older was polled between June 17 and 23, 2025. The results are accurate to within ± 3.8 percentage points, 19 times out of 20.

The results of the MEI-Ipsos poll are available here.

* * *

The MEI is an independent public policy think tank with offices in Montreal, Ottawa, and Calgary. Through its publications, media appearances, and advisory services to policymakers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.

Business

B.C. premier wants a private pipeline—here’s how you make that happen

Published on July 12, 2025

Todayville

From the Fraser Institute

By Julio Mejía and Elmira Aliakbari

At the federal level, the Carney government should scrap several Trudeau-era policies including Bill C-69 (which introduced vague criteria into energy project assessments including the effects on the “intersection of sex and gender with other identity factors”)

The Eby government has left the door (slightly) open to Alberta’s proposed pipeline to the British Columbia’s northern coast. Premier David Eby said he isn’t opposed to a new pipeline that would expand access to Asian markets—but he does not want government to pay for it. That’s a fair condition. But to attract private investment for pipelines and other projects, both the Eby government and the Carney government must reform the regulatory environment.

First, some background.

Trump’s tariffs against Canadian products underscore the risks of heavily relying on the United States as the primary destination for our oil and gas—Canada’s main exports. In 2024, nearly 96 per cent of oil exports and virtually all natural gas exports went to our southern neighbour. Clearly, Canada must diversify our energy export markets. Expanded pipelines to transport oil and gas, mostly produced in the Prairies, to coastal terminals would allow Canada’s energy sector to find new customers in Asia and Europe and become less reliant on the U.S. In fact, following the completion of the Trans Mountain Pipeline expansion between Alberta and B.C. in May 2024, exports to non-U.S. destinations increased by almost 60 per cent.

However, Canada’s uncompetitive regulatory environment continues to create uncertainty and deter investment in the energy sector. According to a 2023 survey of oil and gas investors, 68 per cent of respondents said uncertainty over environmental regulations deters investment in Canada compared to only 41 per cent of respondents for the U.S. And 59 per cent said the cost of regulatory compliance deters investment compared to 42 per cent in the U.S.

When looking at B.C. specifically, investor perceptions are even worse. Nearly 93 per cent of respondents for the province said uncertainty over environmental regulations deters investment while 92 per cent of respondents said uncertainty over protected lands deters investment. Among all Canadian jurisdictions included in the survey, investors said B.C. has the greatest barriers to investment.

How can policymakers help make B.C. more attractive to investment?

At the federal level, the Carney government should scrap several Trudeau-era policies including Bill C-69 (which introduced vague criteria into energy project assessments including the effects on the “intersection of sex and gender with other identity factors”), Bill C-48 (which effectively banned large oil tankers off B.C.’s northern coast, limiting access to Asian markets), and the proposed cap on greenhouse gas (GHG) emissions in the oil and gas sector (which will likely lead to a reduction in oil and gas production, decreasing the need for new infrastructure and, in turn, deterring investment in the energy sector).

At the provincial level, the Eby government should abandon its latest GHG reduction targets, which discourage investment in the energy sector. Indeed, in 2023 provincial regulators rejected a proposal from FortisBC, the province’s main natural gas provider, because it did not align with the Eby government’s emission-reduction targets.

Premier Eby is right—private investment should develop energy infrastructure. But to attract that investment, the province must have clear, predictable and competitive regulations, which balance environmental protection with the need for investment, jobs and widespread prosperity. To make B.C. and Canada a more appealing destination for investment, both federal and provincial governments must remove the regulatory barriers that keep capital away.