En raison de la grève de Postes Canada, il y aura un délai dans la livraison des livres.

FREE Membership Sign in

JavaScript is disabled in your browser.

In order visualise this page, please follow these steps.

Think tank says taxes should be indexed to consumer price index to decrease burden

Visibility360, PDF version to share

By Mehreen Shahid | Sept. 4, 2023, 10:50 a.m.

A recent C.D. Howe Institute report says people are already hurting due to inflation, and taxes shouldn’t worsen the situation for them.

“Money losing its purchasing power hurts on its own, but tax provisions that ignore inflation can multiply the pain for earners, savers, and recipients of benefit programs as well,” says the report, entitled Double the Pain: How Inflation Increases Tax Burdens.

Automatic increases in line with the consumer price index (CPI) are better than ad hoc changes, which governments often present as tax relief, even if they leave taxpayers no better off, say the experts.

The year-over-year CPI increase rose above the Bank of Canada’s two per cent target in March of 2021 and hit a four-decade high of eight per cent in June of 2022, says the report.

The continued return to a target two per cent by summer of 2025 implies substantial loss of the dollar’s purchasing power by then – specifically 15 per cent since March of 2021, write the experts.

“The federal government indexes most of its tax credits and benefits to the CPI, but not all,” says the report. “The pension income credit, and the maximum tuition credits that tax filers can transfer to spouses or parents do not rise with the price level. Nor, notwithstanding ad hoc increases, does the First-Time Home Buyers’ Tax Credit.”

Individuals investing in tax-recognized accounts, such as defined-contribution pension plans and registered retirements savings plans (RRSPs), do not have to worry about inflation affecting returns inside their plans, since these plans are tax-deferred, experts say.

“But when the tax becomes payable upon withdrawal, inflation can worsen the burdens in ways beyond those already discussed,” they add. “Inflation has the effect of front-loading the real value of annuity or RRIF (registered retirement investment fund) withdrawals. That can subject their recipients to higher tax rates early in retirement than would occur if they had an inflation-indexed annuity that provided equal cumulative value throughout their retirements, increasing the risk of poverty in old age.”