The Liberal government is making good on its election vow to cut federal income taxes for middle earners by raising the rate on the richest Canadians. However, it now acknowledges the tax tweaks, introduced in a motion in parliament, won’t be revenue-neutral. Bill Morneau, the federal finance minister, says that an array of new tax adjustments will have an annual net drain on the federal treasury of about $1.2 billion in each of the next five years, starting in 2016-17. The headliner of the new measures is the one to lower the income tax rate to 20.5 per cent, from 22 per cent, on Canadians earning between $45,282 and $90,563 per year. To help offset that change, the Liberals have added a 33 per cent tax rate on income earned by Canadians in the top one per cent — those who make more than $200,000 per year. Previously, the 29 per cent tax bracket, which applies to incomes between $140,388 and $200,000, was the highest tax rate in the country. In its election platform, the Liberals estimated the tax increase on the top earners would only fall short of covering the full cost of the tax cut by less than $100 million per year. But the numbers were adjusted after an evaluation by the finance department found the projected revenues of the Liberal promise were off the mark. The net cost of the changes is $1.4 billion in 2016-17, a shortfall that’s projected to rise each year until it hits $1.7 billion in 2020-21. About 319,000 Canadians will reach the upper tax echelon.
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